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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 JULY 31, 2000
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 Identification No.)
incorporation or organization)
900 SANDHILL DR., RENO, NEVADA 89511
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (775) 850-6000
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 September 13, 2000, the registrant had outstanding 10,702,823 shares
of its Common Stock, par value $.001 per share.
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GAMETECH INTERNATIONAL, INC.
INDEX
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PAGE NO.
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Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
July 31, 2000 and October 31, 1999 ........................................... 3
Condensed Consolidated Statements of Operations
Three Months Ended July 31, 2000 and 1999 .................................... 4
Nine Months Ended July 31, 2000 and 1999 ..................................... 4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended July 31, 2000 and 1999 ..................................... 5
Notes to Condensed Consolidated Financial Statements ........................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................... 6
Item 3. Quantitative and Qualitative Disclosures about Market Risk................ 9
Part II. Other Information
Item 1. Legal Proceedings .........................................................11
Item 2. Changes in Securities ......................................................13
Item 3. Defaults upon Senior Securities............................................13
Item 4. Submission of Matters to a Vote of Security Holders........................13
Item 5. Other Information..........................................................13
Item 6. Exhibits and Reports on Form 8 - K .........................................13
Signatures ..................................................................................14
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GAMETECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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JULY 31, OCTOBER 31,
2000 1999
---------------------------------------
(Unaudited)
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ASSETS:
Current assets:
Cash and equivalents $ 5,298 $ 4,554
Short-term investments 5,582 6,835
Accounts receivable, net 4,660 3,652
Deposits 307 147
Prepaid expenses 531 218
Deferred and prepaid income taxes 1,557 1,557
---------------------------------------
Total current assets 17,935 16,963
Bingo units, furniture and equipment, net 22,965 21,506
Intangible and other assets, net 20,091 20,334
---------------------------------------
Total assets $ 60,991 $ 58,803
=======================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 897 $ 550
Other current liabilities 1,924 2,205
Current portion of long-term debt 1,245 1,245
---------------------------------------
Total current liabilities 4,066 4,000
Long-term debt 2,933 3,314
Deferred income taxes 65 65
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value: 40,000,000 shares
authorized; 12,349,973 shares issued and outstanding
in 2000 and 12,284,323 in 1999 12 12
Capital in excess of par value 43,418 43,418
Retained earnings 15,950 10,863
Less: Treasury stock, 1,208,700 shares in 2000 and
774,500 shares in 1999, at cost (5,453) (2,869)
---------------------------------------
Total stockholders' equity 53,927 51,424
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Total liabilities and stockholders' equity $ 60,991 $ 58,803
=======================================
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GAMETECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
2000 1999 2000 1999
------------------------------ ---------------------------------
(Unaudited) (Unaudited)
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Revenues $ 11,922 $ 12,747 $ 37,682 $ 28,625
Operating expenses:
Cost of revenues 3,676 3,391 10,990 8,125
General and administrative 2,215 2,700 6,429 5,900
Sales and marketing 3,127 3,535 9,713 7,828
Research and development 393 347 1,243 832
Corporate relocation costs 111 111
Settlement of lawsuit 200 200
Acquisition-related one-time write-offs - - - 1,050
------------------------------ ---------------------------------
9,722 9,973 28,686 23,735
------------------------------ ---------------------------------
Income from operations 2,200 2,774 8,996 4,890
Interest income, net 82 53 248 369
---------------------------- ---------------------------------
Income before provision for income taxes 2,282 2,827 9,244 5,259
Provision for income taxes 1,099 1,270 4,157 2,370
------------------------------ ---------------------------------
Net income $ 1,183 $ 1,557 $ 5,087 $ 2,889
============================== =================================
Basic net income per share $ 0.11 $ 0.14 $ 0.45 $ 0.27
============================== =================================
Diluted net income per share $ 0.10 $ 0.13 $ 0.42 $ 0.25
============================== =================================
Shares used in the calculation of net income per share:
Basic 11,160,599 11,381,015 11,341,336 10,624,683
============================== =================================
