##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2006
 OR
 o
    
    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.
  DELAWARE
    
    33-0612983(State or other jurisdiction
of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 900 SANDHILL ROAD, RENO, NEVADA
89521
  þ o
  o o þ
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes  o No þ




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##### 



GAMETECH INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10Q
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2006
INDEX
 PageNo.Part I.
    
    Financial Information:Item 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of
January 31, 2006 (Unaudited) and October 31, 2005
    
    
    3Unaudited Condensed Consolidated Statements of Income for the
Three Months Ended January 31, 2006 and 2005
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the
Three Months Ended January 31, 2006 and 2005
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    11Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 4.
    
    Controls and Procedures
    
    
    17Part II.
    
    Other Information:Item 1.
    
    Legal Proceedings
    
    
    18Item 1A.
    
    Risk Factors
    
    
    18Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    18Item 3.
    
    Defaults Upon Senior Securities
    
    
    19Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    19Item 5.
    
    Other Information
    
    
    19Item 6.
    
    Exhibits
    
    
    19Signatures
    
    
    
    
    20Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
  2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).
 GAMETECH
INTERNATIONAL, INC.
 
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and per share amounts)
 January 31,
    
    
    October 31,2006
    
    
    2005(Unaudited)
    
    
    (Note A)Assets:Current assets:Cash and cash equivalents
    
    $
    7,574
    
    
    $
    6,330Short-term investments
    
    
    504
    
    
    
    503Accounts receivable, less allowance for doubtful accounts
of $2,446 in 2006 and $2,374 in 2005
    
    
    4,342
    
    
    
    3,573Deposits
    
    
    20
    
    
    
    21Refundable income taxes
    
    
    169
    
    
    
    742Restricted short-term investment
    
    
    4,616
    
    
    
    4,581Prepaid expenses and other current assets
    
    
    384
    
    
    
    326Deferred income taxes
    
    
    2,556
    
    
    
    2,549Total current assets
    
    
    20,165
    
    
    
    18,625Bingo equipment, furniture and other equipment, net
    
    
    20,127
    
    
    
    20,060Goodwill, net
    
    
    10,184
    
    
    
    10,184Intangibles, less accumulated amortization of $3,535 in 2006
and $4,335 in 2005
    
    
    1,754
    
    
    
    1,811Restricted cash
    
    
    471
    
    
    
    450Total assets
    
    $
    52,701
    
    
    $
    51,130Liabilities and stockholders equity:Current liabilities:Accounts payable
    
    $
    1,557
    
    
    
    641Accrued payroll and related obligations
    
    
    1,429
    
    
    
    1,335Accrued loss contingency
    
    
    3,797
    
    
    
    3,765Other accrued liabilities
    
    
    1,650
    
    
    
    2,060Total current liabilities
    
    
    8,433
    
    
    
    7,801Non-current employment obligations
    
    
    181
    
    
    
    181Deferred income taxes
    
    
    1,229
    
    
    
    1,259Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Common stock, $0.001 par value: 40,000,000 shares
authorized; 13,776,482 shares issued at January 31,
2006 and 13,740,539 shares issued at October 31, 2005
    
    
    14
    
    
    
    14Additional paid in capital
    
    
    47,449
    
    
    
    47,319Retained earnings
    
    
    3,491
    
    
    
    2,652Treasury stock, at cost: 1,855,325 shares in 2006 and 2005
    
    
    (8,096
    )
    
    
    (8,096
    )Total stockholders equity
    
    
    42,858
    
    
    
    41,889Total liabilities and stockholders equity
    
    $
    52,701
    
    
    $
    51,130
  3




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GAMETECH INTERNATIONAL, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (In thousands, except per share amounts)
(Unaudited)
 Three MonthsEnded January 31,2006
    
    
    2005Net revenue
    
    $
    12,347
    
    
    $
    12,320Cost of revenue
    
    
    4,651
    
    
    
    5,470Gross profit
    
    
    7,696
    
    
    
    6,850Operating expenses:General and administrative
    
    
    2,615
    
    
    
    2,741Sales and marketing
    
    
    2,720
    
    
    
    3,059Research and development
    
    
    1,053
    
    
    
    1,083Loss contingencies
    
    
    32
    
    
    
    Total operating expenses
    
    
    6,420
    
    
    
    6,883Income (loss) from operations
    
    
    1,276
    
    
    
