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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 April 30, 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)
2209 W. 1ST STREET, SUITE 113, TEMPE, ARIZONA 85281
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (480) 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 12, 2000 the registrant had outstanding 11,276,023 shares of its
Common Stock, par value $.001 per share.
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GAMETECH INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
April 30, 2000 and October 31, 1999 ............................................ 3
Condensed Consolidated Statements of Income
Three Months Ended April 30, 2000 and 1999 ..................................... 4
Six Months Ended April 30, 2000 and 1999 ....................................... 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended April 30, 2000 and 1999 ....................................... 5
Notes to Condensed Consolidated Financial Statements ............................... 6
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations .......................................................... 6
Item 3. Market Risk Disclosure ............................................................. 8
Part II. Other Information
Item 1. Legal Proceedings ..................................................................10
Item 2. Changes in Securities ..............................................................12
Item 4. Submission of Matters to a Vote of Security Holders ................................12
Item 6. Exhibits and Reports on Form 8-K ...................................................12
Signatures ..................................................................................13
</TABLE>
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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)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
2000 1999
---------------------------------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and equivalents $ 9,053 $ 4,554
Short-term investments 1,502 6,835
Accounts receivable, net 4,344 3,652
Deposits 548 147
Prepaid expenses 529 218
Deferred and prepaid income taxes 1,890 1,557
-----------------------------------
Total current assets 17,866 16,963
Bingo units, furniture and equipment, net 22,710 21,506
Intangible and other assets, net 20,106 20,334
-----------------------------------
Total assets $ 60,682 $ 58,803
===================================
LIABILITIES AND STOCKHOLDERS EQUITY:
Current liabilities:
Accounts payable $ 1,133 $ 550
Accrued payroll and related obligations 583 992
Other current liabilities 1,032 1,213
Current maturities of long-term debt 1,245 1,245
-----------------------------------
Total current liabilities 3,993 4,000
Long-term debt 2,716 3,314
Deferred income taxes 65 65
Commitments and contingencies
Stockholders equity:
Common stock, $.001 par value: 40,000,000 shares
authorized; 12,295,723 shares issued and outstanding
in 2000 and 12,284,323 in 1999 12 12
Capital in excess of par value 43,419 43,418
Retained earnings 14,767 10,863
Less: Treasury stock, 1,019,700 shares in 2000 and
774,500 shares in 1999, at cost (4,290) (2,869)
-----------------------------------
Total stockholders equity 53,908 51,424
-----------------------------------
Total liabilities and stockholders equity $ 60,682 $ 58,803
===================================
</TABLE>
See notes to financial statements.
3
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GAMETECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
------------------------------------------ ----------------------------------------
2000 1999 2000 1999
------------------------------------------ ----------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 12,583 $ 11,345 $ 25,760 $ 15,879
Operating expenses:
Cost of revenues 3,734 3,078 7,314 4,734
General and administrative 1,939 2,327 4,214 3,201
Sales and marketing 3,110 3,456 6,586 4,294
Research and development 446 274 850 485
------------------------------------------ ----------------------------------------
9,229 9,135 18,964 12,714
------------------------------------------ ----------------------------------------
Income from operations 3,354 2,210 6,796 3,165
Acquisition one-time write-offs - (1,050) - (1,050)
Interest income, net 99 8 166 316
------------------------------------------ ----------------------------------------
Income before provision for income taxes 3,453 1,168 6,962 2,431
Provision for income taxes 1,516 607 3,058 1,100
------------------------------------------ ----------------------------------------
Net income $ 1,937 $ 561 $ 3,904 $ 1,331
========================================== ========================================
Basic net income per share $ 0.17 $ 0.05 $ 0.34 $ 0.13
========================================== ========================================
Diluted net income per share $ 0.16 $ 0.05 $ 0.32 $ 0.12
========================================= ========================================
Shares used in the calculation of net income per share:
Basic 11,362,787 11,121,148 11,427,787 10,246,517
========================================= ========================================
Diluted 12,364,824 11,985,705 12,328,250 11,060,694
========================================= ========================================
</TABLE>
See notes to financial statements.