Diluted 12,075,327 12,319,433 12,247,938 11,480,274
============================== =================================
</TABLE>
See notes to financial statements
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GAMETECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 2000 AND 1999
(DOLLARS IN THOUSANDS)
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<CAPTION>
JULY JULY
2000 1999
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(unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,087 $ 2,889
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 5,181 4,356
Changes in operating assets and liabilities:
Accounts receivable, net (1,008) (214)
Deposits and prepaid expenses (487) (405)
Accounts payable 345 (166)
Other current liabilities (139) (613)
-----------------------------------------
Net cash provided by operating activities 8,979 5,847
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in short-term investments 1,253 (839)
Capital expenditures for bingo units, furniture and equipment (4,489) (6,375)
Payment on restructuring of distributor agreement (1,275) (254)
Purchase of common stock of Bingo Technologies, net of cash acquired - (9,790)
Capitalized software development costs (15) (120)
-----------------------------------------
Net cash provided by (used in) investing activities (4,526) (17,378)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings from bank - 6,693
Payments on short-term notes payable and borrowings from bank - (10,634)
Payments on long-term debt (1,125) (468)
Proceeds from exercise of stock options 2 128
Payments for repurchase of common stock for treasury (2,586) (58)
-----------------------------------------
Net cash provided by (used in) financing activities (3,709) (4,339)
-----------------------------------------
Net increase in cash and equivalents 744 (15,870)
Cash and equivalents at beginning of period 4,554 21,485
-----------------------------------------
Cash and equivalents at end of period $ 5,298 $ 5,615
=========================================
</TABLE>
See notes to financial statements.
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GAMETECH INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000
(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
nine month periods ended July 31, 2000 are not necessarily indicative of the
results that may be expected for the year ending October 31, 2000. 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,
1999.
NOTE B. INCOME PER SHARE OF COMMON STOCK
Net income per share of common stock is computed in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per
Share." The calculation of the basic and diluted earnings per share is the
same except for the dilutive effect of outstanding stock options. The dilution
is 914,728 shares and 906,602 shares for the three months ended July 31, 2000
and 1999, respectively.
NOTE C. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is involved in various legal proceedings arising out of its
operations in the ordinary course of its business, including various complaints
that have been filed alleging patent infringement. The Company does not believe
that any of these proceedings will have a material adverse effect on its
business, financial condition, or result of operations. However, an unfavorable
outcome could have a material adverse effect on the Company's financial position
and results of operations.
See Item I, Legal Proceedings of Part II, Other Information.
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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 2000 COMPARED TO THREE MONTHS ENDED JULY 31, 1999
REVENUES. Revenues decreased $825,000, or 6.5%, to $11.9 million for
the three months ended July 31, 2000, compared to $12.7 million during the same
prior year period. The decline in revenues was primarily the result of
competitive pricing pressures as well as the removal of approximately 1,400 Ted
bingo units in the Texas market, offset by additional unit placements in
existing markets, including California, Florida, Illinois, North Dakota, and
Ohio.
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COST OF REVENUES. Cost of revenues, consisting primarily of
depreciation on installed units and service costs, was 30.8% of revenues for the
current year quarter, compared to 26.6% a year ago. The increase was
attributable to higher depreciation expense as a percent of revenue resulting
from expansion into short-week markets where the bingo units only generate
revenues one or two days per week, yet are depreciated evenly over a standard
five-year period. In addition, higher service costs have a closer correlation to
the number of installed units as opposed to revenues generated. As a percentage
of revenues, depreciation increased to 10.6% from 9.1%, while service increased
to 13.9% from 12.4%.
GENERAL AND ADMINISTRATIVE. General and administrative expenses of $2.2
million for the three months ended July 31, 2000 were $485,000, or 18.0% lower
than the $2.7 million recorded during the commensurate prior year period. The
decrease resulted primarily from continued efficiency improvements created from
the integration of Bingo Technologies Corporation ("BTC") (acquired in February
1999) with GameTech. As a percentage of revenues, general and administrative
expenses fell to 18.6% from 21.2% in the prior year period.