    (33
    )Interest and other income, net
    
    
    99
    
    
    
    35Income before income taxes
    
    
    1,375
    
    
    
    2Provision for income taxes
    
    
    536
    
    
    
    1Net income
    
    $
    839
    
    
    $
    1Net income per share:Basic
    
    $
    0.07
    
    
    $
    0.00Diluted
    
    $
    0.07
    
    
    $
    0.00Shares used in calculating net income per share:Basic
    
    
    11,914
    
    
    
    11,846Diluted
    
    
    12,120
    
    
    
    11,950Dividends per share
    
    $
    0.00
    
    
    $
    0.03
  4




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GAMETECH
INTERNATIONAL, INC.
 
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited, in thousands)
 Three Months EndedJanuary 31,2006
    
    
    2005Cash flows from operating activities :Net income
    
    $
    839
    
    
    $
    1Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    2,576
    
    
    
    3,075Obsolescence and loss on disposal of bingo terminals and related
equipment
    
    
    68
    
    
    
    241Loss on disposals of furniture and other equipment
    
    
    2
    
    
    
    Stock compensation expense
    
    
    
    
    
    
    93Deferred income taxes
    
    
    (37
    )
    
    
    (4
    )Interest on short-term investments
    
    
    (1
    )
    
    
    (11
    )Interest on restricted cash
    
    
    (21
    )
    
    
    Other changes in operating assets and liabilities:Accounts receivable, net
    
    
    (769
    )
    
    
    (32
    )Deposits
    
    
    1
    
    
    
    (3
    )Refundable income taxes
    
    
    573
    
    
    
    4Restricted short-term investments
    
    
    (35
    )
    
    
    Prepaid expenses and other current assets
    
    
    (58
    )
    
    
    (150
    )Accounts payable
    
    
    916
    
    
    
    (879
    )Accrued payroll and related obligations
    
    
    94
    
    
    
    (245
    )Accrued loss contingency
    
    
    32
    
    
    
    Income taxes payable
    
    
    
    
    
    
    45Other accrued liabilities
    
    
    (410
    )
    
    
    (353
    )Non-current employment obligations
    
    
    
    
    
    
    (1
    )Net cash provided by operating activities
    
    
    3,770
    
    
    
    1,781Cash flows from investing activities:Capital expenditures for bingo equipment, furniture, and other equipment
    
    
    (2,543
    )
    
    
    (2,479
    )Payments for acquisitions of intangible assets
    
    
    (113
    )
    
    
    (228
    )Net cash used in investing activities
    
    
    (2,656
    )
    
    
    (2,707
    )Cash flows from financing activities:Payments of dividends
    
    
    
    
    
    
    (355
    )Proceeds from issuance of common stock
    
    
    130
    
    
    
    106Net cash provided by (used in) financing activities
    
    
    130
    
    
    
    (249
    )Net increase (decrease) in cash and cash equivalents
    
    
    1,244
    
    
    
    (1,175
    )Cash and cash equivalents at beginning of period
    
    
    6,330
    
    
    
    6,101Cash and cash equivalents at end of period
    
    $
    7,574
    
    
    $
    4,926
  5




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GAMETECH
INTERNATIONAL, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 NOTES TO FINANCIAL STATEMENTS
 NOTE A. BASIS OF PRESENTATION
   USE OF ESTIMATES
  NOTE B. SIGNIFICANT ACCOUNTING POLICIES
 REVENUE RECOGNITION
  ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
   6




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BINGO EQUIPMENT, FURNITURE AND OTHER EQUIPMENT
  Bingo equipment
    
    3-5 yearsOffice furniture and equipment
    
    3-7 yearsLeasehold improvements
    
    10 years
  SOFTWARE DEVELOPMENT CAPITALIZATION
 Accounting for the Costs
of Computer Software to Be Sold, Leased, or Otherwise Marketed
  GOODWILL
  LONG-LIVED ASSETS
 Accounting for the Impairment or Disposal of
Long-Lived Assets
 LEGAL CONTINGENCIES
  7




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PRO FORMA STOCK-BASED COMPENSATION INFORMATION
     Three Months EndedJanuary 31,2005Net income, as reported
    
    $
    1Stock-based employee compensation expense included
in reported net income, net of related tax benefits
    
    
    29Stock-based employee compensation expense determined
under fair value method for all awards, net of
related tax effects
    
