<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ______________
COMMISSION FILE NUMBER 000-23401
GAMETECH INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0612983
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2209 W. 1ST STREET, SUITE 113, TEMPE, ARIZONA 85281
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (602) 804-1101
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
On June 10, 1999 the registrant had outstanding 11,376,164 shares of
its Common Stock, par value $.001 per share.
<PAGE>
GAMETECH INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page No.
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
April 30, 1999 and October 31, 1998 ............................................ 3
Condensed Consolidated Statements of Operations
Three Months Ended April 30, 1999 and 1998 ..................................... 4
Six Months Ended April 30, 1999 and 1998 ...................................... 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended April 30, 1999 and 1998 ...................................... 5
Notes to Condensed Consolidated Financial Statements ............................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .........................................................10
Item 3. Market Risk Disclosure ............................................................14
Part II. Other Information
Item 1. Legal Proceedings .................................................................16
Item 2. Changes in Securities and Use of Proceeds .........................................17
Item 6. Exhibits and Reports on Form 8 - K ................................................18
Signatures ..................................................................................19
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GAMETECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1999 1998
-------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and equivalents $ 3,145 $ 21,485
Short-term investments 13,193 4,102
Accounts receivable, net 3,064 1,677
Other current assets 1,703 1,069
-------------- ----------------
Total current assets 21,105 28,333
Bingo units, furniture and equipment, net 20,930 12,496
Intangible assets related to acquisition, net 18,820 -
Other assets, net 2,449 1,648
-------------- ----------------
Total assets $ 63,304 $ 42,477
-------------- ----------------
-------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Short-term borrowings from bank $ 5,916 $ -
Accounts payable 1,050 325
Other current liabilities 4,595 410
Current portion of long-term debt 1,381 338
-------------- ----------------
Total current liabilities $ 12,942 $ 1,073
Non-current accrued liabilities 2,962 -
Long-term debt obligations 4,065 515
Deferred income taxes 567 567
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value: 40,000,000 shares
authorized; 12,150,664 shares issued and outstanding
in 1999 and 10,126,226 in 1998 12 10
Capital in excess of par value 43,283 37,117
Retained earnings 2,341 6,005
Less: Treasury stock, 774,500 shares in 1999 and
755,400 shares in 1998, at cost (2,868) (2,810)
-------------- ----------------
Total stockholders' equity 42,768 40,322
-------------- ----------------
Total liabilities and stockholders' equity $ 63,304 $ 42,477
-------------- ----------------
-------------- ----------------
</TABLE>
See notes to financial statements.
3
<PAGE>
GAMETECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
1999 1998 1999 1998
--------------------------------- ------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 11,345 $ 3,899 $ 15,879 $ 7,855
Operating expenses:
Cost of revenues 3,014 1,270 4,670 2,404
General and administrative 2,309 817 3,182 1,576
Sales and marketing 3,405 667 4,244 1,150
Research and development 274 89 485 275
------------- ------------ ------------- -------------
9,002 2,843 12,581 5,405
------------- ------------ ------------- -------------
Income from operations 2,343 1,056 3,298 2,450
Acquisition one-time write-offs (7,498) - (7,498) -
Equity in net loss of affiliate - - - (2,000)
Interest income, net 58 419 367 420
------------- ------------ ------------- -------------
Income (loss) before provision for income taxes (5,097) 1,475 (3,833) 1,075
Provision for (benefit from) income taxes (662) 576 (169) 420
------------- ------------ ------------- -------------
Net income (loss) $ (4,435) $ 899 $ (3,664) $ 655
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
Basic net income (loss) per share $ (0.40) $ 0.09 $ (0.36) $ 0.07
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
Diluted net income (loss) per share $ (0.37) $ 0.08 $ (0.33) $ 0.06
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
Shares used in the calculation
of net income (loss) per share:
Basic 11,121,148 9,853,539 10,246,517 9,047,500
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
Diluted 11,985,705 11,096,195 11,060,694 10,583,646
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
</TABLE>
See notes to financial statements.
4
<PAGE>
GAMETECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
-------------------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (3,664) $ 655
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,608 1,012
In-process research and development 3,000 -
Accrued interest payable to officers - 13
Equity in net loss of affiliate - 2,000
Changes in operating assets and liabilities:
Accounts receivable, net 23 (506)
Other current assets (434) (743)
Accounts payable (24) 104
Other current liabilities 1,626 (318)
--------- ---------
Net cash provided by operating activities 3,135 2,217
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in short-term investments (9,091) -
Capital expenditures for bingo units, furniture and equipment (3,385) (2,626)
Purchase of common stock of Bingo Technologies,
net of cash acquired (9,790) -
Investment in and advances to affiliate - (1,474)
Capitalized software development costs (90) (126)
--------- ---------
Net cash used in investing activities (22,356) (4,226)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings from bank 5,916 -
Payments on short-term notes payable and borrowings from bank (4,718) (550)
Payments on long-term debt (191) (2,866)
Payments on repurchase of distributorship (169) (285)
Proceeds from sales of common stock 101 33,363
Payments for repurchase of common stock for treasury (58) -
--------- ---------
Net cash provided by financing activities 881 29,662
--------- ---------
Net increase in cash and equivalents (18,340) 27,653
Cash and equivalents at beginning of period 21,485 1,020
--------- ---------
Cash and equivalents at end of period $ 3,145 $ 28,673
--------- ---------
--------- ---------
</TABLE>
See notes to financial statements.
5
<PAGE>
GAMETECH INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999
(UNAUDITED)
1. NOTES TO FINANCIAL STATEMENTS
NOTE A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three- and
six-month periods ended April 30, 1999 are not necessarily indicative of the
results that may be expected for the year ending October 31, 1999. For further
information refer to the financial statements and footnotes thereto included
in the Company's Annual Report on Form 10-K for the year ended October 31,
1998.