SALES AND MARKETING. Sales and marketing expenses decreased $408,000,
or 11.5%, to $3.1 million for the three months ended July 31, 2000 from $3.5
million for the three months ended July 31, 1999. This decline was primarily
from a reduction of distributor commissions from discontinuing the use of
distributors in Texas who had higher than average commission rates. As a
percentage of revenues, distributor commissions were 17.9% compared to 19.9% in
the prior year period.
RESEARCH AND DEVELOPMENT. Research and development expenses were
$393,000, or 13.3% higher during the current year quarter ended July 31, 2000
than the commensurate prior year period. The increase was primarily due to
hiring three additional engineers to develop new products the Company intends to
introduce. As a percentage of revenues, research and development costs were 3.3%
compared to 2.7% in the prior year period.
CORPORATE RELOCATION COSTS. The Company incurred one-time costs of
$111,000 associated with relocating the corporate headquarters to Reno,
Nevada, primarily consisting of employee training and relocation costs.
SETTLEMENT OF LAWSUIT. The settlement of the securities class action
lawsuit, which was approved by the court on September 8, 2000, resulted in the
Company incurring a one-time expense of $200,000, representing the insurance
deductible. The settlement was insured under the Company's directors, officers,
and corporate liability insurance policy, and therefore, the Company's financial
impact was limited to the deductible.
INTEREST INCOME. Net interest income increased $29,000 to $82,000 for
the three months ended July 31, 2000 from $53,000 for the same prior year
period. The increase primarily resulted from interest expense incurred on the
outstanding line of credit balance of approximately $5.9 million for part of the
prior year period.
PROVISION FOR INCOME TAXES. The Company's effective income tax rate was
approximately 48% and 45% for the quarters ended July 31, 2000 and 1999,
respectively. The rate increase resulted from the effects of non-deductible
goodwill associated with the BTC purchase. Excluding the effect of the
non-deductibility of the goodwill amortization, the effective income tax rate in
both years is approximately 40%.
NINE MONTHS ENDED JULY 31, 2000 COMPARED TO NINE MONTHS ENDED JULY 31, 1999
REVENUES. During the nine months ended July 31, 2000, the Company's
revenues increased $9.1 million, to $37.7 million, compared to $28.6 million
recorded during the same prior year period. This growth was due to the Company's
acquisition of BTC during February 1999, as well as an additional number of
installed bingo units in new and existing markets.
COST OF REVENUES. Costs of revenues were 29.2% and 28.4% of revenues
for the nine-month periods ended July 31, 2000 and 1999, respectively. The
increase was attributable to higher service expense as a percent of revenue
resulting from expansion into short-week markets where the bingo units only
generate revenues one or two days per week, yet require a similar level of
service. These costs have a closer correlation to the number of installed units
as opposed to revenues generated. As a percentage of revenues, service increased
to 13.6% from 13.3%.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased $529,000, or 8.9%, to $6.4 million for the nine months ended July 31,
2000 compared to $5.9 million a year ago. Due to the acquisition of BTC in
February 1999, the current year period included a full nine months of expenses,
while the expenses incurred
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during fiscal 1999 were for less than six months. General and administrative
expenses decreased to 17.1% of revenues during the current year period compared
to 20.6% during the same prior year period.
SALES AND MARKETING. The Company recorded sales and marketing expense
of $9.7 million during the current year period ended July 31, 2000, an increase
of 24.3% over the same prior year period. As a percentage of revenues, the
expenses were 25.8% and 27.4% during the fiscal 2000 and 1999 periods,
respectively. The higher expense resulted from additional distributor
commissions attributable to the distributor network acquired from BTC, offset by
discontinuing the use of several distributors in Texas who had a higher than
average commission rate.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
49.2%, to $1.2 million for the nine months ended July 31, 2000 over the
comparable prior year period. The higher expenses were primarily due to new
product development costs and the BTC acquisition in the prior year. As a
percent of revenue, research and development expenses were 3.3% and 2.9% for
2000 and 1999, respectively.
CORPORATE RELOCATION COSTS. The Company incurred one-time costs of
$111,000 associated with relocating the corporate headquarters to Reno,
Nevada, primarily consisting of employee training and relocation costs.