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GAMETECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 2000 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
----------------------------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,904 $ 1,332
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 4,135 2,596
Changes in operating assets and liabilities:
Accounts receivable, net (692) 23
Deposits and prepaid expenses (1,045) (434)
Accounts payable 583 (24)
Other current liabilities (590) (408)
----------------------------------
Net cash provided by operating activities 6,295 3,085
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in short-term investments 5,333 (9,091)
Capital expenditures for bingo units, furniture and equipment (3,821) (3,385)
Payment on restructuring of distributor agreement (1,275) -
Purchase of common stock of Bingo Technologies, net of cash acquired - (9,790)
Capitalized software development costs (15) (90)
----------------------------------
Net cash provided by (used in) investing activities 222 (22,356)
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)
Payments on long-term debt (598) (310)
Proceeds from exercise of stock options 1 101
Payments for repurchase of common stock for treasury (1,421) (58)
----------------------------------
Net cash provided by (used in) financing activities (2,018) 931
----------------------------------
Net increase in cash and equivalents 4,499 (18,340)
Cash and equivalents at beginning of period 4,554 21,485
----------------------------------
Cash and equivalents at end of period $ 9,053 $ 3,145
==================================
</TABLE>
See notes to financial statements.
5
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GAMETECH INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 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 six-month periods ended
April 30, 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 1,002,037
shares and 864,557 for the three months ended April 30, 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 APRIL 30, 2000 COMPARED TO THREE MONTHS ENDED APRIL 30, 1999
REVENUES. Revenues increased $1.3 million, or 10.6%, to $12.6 million
for the three months ended April 30, 2000 compared to $11.3 million during
the same prior year period. This growth is due primarily to additional
installed units, offset by lower revenues from the Company's largest market,
Texas. Certain issues related to the Company's distributor relationships in
Texas have caused revenues to decline in this market by approximately
$750,000 on a same quarter comparison.
COST OF REVENUES. Cost of revenues, consisting primarily of depreciation
on installed units and service costs, was 29.7% of revenues for the current
year quarter, compared to 27.1% 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 are played one or two days per
week and the loss of units in the Texas market where the units were played
six or seven days a week. In addition to depreciation, cost of revenues were
impacted by higher service costs, which have a closer correlation to the
6
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number of installed units rather than revenues generated. As
a percentage of revenues, depreciation increased to 10.2% from 9.5% while
service increased to 13.8% from 13.0%.
GENERAL AND ADMINISTRATIVE. General and administrative expenses of $1.9
million for the three months ended April 30, 2000 were $388,000, or 16.9% lower
than the $2.3 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 15.1% from 20.5% in the prior year period.
SALES AND MARKETING. Sales and marketing expenses decreased $345,000, or
10.1%, to $3.1 million for the three months ended April 30, 2000 from $3.4
million for the three months ended April 30, 1999. This decline was primarily
from a reduction of distributor commissions from discontinuing the use of a
distributor in Texas, which had a higher than average commission rate. As a
percentage of revenues, distributor commissions were 18.3% compared to 20.3% in
the prior year period.
RESEARCH AND DEVELOPMENT. Research and development expenses were
$172,000, or 62.8%, higher during the current year quarter ended April 30,
2000 than the commensurate prior year period. The increase was primarily due
to new products the Company intends to introduce. As a percentage of
revenues, research and development costs were 3.5% compared to 2.4% in the
prior year period.
INTEREST INCOME. Net interest income increased $91,000 to $99,000 for
the three months ended April 30, 2000 from $8,000 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 in the prior
year period.