6
<PAGE>
NOTE B. NET INCOME (LOSS) PER SHARE OF COMMON STOCK
Net income (loss) per share of common stock is computed in
accordance with Statement of Financial Accounting Standards (SFAS) No. 128,
which is effective for reporting periods ending after December 31, 1997. SFAS
No. 128 requires the restatement of prior periods' earnings per share to
conform to the new standard. Presented below is a reconciliation of net
income available to common shareholders and the differences between actual
weighted average shares outstanding, which are used in computing basic
earnings per share and diluted weighted average shares, which are used in
computing diluted earnings per share.
<TABLE>
<CAPTION>
(In thousands, except share and per share amounts)
Three months ended April 30, Six months ended April 30,
1999 1998 1999 1998
------------------------------ -------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ (4,435) $ 899 $ (3,664) $ 655
------------- ------------ ------------ -------------
Numerator for basic earnings (loss) per share (4,435) 899 (3,664) 655
Effect of dilutive securities:
After-tax interest on convertible notes payable - - - 8
------------- ------------ ------------ -------------
Numerator for diluted earnings loss per share
- income available to common stockholders
after assumed conversions $ (4,435) $ 899 $ (3,664) $ 663
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
Denominator:
Denominator for basic earnings (loss) per share
Weighted average shares 11,121,148 9,853,539 10,246,517 9,047,500
Effect of dilutive securities:
Stock options 864,557 1,242,656 814,177 1,271,015
Convertible preferred stock - - - 65,218
Convertible notes payable - - - 199,913
------------- ------------ ------------ -------------
Denominator for diluted earnings (loss) per share 11,985,705 11,096,195 11,060,694 10,583,646
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
Basic earnings (loss) per share $ (0.40) $ 0.09 $ (0.36) $ 0.07
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
Diluted earnings (loss) per share $ (0.37) $ 0.08 $ (0.33) $ 0.06
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
</TABLE>
NOTE C. ACQUISITION OF BINGO TECHNOLOGIES CORPORATION
On February 8, 1999, the Company acquired 100% of the common stock of
Bingo Technologies Corporation. The purchase price of approximately $20.7
million, including transaction costs of $1.2 million, consisted of $9.8
million of cash, $4.6 million of unsecured promissory notes payable and the
issuance of 1,866,938 shares of Common Stock. The acquisition included, among
other things, intangible assets of approximately $19.5 million that the
Company expects to amortize over a twelve-year period. Additionally, the
Company recorded a $3.0 million charge to operations as in-process research
and development.
The pro forma unaudited results of operations for the three and six
month periods ended April 30, 1999 and 1998, assuming consummation of the
purchase as of November 1, 1998 and November 1, 1997, respectively, are
included in the tables below. The historical operating results set forth
below include the historical combined results of the Company and Bingo
Technologies. The adjustments made to the combined historical results consist
principally of: 1) additional amortization of the intangible assets
associated with the acquisition, 2) eliminated legal fees incurred by
GameTech and BTC relative to patent infringement litigation against the
Company by BTC, 3) reduced compensation expense resulting from employment
agreements signed in conjunction with the acquisition, 4) reduced interest
income with respect to amounts paid in the acquisition of Bingo Technologies
common stock, 5) elimination of acquisition one-time write-offs and 6) the
income tax effect of the above adjustments.
7
<PAGE>
GAMETECH INTERNATIONAL, INC.
PRO-FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended April 30,
1999 (UNAUDITED) 1998 (UNAUDITED)
------------------------------------ --------------------------------------
Pro Forma Pro Forma
Historical(1) Adjustments Pro Forma Historical Adjustments Pro Forma
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 11,836 $ - $ 11,836 $7,490 $ - $ 7,490
Operating expenses:
Cost of revenues 3,018 - 3,018 2,030 - 2,030
General and administrative 2,402 - 2,402 1,751 229 1,980
Sales and marketing 3,592 - 3,592 2,070 - 2,070
Research and development 288 - 288 274 - 274
----------- ----------- ---------- ----------- ------------ ---------
9,300 9,300 6,125 229 6,354
----------- ----------- ---------- ----------- ------------ ---------
Income from operations 2,536 - 2,536 1,365 (229) 1,136
Interest income, net 82 - 82 409 (192) 217
----------- ----------- ---------- ----------- ------------ ---------
Income before provision for income taxes 2,618 - 2,618 1,774 (421) 1,353
Provision for income taxes 1,177 - 1,177 695 (8) 687
----------- ----------- ---------- ----------- ------------ ---------
Net income $ 1,441 $ - $ 1,441 $1,079 $ (413) $ 666
----------- ----------- ---------- ----------- ------------ ---------
----------- ----------- ---------- ----------- ------------ ---------
Basic net income per share $ 0.13 $ 0.06
Diluted net income per share $ 0.12 $ 0.05
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended April 30,
1999 (UNAUDITED) 1998 (UNAUDITED)
--------------------------------------- -------------------------------------
Pro Forma Pro Forma
Historical(1) Adjustments Pro Forma Historical Adjustments Pro Forma
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 21,992 $ - $ 21,992 $ 14,491 $ - $ 14,491
Operating expenses:
Cost of revenues 5,999 - 5,999 3,755 - 3,755
General and administrative 3,922 (11) 3,911 3,098 291 3,389
Sales and marketing 6,621 - 6,621 3,794 - 3,794
Research and development 734 - 734 618 - 618
---------- ----------- --------- --------- ---------- ---------
17,276 (11) 17,265 11,265 291 11,556
---------- ----------- --------- --------- ---------- ---------
Income from operations 4,716 11 4,727 3,226 (291) 2,935
Equity in net loss of affiliate - - - (2,000) - (2,000)
Interest income, net 266 (67) 199 497 (262) 235
---------- ----------- --------- --------- ---------- ---------
Income before provision for
income taxes 4,982 (55) 4,927 1,723 (553) 1,170
Provision for income taxes 2,099 134 2,233 679 96 775
---------- ----------- --------- --------- ---------- ---------
Net income $ 2,883 $ (190) $ 2,693 $ 1,044 $ (649) $ 395
---------- ----------- --------- --------- ---------- ---------
---------- ----------- --------- --------- ---------- ---------
Basic net income per share $ 0.24 $ 0.04
Diluted net income per share $ 0.22 $ 0.03
</TABLE>
(1) Excludes one-time write-offs of $7.5 million directly attributable to
the acquisition of Bingo Technologies Corporation.