SETTLEMENT OF LAWSUIT. The settlement of the securities class action
lawsuit, which was approved by the court on September 8, 2000, resulted in the
Company incurring a one-time expense of $200,000, representing the insurance
deductible. The settlement was insured under the Company's directors, officers,
and corporate liability insurance policy, and therefore, the Company's financial
impact is limited to the deductible.
INTEREST INCOME. The decrease in net interest income of $121,000 during
the nine months ended July 31, 2000 as compared to the same prior year period,
resulted from the use of $9.8 million of cash for the acquisition of BTC in
February, 1999, as well as the utilization of $5.9 million of the line of credit
to retire debt assumed from BTC, which was subsequently paid back.
PROVISION FOR INCOME TAXES. The Company's effective income tax rate was
approximately 45% in both years.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $9.0 million of cash for the nine months ended
July 31, 2000 compared to $5.8 million for the nine months ended July 31,
1999. The $9.0 million consists of $5.1 million of net income, $5.2 million
of depreciation, and amortization offset by changes to operating assets and
liabilities. In 1999, the $5.8 million provided by operating activities
consisted primarily of net income of $2.9 million with depreciation and
amortization of $4.4 million, offset by changes to operating assets and
liabilities.
Investing activities used $4.5 million of cash for the nine months
ended July 31, 2000, compared to using $17.4 million of cash for the nine months
ended July 31, 1999. The $4.5 million consists of $4.5 million of capital
expenditures and the payment of $1.3 million associated with the restructuring
of a distributor agreement offset by a $1.3 million reduction in short-term
investments. In 1999, the $17.4 million used in investing activities consisted
primarily of an increase in short-term investments of $839,000, capital
expenditures of $6.4 million, and the purchase of BTC common stock of $9.8
million.
Financing activities used cash of $3.7 million for the nine months
ended July 31, 2000, compared to $4.3 million use of cash for the nine months
ended July 31, 1999. The $3.7 million consists primarily of $1.1 million in
long-term debt repayment and $2.6 million to repurchase the Company's stock. In
1999, the $4.3 million used consisted primarily of $10.6 million of payments on
short-term notes payable and borrowings from the bank, and $468,000 in payments
on other long-term debt offset by proceeds from short-term borrowings from the
bank of $6.7 million.
At July 31, 2000, the Company had cash and equivalents and short-term
investments totaling $10.9 million. GameTech also has a $10.0 million line of
credit (the "Revolving Credit Facility") with Wells Fargo Bank, N.A. ("Wells
Fargo"), which is tied to an interest rate based on the prime rate or LIBOR plus
2.0%, at the Company's option, on which there was no outstanding balance at July
31, 2000. The Revolving Credit Facility expires on
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March 31, 2001. The Company believes that cash flow from operations and the
$10.9 million in cash, cash equivalents and short-term investments at July 31,
2000, together with funds available under the Revolving Credit Facility, will be
sufficient to support its operations, budgeted capital expenditures of
approximately $10.0 million, provide for costs associated with the recent
relocation and consolidation of facilities to Reno, Nevada, and liquidity
requirements through fiscal 2000. However, the Company's long-term liquidity
requirements will depend on many factors, including the rate at which the
Company expands its business, whether internally or through acquisitions and
strategic alliances. In addition, strategic opportunities the Company may pursue
will require it to fund its portion of operating expenses of such ventures, and
may further require it to advance additional amounts should any partners in such
ventures be unable to meet unanticipated capital calls or similar funding
events. To the extent that the 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 it is available, it will be on terms acceptable to the Company.
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,
2001.
Because the interest rate on the Revolving Credit Facility is variable,
the Company's cash flow may be affected by increases in interest rates, since
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 has no borrowings under the Revolving Credit. Even if the Company were
to draw down on the line prior to its expiration and an 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 July 31, 2000, the rate of interest calculated using the prime
rate option would be 9.5%. The Company's monthly interest payment, if the rate
stayed constant, would be $15,833. If the prime rate rose to 13%, the Company's
monthly payment would be $21,667. An increase of 1% or 2% would give the Company
a monthly payment of $17,500 or $19,167, 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.