PROVISION FOR INCOME TAXES. The Company's effective income tax rate was
approximately 44% and 52% for the quarters ended April 30, 2000 and 1999
respectively. The rate reduction resulted from the effects of non-deductible
goodwill associated with the BTC purchase in the quarter ended April 30,
1999. Excluding the effect of the non-deductibility of the goodwill
amortization, the effective income tax rate in both years is approximately
40%.
SIX MONTHS ENDED APRIL 30, 2000 COMPARED TO SIX MONTHS ENDED APRIL 30, 1999
REVENUES. During the six months ended April 30, 2000 the Company's
revenues increased $9.9 million, to $25.8 million, compared to $15.9 million
recorded during the same prior year period. This growth was due in part to
the Company's acquisition BTC during February 1999, as well as an additional
number of installed bingo units in the Company's core markets. During the
current six month period, the revenue growth was offset by certain issues
related to the Company's distributor relationships in Texas which caused
revenues to decline in the Company's largest market by approximately $1.0
million on a same period comparison.
COST OF REVENUES. Cost of revenues were 28.4% and 29.8% of revenues for
the six-month periods ended April 30, 2000 and 1999, respectively. The
improved margin resulted primarily from lower depreciation on installed bingo
units as a percent of revenue, due to a lower average base cost of installed
products, offset by lower utilization of units in play during the current
year period. As a result of the acquisition of BTC, and the Company's
additional product mix, GameTech now has a variety of products with
corresponding depreciable base costs. As the mix of product use changes, the
depreciation expense associated to the units fluctuates accordingly.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased $1.0 million, or 31.3%, to $4.2 million for the six months ended
April 30, 2000, compared to $3.2 million a year ago. Due to the acquisition
of BTC in February 1999 the current year period included a full six months of
expense, while BTC expenses were incurred during fiscal 1999 for less than
three months. General and administrative expenses decreased to 16.4% of
revenues during the current year period compared to 20.2% during the same
prior year period.
SALES AND MARKETING. The Company recorded sales and marketing expense of
$6.6 million during the period ended April 30, 2000, an increase of 53.5%
over the same prior year period. As a percentage of revenues, the expenses
were 25.6% and 27.0% 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 a distributor in Texas, which had a higher than
average commission rate.
7
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RESEARCH AND DEVELOPMENT. Research and development expenses increased
75.3%, to $850,000 for the six months ended April 30, 2000 over the
comparable prior year period. The higher expenses were primarily due to new
product development costs and the BTC acquisition mid-period of the prior
year. As a percent of revenue research and development expenses were 3.3% and
3.1% for 2000 and 1999, respectively.
INTEREST INCOME. The decrease in net interest income of $150,000 during
the six months ended April 30, 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 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 44% in 2000 and 45% in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided $6.3 million of cash for the six months
ended April 30, 2000 compared to $3.1 million for the six months ended April
30, 1999. The $6.3 million consists of $3.9 million of net income, $4.1
million of depreciation and amortization offset by changes to operating
assets and liabilities. In 1999, the $3.1 million provided by operating
activities consisted primarily of net income of $1.3 million with
depreciation and amortization of $2.6 million, offset by changes to operating
assets and liabilities.
Investing activities provided $222,000 of cash for the six months ended
April 30, 2000, compared to using $22.4 million of cash for the six months
ended April 30, 1999. The $222,000 consists of a $5.3 million reduction in
short-term investments offset by capital expenditures of $3.8 million and the
payment associated with restructuring of a distributor agreement of $1.3
million. In 1999, the $22.4 million used in investing activities consisted
primarily of an increase in short-term investments of $9.1 million, capital
expenditures of $3.4 million and the purchase of BTC common stock of $9.8
million.
Financing activities used cash of $2.0 million for the six months ended
April 30, 2000, compared to providing $931,000 of cash for the six months
ended April 30, 1999. The $2.0 million consists primarily of $429,000 in
long-term debt repayment and $1.4 million to repurchase treasury stock. In
1999, the $931,000 provided consisted primarily of $5.9 million in short-term
bank borrowings offset by $4.7 million in payments on short-term notes
payable and borrowings from the bank and other long-term debt.