8
<PAGE>
NOTE D. COMMITMENTS AND CONTINGENCIES
LITIGATION
On February 13, 1998, a purported securities class action complaint,
WEISS V. GAMETECH INTERNATIONAL, INC., No. 98-0268 PHX-ROS, was filed in the
United States District Court for the District of Arizona against the Company and
certain officers and directors alleging that defendants violated Section 11 of
the Securities Act of 1933 (the "Securities Act") by making false misleading
statements and omissions in GameTech's Form S-1 Registration Statement in
connection with the Company's public offering on November 25, 1997. Two other
complaints making nearly identical factual allegations have been consolidated
with the WEISS action for all purposes as IN RE GAMETECH, INC. SECURITIES
LITIGATION, Master File No. Civ. 98-0268 PHX-ROS. On July 17, 1998, the Court
appointed "lead plaintiff" and co-lead counsel.
On September 21, 1998, plaintiffs filed a consolidated complaint,
alleging a claim against the Company and the individual defendants under Section
11 of the Securities Act and a claim against the individual defendants under
Section 15 of the Securities Act, based upon the conduct alleged in the original
complaints. Plaintiffs seek an unspecified amount of damages.
On November 5, 1998, defendants moved to dismiss the complaint. On
June 3, 1999 Defendants' motion to dismiss was granted in part and denied in
part by the Court. There has been no discovery to date and no trial is
scheduled in this action. Defendants believe that there is no merit to
plaintiffs' allegations and intend to defend the action vigorously.
On May 28, 1999, the Company and its wholly owned subsidiary Bingo
Technologies Corporation ("BTC") were sued in the United States Bankruptcy Court
for the District of Nevada (Case No. BK-S-98-27619-RCJ) by Branson Signatures
Resorts, Inc. and its parent company Advanced Gaming Technology, Inc. ("AGTI"),
both of which are debtors-in-possession in a bankruptcy proceeding that Branson
and AGTI initiated last year. In the suit, AGTI alleges that, in February and
April 1998, AGTI entered into two contracts with BTC under which AGTI licensed
to BTC the right to distribute and lease certain electronic bingo units. AGTI
alleges that BTC and GameTech as its parent breached these agreements and
otherwise violated the automatic stay that operated upon the filing of the AGTI
bankruptcy. Neither GameTech nor BTC have responded to the complaint as of this
date, and no discovery has been conducted in this case. GameTech and BTC believe
they have valid defenses to the claims asserted.
In January, 1995, a purported patent infringement action and demand
for jury trial, FORTUNET INC., V. BINGO CARD MINDER CORP., AND STUART
ENTERTAINMENT, INC., CV-S-95-0008 PMP (RJJ) was filed in the United States
District Court, District of Nevada against the Company's wholly owned
subsidiary Bingo Card Minder Corporation ("BCMC") and Stuart Entertainment,
Inc. ("Stuart"). The complaint alleged that BCMC and Stuart, as individual
entities, infringed upon U.S. Patent No. 4,455,025 (the "025 Patent"). On
October 22, 1998 the action was severed and stayed by order of the Court
pending completion of reexamination and any appeals therefrom. On May 19,
1999, Fortunet, Inc. ("Fortunet") appealed the Patent and Trademark Office's
(the "PTO") decision of rejection of the 025 Patent to the United States
Court of Appeals for the Federal Circuit.
The action against BCMC involves the BCM-2 device only, of which less
than 2,000 are currently in operation throughout the United States. The Court
has SUA SPONTE ruled that the BCM-2 does not infringe Fortunet's 4,642,462
patent (the "462 Patent"). Fortunet has not plead any specific damages but has
plead punitive damages for willful infringement. The Company believes there is
no merit to Plaintiffs action, but, in the event the 025 Patent is reinstated,
the Company will vigorously contest the action.
9
<PAGE>
In February 1997, BCMC filed a declaratory relief action for
non-infringement, BINGO CARD MINDER CORP. V. FORTUNET, INC., C 97-00698 CAL
in the United States District Court Northern District of California, against
Fortunet's 025 and 462 Patents relative to BCMC's TED device. No relevant
court dates have been set, and the Court in early 1997 approved a stipulated
stay pending completion of the above case, which is stayed pending completion
of the reexamination of Fortunet's Patents. The PTO, on a second request for
reexamination with respect to the 462 patent recently determined that "a
substantial new question of patentability" existed. As such, the 462 patent
will now undergo renewed reexamination activity with the possible
cancellation of some or all of the claims of the 462 patent. There are no
relevant court dates as the action has been stayed pending reexamination.
In June 1997, a purported patent infringement and demand for jury
trial, FORTUNET INC., V. BINGO TECHNOLOGIES CORPORATION; JOHN A. LARSEN, DBA
OPPORTUNITY SOFTWARE AND BINGO CARD MINDER CORP., CV-S-97-00778-HDM (LRL);
was commenced in the United States District Court, District of Nevada,
against Bingo Technologies Corporation ("BTC"), John A. Larson, dba
Opportunity Software and BCMC. As no relevant court dates have been set, and
the complaint lacks a definitive accused device, the Company believes, based
upon representation of opposing counsel that the action involves BTC's sale
of the "Max-Plus" units, alleging infringement of Fortunet's 462 and 025
Patents. Pursuant to stipulation, the Court has stayed the action pending the
outcome of the appeal from the Patent Office rejection of the 025 patent (see
above).
The Company believes that none of its products infringe any valid claim
of either the 025 or 462 Patents and intends to continue to defend against all
actions vigorously. However, there can be no assurance that favorable outcomes
will be obtained or that if the action against the TED product is resolved in
favor of the Plaintiff, such result would not have a material adverse effect on
the Company's financial position, results of operations or cash flow.