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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.
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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 the Company'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. A stipulation of settlement has been filed with the Court pursuant to
which the Company and plaintiffs have agreed to settlement. The Court approved
full and final settlement of the complaint on September 8, 2000.
In January 1995, a patent infringement action, 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
an unrelated company, Stuart Entertainment, Inc. ("Stuart"). The complaint
alleged that BCMC and Stuart, as individual entities, infringed Fortunet's U.S.
Patent No. 4,455,025 (the "025 Patent"). Additional claims against Stuart were
asserted in a second amended complaint. On April 11, 2000, the U.S. Court of
Appeals for the Federal Circuit confirmed the rejection by the U.S. Patent &
Trademark Office's (PTO) of a majority of the `025 Patent's claims. On June 12,
2000 the Court entered a stipulated order staying the action up to and including
September 29, 2000. Fortunet has not pled any specific damages but has pled
punitive damages for willful infringement. The Company will vigorously contest
any remaining claims that Fortunet may or may not assert.
In February 1997, BCMC filed an action, BINGO CARD MINDER CORP. V.
FORTUNET, INC AND YURI ITKIS., C 97-00698 CAL in the United States District
Court Northern District of California, seeking a declaratory judgment that two
Fortunet patents, the `025 Patent and U.S. Patent No.4,624,462 ("the `462
patent") are invalid, unenforceable, and not infringed by BCMC's TED device. No
trial date has been set, and the Court in early 1997 approved a stipulated stay.
In June 1997, a patent infringement action, FORTUNET INC., V. BINGO
TECHNOLOGIES CORPORATION; JOHN A. LARSEN, DBA OPPORTUNITY SOFTWARE AND BINGO
CARD MINDER CORP., CV-S-97-00778-RLH (LRL), was commenced in the United States
District Court, District of Nevada, against Bingo Technologies Corporation
("BTC"), John A. Larsen, dba Opportunity Software and BCMC. Fortunet asserts
infringement of Fortunet's `462 and `025 Patents. The Company believes, based
upon representation of opposing counsel, that the action involves BTC's sale of
the "Max-Plus" units. The case is currently stayed pursuant to stipulation of
the parties. The Company will vigorously contest any remaining claims that
Fortunet may or may not assert.
The Company believes that none of its products infringe any valid and
enforceable 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 any of claims asserted by
Fortunet against BCMC or BTC are resolved in favor of Fortunet, such result
would not have a material adverse effect on the Company's business, financial
position, or 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 and breach of contract, was filed in the
United States District Court, District of Nevada. BTC counterclaimed alleging
that
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Fortunet's "Bingo Star" portable hand-held bingo device infringes U.S. Patent
No. 4,378,940 (the "'940 Patent" owned by the Company). On October 27, 1998, in
a response to a request for reexamination sponsored by Fortunet, the PTO
rejected all 11 claims of the `940 patent. BTC contested the Examiner's
decision. In March 1999 the Patent Office reversed its initial rejection and, on
July 20, 1999 issued a certificate confirming the patentability of all 11 claims
of the `940 patent. In May 2000 a second request for reexamination was concluded
and the patentability of all 11 claims of the `940 patent was confirmed.
Although the case is currently stayed, a hearing on BTC's motion to lift the
stay is scheduled for October 23, 2000. The Company intends to pursue the case
vigorously.
On June 14, 1999, GAMETECH INTERNATIONAL, INC. V. BETTINA CORPORATION,
CV-N-99-00317- (ECR), the Company filed a patent infringement action in the
United States District Court, District of Nevada against Bettina Corporation,
alleging that Bettina Corporation's "Bingo Magic" portable hand held device
infringes the Company's `940 Patent. Bettina Corporation, in its answer to the
complaint, denies all causes of action and has asked the Court to find the `940
Patent invalid, unenforceable and not infringed. A stay of the case was lifted
pursuant to stipulation of the parties and order dated August 31, 2000. No trial
date has yet been set. The Company intends to pursue the case vigorously.