At April 30, 2000, the Company had cash and equivalents and short-term
investments totaling $10.6 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 April 30, 2000. The Revolving Credit Facility expires on March 31, 2001.
The Company believes that cash flow from operations and the $10.6 million in
cash, cash equivalents and short-term investments at April 30, 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 relocation and
consolidation of facilities to Reno, Nevada during the third and fourth
fiscal quarters of 2000 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 April 30, 2000, the rate of interest calculated using the
prime rate option would be 9%. The Company's monthly interest payment, if the
rate stayed constant would be $15,000. 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 $16,667 or $18,333, 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.
8
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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.
9
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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 on an immaterial
basis to the Company. The Court has set a preliminary approval hearing for June
15, 2000. The settlement is subject thereafter to obtaining final approval from
the Court.
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 Offices (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.
On April 5, 2000, the Court of Appeals confirmed the PTO's rejection of a
majority of the 025 Patent's claims. The Company will vigorously contest any
remaining claims that Fortunet may assert.
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. Larsen, dba
Opportunity Software and BCMC. As no relevant court dates have been set and
the complaint lacks a definitive accused device, the Company believes 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
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outcome of the appeal from the Patent Office rejection of the 025 patent (see
above). On April 5, 2000, the Court of Appeals confirmed the PTO's rejection of
a majority of the '025 Patents claims. 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 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 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 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 its 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". On August 11, 1999, the commissioner's office
rejected the petition returning it unfiled. On July 24, 1999, the PTO granted a
second request for reexamination. In April 2000 the second request for
reexamination was concluded and all 12 claims of the 940 patent have been
confirmed. The Company intends to pursue the case vigorously.
On June 14, 1999, GAMETECH INTERNATIONAL, INC. v. BETTINA CORPORATION,
CV-N-99-00317-(ECR), a patent infringement action, was filed in the United
States District Court, District of Nevada, by the Company against Bettina
Corporation alleging that Bettina Corporation's "Bingo Magic" portable hand held
device infringed upon the claims of the Company's '940 Patent. The Company has
asked the Court for immediate injunctive relief, compensatory and punitive
damages for willful infringement as well as costs and attorney's fees. Bettina
Corporation, in its answer to the complaint, denies all causes of action and has
asked the Court to find the '940 Patent invalid. 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 October 2, 2000.
The Company is a defendant in Case 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, based on 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
11
<PAGE>
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 $1,952,21. BTC's stockholders delivered their objections to the
escrow agent 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.
ITEM 2. CHANGES IN SECURITIES
SALES OF UNREGISTERED SECURITIES DURING THE THREE MONTHS ENDED
APRIL 30, 2000
On various dates during the three months ended April 30, 2000, Company
employees exercised stock options granted in partial compensation for their
services to purchase an aggregate of 11,400 shares of Common Stock in private
sales for an aggregate consideration of $1,782 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
The Company's annual meeting of shareholders was held on April 4, 2000. The
shareholders elected for the ensuing three years all of management's nominees
for the Board of Directors.
The voting results are as follows:
Election of Directors
<TABLE>
<CAPTION>
VOTES CAST
-----------------------------
FOR WITHHELD
--------- --------
<S> <C> <C>
DIRECTORS
Elected by holders Of Common Stock:
Clarence H. Thiesen 9,288,909 25,000
Douglas M. Hayes 9,307,709 6,700
</TABLE>
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 April 30, 2000.
12
<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, 2000 Game Tech International, Inc.
/s/ Richard T. Fedor
-----------------------------
Chief Executive Officer
Richard T. Fedor
Date: June 14, 2000 Game Tech International, Inc.
/s/ John J. Paulson
-----------------------------
Chief Financial Officer / Treasurer
John J. Paulson
13