In May, 1998,FORTUNET INC., V. BINGO TECHNOLOGIES CORPORATION; JOHN
A. LARSEN, DBA OPPORTUNITY SOFTWARE AND BINGO CARD MINDER CORP.,
CV-S-98-00777-PMP (LRL) an action for declaratory relief for non-infringement
and counterclaim was filed in the United States District Court, District of
Nevada, by BTC against Fortunet alleging that Fortunet's "Bingo Starr"
portable hand-held bingo device infringed upon the claims of BTC's 4,378,940
patent (the "940 Patent" owned by the Company). On October 27, 1998 the PTO,
in a response to a request for reexamination sponsored by Fortunet, rejected
all 12 claims of the 940 patent. BTC contested the Examiner's decision and on
March 23, 1999 the Patent Office reversed their initial rejection. In
response, Fortunet, on May 23, 1999, filed a new request for reexamination
and a petition to invoke the Commissioner's authority to amend the Examiner's
decision on reversal due to "extraordinary circumstances." The Court, which
had stayed the case pending completion of the reexamination, extended the
stay pending the Commissioner's decision on the petition. The Company shortly
expects the Commissioner to dismiss the petition outright, at which point the
action will recommence. The Company intends to pursue the case vigorously and
expects a favorable outcome.
In October 1995, an action for legal malpractice, BINGO CARD MINDER
CORPORATION V. BRIAN C. KELLY, AND BRIAN C. KELLY, LTD, CV-96-02423, was
commenced by BCMC against its former attorneys in the 2nd Judicial District,
State of Nevada, and County of Washoe. The action was settled in the Company's
favor for $27,500.00 and was dismissed with prejudice on May 27, 1999.
In January 1998, an action for breach of contract on a leasehold,
CRAIG E. BERNHART V. JOHN A. LARSEN AND BINGO TECHNOLOGIES CORPORATION V. DAN
DAHL, JR.; CB COMMERCIAL REAL ESTATE GROUP, INC., No. 98-2-01311-7 SEA, was
commenced against BTC and John A. Larsen in the Superior Court of the State
of Washington for King County. On April 20, 1999, the plaintiffs motion for
summary judgement was upheld. On May 26, 1999, the Court ordered BTC to pay
a judgment of $102,115.49 to the plaintiffs.
Many aspects of the Company's business involve substantial risks of
liability. In the normal course of business, the Company may be named as
defendant or co-defendant in lawsuits involving primarily claims for damages.
The Company's management believes that any pending litigation will not have a
material adverse effect on the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements and notes thereto included elsewhere in this Form 10-Q.
10
<PAGE>
RECENT DEVELOPMENTS
On February 8, 1999, GameTech acquired all of the outstanding capital
stock of Bingo Technologies Corporation ("BTC"), a privately-held company
specializing in electronic bingo systems, pursuant to a Stock Purchase Agreement
with the stockholders of Bingo Technologies.
Under terms of the Stock Purchase Agreement, GameTech issued 1,866,938
shares of Common Stock and paid an aggregate of $8,817,994 in cash and
$4,624,333 in unsecured promissory notes as consideration for the purchase of
all the outstanding stock of Bingo Technologies. Of these amounts, $1,952,211
and 373,387 shares were placed into escrow to secure certain indemnification
obligations of the Bingo Technology shareholders. In addition, GameTech entered
into employment agreements and noncompetition agreements with Gerald Novotny,
Keith Novotny and John Larsen, the Chairman and Chief Executive Officer, Chief
Operating Officer and President, respectively, of Bingo Technologies. Gerald
Novotny, Keith Novotny and John Larsen have also joined the Board of Directors
of GameTech.
After the acquisition, the Company had over 32,000 portable units and
5,500 fixed base units generating revenue. GameTech gained access to new markets
as Bingo Technologies had product placed in twelve states in which GameTech had
not previously operated. GameTech's sales network grew by thirty additional
distributors and eleven sales representatives.
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1999 COMPARED TO THREE MONTHS ENDED APRIL 30, 1998
REVENUES. Revenues increased $7.4 million, or 191%, to $11.3 million
for the three months ended April 30, 1999 from $3.9 million for the three months
ended April 30, 1998. This increase is due in part to the acquisition of BTC.
Excluding the revenues resulting from the acquisition of BTC, the revenue
increase was $1.5 million or 39.2%. The number of units installed at April 30,
1999 was approximately 47,000, 14,900 excluding units resulting from the
acquisition of BTC, compared to approximately 10,000 at April 30, 1998.
COST OF REVENUES. Cost of revenues increased $1.7 million, or 137%, to
$3.0 million for the three months ended April 30, 1999 from $1.3 million for the
three months ended April 30, 1998. Excluding cost of revenues resulting from the
acquisition of BTC, the increase was $546,000 or 34.0%. The increase in cost of
revenues was primarily due to the greater average number of units installed. As
a percentage of revenues, cost of revenues decreased to 26.6% from 32.6% in the
prior period. Depreciation expense as a percent of revenue decreased 3.3% due
primarily to the mix of units acquired in the BTC acquisition, as those units
have a lower cost.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased $1.5 million, or 183%, to $2.3 million for the three months ended
April 30, 1999 from $817,000 for the three months ended April 30, 1998.
Excluding costs resulting from the acquisition of BTC, including amortization
of goodwill of $400,000, the increase was $423,000, or 51.8% primarily due to
the building of management infrastructure. As a percentage of revenues,
general and administrative expenses decreased to 20.3% from 21.0% in the
prior period.
SALES AND MARKETING. Sales and marketing expenses increased $2.7
million, or 410%, to $3.4 million for the three months ended April 30, 1999
from $667,000 for the three months ended April 30, 1998. The increase was
primarily due to larger distributor commissions of $1.9 million. This
increase in distributor commissions is due primarily to the distributor
network acquired from BTC. Excluding costs resulting from the acquisition of
BTC the increased costs were $259,000, or 38.8%.
RESEARCH AND DEVELOPMENT. Research and development expenses
increased $185,000, or 208%, to $274,000 for the three months ended April 30,
1999 from $89,000 for the three months ended April 30, 1998. As a percent of
revenue, research and development expenses were 2.4% and 2.3% in the 1999 and
1998 periods, respectively.