The Company has been named as a third-party defendant in Cause No.
DV-99-3012H, TREND GAMING SYSTEMS, LLC V. HIGHLANDS PTA, ET. AL., pending in the
44th District Court of Dallas County, Texas. The lawsuit involves a claim for
breach of contract filed by Trend Gaming Systems, LLC ("Trend") against several
bingo conductors, and a claim for tortious interference with contract against
K&B Sales, Inc. d/b/a Goodtime Bingo ("K&B") and Daniel Hennessy. K&B added the
Company as a third party defendant on January 6, 2000, alleging breach of
contract, interference with contract, illegal restraint of trade and conspiracy
to commit tortious interference, and has requested actual and exemplary damages.
The bingo conductors also added a third party claim against the Company,
alleging that the Company conspired with Trend to defraud the conductors.
The underlying dispute between the Company and K&B involves termination
of K&B's distributor relationship with the Company. The Company has denied all
claims asserted by K&B and has counterclaimed for damages, alleging multiple
breaches by K&B of its distribution agreements. K&B has also requested punitive
damages. The Company denies all of these claims and intends to vigorously
contest the lawsuit. The case is presently set for trial on December 11, 2000.
The Company is a defendant in Cause No. GN-001359, TEXAS BINGO SUPPLY
V. GAMETECH INTERNATIONAL, INC. AND TREND GAMING SYSTEMS, LLC. pending in the
126th District Court of Travis County, Texas. The Plaintiff is a former
distributor of GameTech equipment in Texas. On May 8, 2000, because of multiple
breaches of the Distribution Agreement by Texas Bingo Supply, GameTech
terminated the agreement. The Plaintiff claims tortious interference with
contract, conspiracy to commit tortious interference, and illegal restraint of
trade. The Company has denied the Plaintiff's claims and has counterclaimed
against the Plaintiff for breach of the Distribution Agreement.
On February 8, 1999, the Company acquired BTC by entering into a series
of agreements including a Stock Purchase Agreement and Escrow Agreement
(collectively the "Acquisition Agreements") with BTC and its stockholders. In
connection with the acquisition, BTC's stockholders made certain representations
and warranties and a portion of the purchase price was put into escrow to
provide for indemnification to the Company in the event of any breaches of these
representations and warranties.
On February 4, 2000, the Company delivered notice that it has certain
claims for indemnification against BTC's stockholders for breaches of
representations and warranties arising from the acquisition. The Company
estimates that its claims exceed the escrow fund and it has requested that no
escrow funds be released pending a final determination of its claims. The escrow
fund consists of 373,387 shares of the Company's common stock and cash totaling
$1,952,211. BTC's stockholders delivered their objections to the escrow on
February 24, 2000, objecting to all of the Company's indemnification claims. The
parties must make a good faith effort to reach agreements upon the rights of the
parties with respect to each claim. If the parties cannot reach agreement, the
dispute is ultimately subject to arbitration.
The Company is involved in various other legal proceedings arising out
of its operations in the ordinary course of its business. The Company does not
believe that any of their proceedings will have a material adverse effect on its
business, financial condition, or result of operations.
12
<PAGE>
ITEM 2. CHANGES IN SECURITIES
SALES OF UNREGISTERED SECURITIES DURING THE THREE MONTHS ENDED
JULY 31, 2000
On various dates during the three months ended July 31, 2000, Company
employees exercised stock options granted in partial compensation for their
services to purchase an aggregate of 54,250 shares of Common Stock in private
sales for an aggregate consideration of $53,012.50 in reliance upon Section 4(2)
of the Securities Act as a transaction not involving a public offering.
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
There were no reports filed on Form 8-K during the quarter
ended July 31, 2000.
13
<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: September 14, 2000 GameTech International, Inc.
/s/ Richard T. Fedor
----------------------------------
Chief Executive Officer
Richard T. Fedor
Date: September 14, 2000 GameTech International, Inc.
/s/ Jon L. Whipple
----------------------------------
Chief Financial Officer
Jon L. Whipple
14