ACQUISITION ONE-TIME WRITE-OFFS. One-time write-offs resulting from the
acquisition of BTC were $7.5 million during the three months ended April 30,
1999. They are comprised of approximately $4.5 million of non-
11
<PAGE>
recurring expenses directly resulting from the acquisition and $3.0 million
of in-process research and development acquired from BTC.
INTEREST INCOME. Interest income decreased $361,000 to $58,000 for
the three months ended April 30, 1999 from $419,000 for the three months
ended April 30, 1998. The decrease in interest income was due primarily to
the use of approximately $9.8 million of cash in the acquisition of BTC and
the utilization of approximately $5.9 million of the line of credit to retire
debt from BTC.
PROVISION FOR (BENEFIT FROM) INCOME TAXES. The provision for income
taxes decreased $1.2 million to a benefit of $662,000 for the three months
ended April 30, 1999 from a $576,000 provision for the three months ended
April 30, 1998. The Company's effective income tax rate was approximately 13%
in 1999 and approximately 39% in 1998. The rate change is due to the
non-deductibility of two items: goodwill and the one-time write-off of $3.0
million of in-process research and development from the acquisition of BTC.
NET INCOME (LOSS). As a result of the factors discussed above, net
income decreased $5.3 million to a loss of $4.4 million for the three months
ended April 30, 1999 from $899,000 of net income for the three months ended
April 30, 1998.
SIX MONTHS ENDED APRIL 30, 1999 COMPARED TO SIX MONTHS ENDED APRIL 30, 1998
REVENUES. Revenues increased $8.0 million, or 102%, to $15.9 million
for the six months ended April 30, 1999 from $7.9 million for the six months
ended April 30, 1998. This increase in revenues was primarily due to the
increase in the number of units installed in bingo halls and the acquisition of
BTC.
COST OF REVENUES. Cost of revenues increased $2.3 million, or 94.3%, to
$4.7 million for the six months ended April 30, 1999, from $2.4 million for the
six months ended April 30, 1998. The increase in cost of revenues was primarily
due to the greater average number of units installed. As a percentage of
revenues, cost of revenues decreased to 29.4% from 30.6% in the prior period.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased $1.6 million, or 102%, to $3.2 million for the six months ended April
30, 1999 from $1.6 million for the six months ended April 30, 1998. As a
percentage of revenues, general and administrative expenses remained constant at
20.0% for 1999 and 1998.
SALES AND MARKETING. Sales and marketing expenses increased $3.0
million, or 269%, to $4.2 million for the six months ended April 30, 1999 from
$1.2 million for the six months ended April 30, 1998. The increase was primarily
due to larger distributor commissions of $2.1 million. The distributor
commission increase is primarily attributable to the distributor network
acquired from BTC.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$210,000, or 76.4%, to $485,000 for the six months ended April 30, 1999 from
$236,000 for the six months ended April 30, 1998. As a percent of revenue
research and development expenses were 3.1% and 3.5% for 1999 and 1998,
respectively.
ACQUISITION ONE-TIME WRITE-OFFS. One-time write-offs resulting from the
acquisition of BTC were $7.5 million during the three months ended April 30,
1999. They are comprised of approximately $4.5 million of non-recurring expenses
directly resulting from the acquisition and $3.0 million of in-process research
and development acquired from BTC.
EQUITY IN NET LOSS OF AFFILIATE. Equity in net loss of affiliate of
$2.0 million resulted from losses incurred by the TSBN joint venture for the six
months ended April 30, 1998 and a write off the Company's investment and
advances to the joint venture with the discontinuance of the TSBN operations in
February 1998. Since the Company financed this venture, it recorded 100% of the
losses rather than its 50% ownership percentage.
INTEREST INCOME. Net interest income decreased $53,000 to $367,000
for the six months ended April 30, 1999 from $420,000 for the six months
ended April 30, 1998. The decrease was due primarily to the use of
approximately $9.8 million of cash for the acquisition of BTC and the
utilization of approximately of $5.9 million of the line of credit to retire
debt assumed from BTC.
12
<PAGE>
PROVISION FOR (BENEFIT FROM) INCOME TAXES. The provision for income
taxes decreased $589,000 to a benefit of $169,000 for the six months ended
April 30, 1999 from a provision of $420,000 for the six months ended April
30, 1998 primarily due to the one-time write-off from the acquisition of BTC.
The Company's effective income tax rate was approximately 4% in 1999 and 391%
in 1998. The rate change is due to the non-deductibility of two items:
goodwill and the one-time write-off of $3.0 million of in-process research
and development from the acquisition of BTC.
NET INCOME. As a result of the factors discussed above, net income
decreased $4.3 million to a net loss of $3.7 million for the six months ended
April 30, 1999 from $655,000 of net income for the six months ended April 30,
1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company received net proceeds of approximately $32.5 million from
the sale of 3,270,000 shares of Common Stock in its IPO, which closed on
December 1, 1997. At April 30, 1999, the Company had cash and equivalents and
short-term investments totaling $16.3 million. The Company used approximately
$3.4 million of the net proceeds to pay off long-term debt and short-term
borrowings in December 1997.
The Company used its cash flow to primarily purchase additional bingo
units to install in customers' bingo halls and to meet its ordinary operating
expenses. GameTech currently has a $10.0 million line of credit (the "Revolving
Credit Facility"), with Wells Fargo Bank, N. A. ("Wells Fargo"), which has an
interest rate based on the prime rate or LIBOR plus 2.0%, at the Company's
option, on which the outstanding balance at April 30, 1999 was approximately
$5.9 million.
The Revolving Credit Facility expires on March 31, 2000. Covenants
under this credit facility restrict payment of cash dividends as well as other
customary covenants. The Revolving Credit Facility is secured by substantially
all of the Company's assets.
Operating activities provided $3.1 million of cash for the six months
ended April 30, 1999 compared to $2.2 million for the six months ended April 30,
1998. The $3.1 million consists primarily of a $3.7 million net loss,
adjusted for $2.6 million of depreciation and amortization and $3.0 million
of in-process research and development.
Investing activities used $22.4 million in the six months ended April
30, 1999 compared to $4.2 million in the six months ended April 30, 1998. The
increase was primarily due to $9.1 million of short-term investments and $9.8
million used in the acquisition of BTC.
Financing activities provided cash of $900,000 in the six months
ended April 30, 1999 compared to $29.7 million for the six months ended April
30, 1998. The $29.7 million represented the net proceeds from the IPO less
the repayment of the Company's debt in December 1977.
The Company believes that cash flow from operations and its current
cash and short-term investments, together with funds available under the
Revolving Credit Facility, will be sufficient to support its operations and
provide for budgeted capital expenditures and liquidity requirements for the
next twelve months. However, the Company's long term liquidity requirements
will depend on many factors, including, but not limited to, the rate at which
the Company expands its business, whether internally or through acquisitions
and strategic alliances. To the extent that funds generated from the sources
described above are insufficient to fund the Company's activities in the long
term, the Company will be required to raise additional funds through public
or private financing. No assurance can be given that additional financing
will be available or that, if available, it will be on terms acceptable to
the Company.
YEAR 2000 RISKS
Year 2000 compliance concerns the ability of certain computerized
information systems to properly recognize date-sensitive information
involving dates on and after January 1, 2000. Systems that do not recognize
such information could generate erroneous data or such systems could fail.
The Company is at risk both for its own Year 2000 compliance and for the
Year 2000 compliance of other companies with which it does business.
Many of the Company's products contain software and hardware that
perform functions based upon date-related information. The Company has tested
certain of those products and has determined that they are Year 2000
compliant or has developed and installed software modifications that bring
those products into Year 2000 compliance. The Company acquired Bingo
Technologies Corporation in February 1999 and determined that most of the
products offered by that Company are not Year 2000 compliant. The Company
continues to test and assess
13
<PAGE>
those products for Year 2000 compliance. The Company currently anticipates
that it will complete its product assessment and remediation by September
1999. The Company will offer to its customers at no charge any upgrades or
modifications necessary to make its products Year 2000 compliant. The
inability of the Company to develop and provide on a timely basis any product
modifications that may be required could result in a material adverse effect
on the Company, including customer satisfaction issues and potential
litigation.
The Company continues to assess its internal information and
operating systems, its computer hardware, and its facilities for Year 2000
compliance. The Company currently anticipates that it will complete its
assessments and implementation of software and hardware upgrades required to
bring its internal systems into compliance during September 1999. The Company
has expended approximately $35,000 to date and estimates that its costs of
Year 2000 compliance will be approximately $380,000. This includes $125,000
which the Company has budgeted for unforeseen items which may arise in
connection with the remediation process. This amount primarily represents
costs incurred for compensation of salaried employees who have devoted a
portion of their time to Year 2000 assessment and remediation efforts.
The Company also continues to evaluate the Year 2000 issue as it
relates to computer systems operated by all of the third parties, including
manufacturers, suppliers, customers, and financial institutions, upon which
the Company's business depends or with which its computer systems interface.
The Company is requesting written certifications from third parties to verify
Year 2000 compliance by those companies. The Company or its suppliers procure
many of the components used in manufacturing the Company's products from
foreign vendors. As a result, the Company may be at risk from foreign
companies and countries that are not taking adequate measures to ensure Year
2000 compliance or that may not be at the same level of preparedness as the
United States. Failure of foreign countries and companies to be Year 2000
compliant could cause interruptions or shortages of components required to
assemble the Company's products. As a result, the Company may be at risk with
respect to suppliers of those components.
The Company is unable to fully assess the impact of the Year 2000
issue as of the filing date of this Report. The failure of the Company's
products or computer system or the systems of third parties as a result of
Year 2000 issues could have a material adverse effect on the Company's
business, financial condition, and operating results. As of the filing date of
this Report, the Company has not formulated a contingency plan with respect
to the Year 2000 compliance issues described above.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's Revolving Credit Facility with Wells Fargo is a $10.0
million line of credit with an interest rate based on the prime rate or LIBOR
plus 2.0%, at the Company's option. The line of credit will expire on March 31,
2000.
Because the interest rate on the Revolving Credit Facility is variable,
the Company's cash flow may be affected by increases in interest rates, in that
the Company would be required to pay more interest in the event that both the
prime and LIBOR interest rates increase. Management does not, however, believe
that any risk inherent in the variable-rate nature of the loan is likely to have
a material effect on the Company's interest or available cash. The Company
currently maintains a zero balance on the Revolving Credit Facility (at April
30, 1999, the outstanding balance was approximately $5.9 million). Even if the
Company were to draw down on the line prior to its expiration and an unpredicted
increase in both alternate rates occurred, it would not be likely to have a
material effect on the Company's interest expense or available cash.
SENSITIVITY ANALYSIS. Assuming the Company had a $2 million balance
outstanding as of April 30, 1999, the rate of interest calculated using the
prime rate option would be 7.75%. The Company's monthly interest payment, if the
rate stayed constant would be $12,917. If the prime rate rose to 13% , which
assumes a very large increase, the Company's monthly payment would be $21,667. A
more likely increase of 1 or 2%, given the recent trend of decreasing and
relatively low interest rates, would give the Company a monthly payment of
$14,583 or $16,250, respectively. The Company does not believe the risk
resulting from such fluctuations is material nor that the payment required would
have a material effect on cash flow.
14
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This document includes various "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which
represent the Company's expectations or beliefs concerning future events.
Statements containing expressions such as "believes," "anticipates" or
"expects" used in the Company's press releases and periodic reports on Forms
10-K and 10-Q filed with the Commission are intended to identify
forward-looking statements. All forward-looking statements involve risks and
uncertainties. Although the Company believes its expectations are based upon
reasonable assumptions within the bounds of its knowledge of its business and
operations, there can be no assurances that actual results will not
materially differ from expected results. The Company cautions that these and
similar statements included in this report are further qualified by important
factors that could cause actual results to differ materially from those in
the forward-looking statements. Such factors could include, without
limitation, the following: increased competition in existing markets; a
decline in the public participation in bingo; the limitation, conditioning or
suspension of any of the Company's bingo permits or licenses; increases in or
new taxes imposed on bingo revenues or bingo devices; a finding of
unsuitability by regulatory officers with respect to the Company's officers,
directors or key employees; loss or retirement of key executives; adverse
economic or regulatory conditions in the Company's key markets; and, adverse
results of significant litigation matters. Readers are cautioned not to place
undue reliance on forward-looking statements, which speak only as of the date
thereof. The Company undertakes no obligation to publicly release any
revisions to such forward-looking statements to reflect events or
circumstances after the date thereof.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 13, 1998, a purported securities class action complaint,
WEISS V. GAMETECH INTERNATIONAL, INC., No. 98-0268 PHX-ROS, was filed in the
United States District Court for the District of Arizona against the Company and
certain officers and directors alleging that defendants violated Section 11 of
the Securities Act of 1933 (the "Securities Act") by making false misleading
statements and omissions in GameTech's Form S-1 Registration Statement in
connection with the Company's public offering on November 25, 1997. Two other
complaints making nearly identical factual allegations have been consolidated
with the WEISS action for all purposes as IN RE GAMETECH, INC. SECURITIES
LITIGATION, Master File No. Civ. 98-0268 PHX-ROS. On July 17, 1998, the Court
appointed "lead plaintiff" and co-lead counsel.
On September 21, 1998, plaintiffs filed a consolidated complaint,
alleging a claim against the Company and the individual defendants under Section
11 of the Securities Act and a claim against the individual defendants under
Section 15 of the Securities Act, based upon the conduct alleged in the original
complaints. Plaintiffs seek an unspecified amount of damages.
On November 5, 1998, defendants moved to dismiss the complaint. On
June 3, 1999 Defendants' motion to dismiss was granted in part and denied in
part by the Court. There has been no discovery to date and no trial is
scheduled in this action. Defendants believe that there is no merit to
plaintiffs' allegations and intend to defend the action vigorously.
On May 28, 1999, the Company and its wholly owned subsidiary Bingo
Technologies Corporation ("BTC") were sued in the United States Bankruptcy Court
for the District of Nevada (Case No. BK-S-98-27619-RCJ) by Branson Signatures
Resorts, Inc. and its parent company Advanced Gaming Technology, Inc. ("AGTI"),
both of which are debtors-in-possession in a bankruptcy proceeding that Branson
and AGTI initiated last year. In the suit, AGTI alleges that, in February and
April 1998, AGTI entered into two contracts with BTC under which AGTI licensed
to BTC the right to distribute and lease certain electronic bingo units. AGTI
alleges that BTC and GameTech as its parent breached these agreements and
otherwise violated the automatic stay that operated upon the filing of the AGTI
bankruptcy. Neither GameTech nor BTC have responded to the complaint as of this
date, and no discovery has been conducted in this case. GameTech and BTC believe
they have valid defenses to the claims asserted.
In January, 1995, a purported patent infringement action and demand
for jury trial, FORTUNET INC., V. BINGO CARD MINDER CORP., AND STUART
ENTERTAINMENT, INC., CV-S-95-0008 PMP (RJJ) was filed in the United States
District Court, District of Nevada against the Company's wholly owned
subsidiary Bingo Card Minder Corporation ("BCMC") and Stuart Entertainment,
Inc. ("Stuart"). The complaint alleged that BCMC and Stuart, as individual
entities, infringed upon U.S. Patent No. 4,455,025 (the "025 Patent"). On
October 22, 1998 the action was severed and stayed by order of the Court
pending completion of reexamination and any appeals therefrom. On May 19,
1999, Fortunet, Inc. ("Fortunet") appealed the Patent and Trademark Office's
(the "PTO") decision of rejection of the 025 Patent to the United States
Court of Appeals for the Federal Circuit.
The action against BCMC involves the BCM-2 device only, of which less
than 2,000 are currently in operation throughout the United States. The Court
has SUA SPONTE ruled that the BCM-2 does not infringe Fortunet's 4,642,462
patent (the "462 Patent"). Fortunet has not plead any specific damages but has
plead punitive damages for willful infringement. The Company believes there is
no merit to Plaintiffs action, but, in the event the 025 Patent is reinstated,
the Company will vigorously contest the action.
In February 1997, BCMC filed a declaratory relief action for
non-infringement, BINGO CARD MINDER CORP. V. FORTUNET, INC., C 97-00698 CAL
in the United States District Court Northern District of California, against
Fortunet's 025 and 462 Patents relative to BCMC's TED device. No relevant
court dates have been set, and the Court in early 1997 approved a stipulated
stay pending completion of the above case, which is stayed pending completion
of the reexamination of Fortunet's patents. The PTO, on a second request for
reexamination with respect to the 462 patent recently determined that "a
substantial new question of patentability" existed. As such, the 462 patent
will now undergo renewed reexamination activity with the possible
cancellation of some or all of the claims of the 462 patent. There are no
relevant court dates as the action has been stayed pending reexamination.
16
<PAGE>
In June 1997, a purported patent infringement and demand for jury
trial, FORTUNET INC., V. BINGO TECHNOLOGIES CORPORATION; JOHN A. LARSEN, DBA
OPPORTUNITY SOFTWARE AND BINGO CARD MINDER CORP., CV-S-97-00778-HDM (LRL);
was commenced in the United States District Court, District of Nevada,
against Bingo Technologies Corporation ("BTC"), John A. Larson, dba
Opportunity Software and BCMC. As no relevant court dates have been set, and
the complaint lacks a definitive accused device, the Company believes, based
upon representation of opposing counsel that the action involves BTC's sale
of the "Max-Plus" units, alleging infringement of Fortunet's 462 and 025
Patents. Pursuant to stipulation, the Court has stayed the action pending the
outcome of the appeal from the Patent Office rejection of the 025 patent (see
above).
The Company believes that none of its products infringe any valid claim
of either the 025 or 462 Patents and intends to continue to defend against all
actions vigorously. However, there can be no assurance that favorable outcomes
will be obtained or that if the action against the TED product is resolved in
favor of the Plaintiff, such result would not have a material adverse effect on
the Company's financial position, results of operations or cash flow.
In May, 1998,FORTUNET INC., V. BINGO TECHNOLOGIES CORPORATION; JOHN
A. LARSEN, DBA OPPORTUNITY SOFTWARE AND BINGO CARD MINDER CORP.,
CV-S-98-00777-PMP (LRL) an action for declaratory relief for non-infringement
and counterclaim was filed in the United States District Court, District of
Nevada, by BTC against Fortunet alleging that Fortunet's "Bingo Starr"
portable hand-held bingo device infringed upon the claims of BTC's 4,378,940
patent (the "940 Patent" owned by the Company). On October 27, 1998 the PTO,
in a response to a request for reexamination sponsored by Fortunet, rejected
all 12 claims of the 940 patent. BTC contested the Examiner's decision and on
March 23, 1999 the Patent Office reversed their initial rejection. In
response, Fortunet, on May 23, 1999, filed a new request for reexamination
and a petition to invoke the Commissioner's authority to amend the Examiner's
decision on reversal due to "extraordinary circumstances." The Court, which
had stayed the case pending completion of the reexamination, extended the
stay pending the Commissioner's decision on the petition. The Company shortly
expects the Commissioner to dismiss the petition outright, at which point the
action will recommence. The Company intends to pursue the case vigorously and
expects a favorable outcome.
In October 1995, an action for legal malpractice, BINGO CARD MINDER
CORPORATION V. BRIAN C. KELLY, AND BRIAN C. KELLY, LTD, CV-96-02423, was
commenced by BCMC against its former attorneys in the 2nd Judicial District,
State of Nevada, and County of Washoe. The action was settled in the Company's
favor for $27,500.00 and was dismissed with prejudice on May 27, 1999.
In January 1998, an action for breach of contract on a leasehold,
CRAIG E. BERNHART V. JOHN A. LARSEN AND BINGO TECHNOLOGIES CORPORATION V. DAN
DAHL, JR.; CB COMMERCIAL REAL ESTATE GROUP, INC., No. 98-2-01311-7 SEA, was
commenced against BTC and John A. Larsen in the Superior Court of the State of
Washington for King County. On April 20, 1999, the plaintiffs motion for summary
judgement was upheld. On May 26, 1999, the Court ordered BTC to pay a judgment
of $102,115.49 to the plaintiffs.
Many aspects of the Company's business involve substantial risks of
liability. In the normal course of business, the Company may be named as
defendant or co-defendant in lawsuits involving primarily claims for damages.
The Company's management believes that any pending litigation will not have a
material adverse effect on the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
SALES OF UNREGISTERED SECURITIES DURING THE THREE MONTHS ENDED
APRIL 30, 1999
On various dates during the three months ended April 30, 1999, Company
employees exercised stock options granted in partial compensation for their
services to purchase an aggregate of 151,250 shares of Common Stock in private
sales for an aggregate consideration of $100,512 in reliance upon Section 4(2)
of the Securities Act as a transaction not involving a public offering.
17
<PAGE>
USE OF PROCEEDS
On November 24, 1997, the Securities and Exchange Commission (the
"Commission") declared the Company's Registration Statement on Form S-1 (the
"Registration Statement") effective. The Commission file number assigned to the
Registration Statement is 333-34967. The Company filed the Registration
Statement in connection with the offering (the "Offering") of 3,710,000 shares
of its Common Stock.
From the effective date of the Registration Statement to the end of
the reporting period the Company has used none of the net offering proceeds for
construction of plant, building and facilities; or for the purchase of real
estate. The Company has used $9.8 million in the acquisition of Bingo
Technologies Corporation, $3.4 million for the repayment of indebtedness and
$2.9 million for the repurchase of Common Stock.
None of these payments have been direct or indirect payments to
directors, officers or other affiliates of the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
27-1 Financial Data Schedule
b) Reports on Form 8-K:
On February 4, 1999 the Company filed a Form 8-K announcing
the resignation of Conrad J. Granito, Jr. as President and
Chief Operating Officer.
On February 23, 1999 the Company filed a Form 8-K announcing
the acquisition of Bingo Technologies Corporation.
On April 23, 1999 the Company filed a Form 8-K/A regarding the
financial statement disclosures on the acquisition of Bingo
Technologies Corporation.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: June 14, 1999 GameTech International, Inc.
/s/ Todd S. Myhre
-----------------------------------
Todd S. Myhre
Chief Executive Officer
(Authorized Officer)
Date: June 14, 1999 GameTech International, Inc.
/s/ John J. Paulson
-----------------------------------
John J. Paulson
Chief Financial Officer/Treasurer
(Principal Financial Officer)
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF GAMETECH INTERNATIONAL, INC. ("THE COMPANY") AS OF APRIL 30, 1999 AND
THE STATEMENTS OF OPERATIONS OF THE COMPANY FOR THE THREE AND SIX MONTHS ENDED
APRIL 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> OCT-31-1999 OCT-31-1999
<PERIOD-START> NOV-01-1998 NOV-01-1998
<PERIOD-END> APR-30-1999 APR-30-1999
<CASH> 3,145 0
<SECURITIES> 13,193 0
<RECEIVABLES> 3,452 0
<ALLOWANCES> 388 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 21,105 0
<PP&E> 29,067 0
<DEPRECIATION> 8,137 0
<TOTAL-ASSETS> 63,304 0
<CURRENT-LIABILITIES> 12,942 0
<BONDS> 0 0
0 0
0 0
<COMMON> 12 0
<OTHER-SE> 42,756 0
<TOTAL-LIABILITY-AND-EQUITY> 63,304 0
<SALES> 0 0
<TOTAL-REVENUES> 11,345 15,879
<CGS> 0 0
<TOTAL-COSTS> 3,014 4,670
<OTHER-EXPENSES> 274 485
<LOSS-PROVISION> 176 302
<INTEREST-EXPENSE> 71 71
<INCOME-PRETAX> (5,097) (3,833)
<INCOME-TAX> (662) (169)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,435) (3,664)
<EPS-BASIC> (0.40) (0.36)
<EPS-DILUTED> (0.37) (0.33)
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