    
    (63
    )Pro forma net (loss)
    
    $
    (33
    )Net income (loss) per share:Basic:As reported
    
    $
    0.00Pro forma
    
    $
    (0.00
    )Diluted:As reported
    
    $
    0.00Pro forma
    
    $
    (0.00
    )
 8




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NOTE C. NET INCOME PER SHARE
    Three Months EndedJanuary 31,2006
    
    
    2005Net income, as reported
    
    $
    839
    
    
    $
    1Weighted average number of shares
outstanding
    
    
    11,914
    
    
    
    11,846Incremental shares from the assumed exercise of
dilutive stock options
    
    
    206
    
    
    
    104Dilutive weighted shares
    
    
    12,120
    
    
    
    11,950Net income per share:Basic
    
    $
    0.07
    
    
    $
    0.00Diluted
    
    $
    0.07
    
    
    $
    0.00
 NOTE D. LEGAL PROCEEDINGS
 GameTech International, Inc. v. Trend Gaming Systems, LLC
 9




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NOTE E. CREDIT AGREEMENT
  NOTE F. INCOME TAXES
  NOTE G. STOCK COMPENSATION
   10




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NOTE H. RESTRICTED SHORT TERM INVESTMENT
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
   OVERVIEW
     11




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TM
 APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
   Revenue Recognition
  Bingo Equipment, Furniture, and Other Equipment
  Bingo equipment
    
    3-5 yearsOffice furniture and equipment
    
    3-7 yearsLeasehold improvements
    
    10 years
  12




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Software Development Capitalization
 Accounting for the Costs
of Computer Software to Be Sold, Leased, or Otherwise Marketed
  Accounts Receivable and Allowance for Doubtful Accounts
   Goodwill
  Long-Lived Assets
 Accounting for the Impairment or Disposal of
Long-Lived Assets
 Legal Contingencies
  13




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RESULTS OF OPERATIONS
  Three Months Ended January 31,2006
    
    
    2005(Unaudited)
    
    
    (Unaudited)Net revenue
    
    $
    12,347
    
    
    
    100.0
    %
    
    $
    12,320
    
    
    
    100.0
    %Cost of revenue
    
    
    4,651
    
    
    
    37.7
    %
    
    
    5,470
    
    
    
    44.4
    %Gross profit
    
    
    7,696
    
    
    
    62.3
    %
    
    
    6,850
    
    
    
    55.6
    %Operating expenses:General and administrative
    
    
    2,615
    
    
    
    21.2
    %
    
    
    2,741
    
    
    
    22.3
    %Sales and marketing
    
    
    2,720
    
    
    
    22.0
    %
    
    
    3,059
    
    
    
    24.8
    %Research and development
    
    
    1,053
    
    
    
    8.5
    %
    
    
    1,083
    
    
    
    8.8
    %Loss contingencies
    
    
    32
    
    
    
    0.3
    %
    
    
    
    
    
    
    0.0
    %Total operating expenses
    
    
    6,420
    
    
    
    52.0
    %
    
    
    6,883
    
    
    
    55.9
    %Income (loss) from operations
    
    
    1,276
    
    
    
    10.3
    %
    
    
    (33
    )
    
    
    (0.3
    %)Interest and other income, net
    
    
    99
    
    
    
    0.8
    %
    
    
    35
    
    
    
    0.3
    %Income before provision for
income taxes
    
    
    1,375
    
    
    
    11.1
    %
    
    
    2
    
    
    
    0.0
    %Provision for income taxes
    
    
    536
    
    
    
    4.3
    %
    
    
    1
    
    
    
    0.0
    %Net income
    
    $
    839
    
    
    
    6.8
    %
    
    $
    1
    
    
    
    0.0
    %
   Net revenue
  Cost of Revenue
  14




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Gross Profit
  Operating Expenses
      Provision for Income Taxes
  LIQUIDITY AND CAPITAL RESOURCES
  15




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Purchase Commitments
  16




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 Currency Rate Fluctuations
  Market Risks
    Sensitivity Analysis Market Risks.
 
 ITEM 4. CONTROLS AND PROCEDURES.
  CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
  17




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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS.
 GameTech International, Inc. v. Trend Gaming Systems, LLC
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  18




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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  
 ITEM 5. OTHER INFORMATION.
  
 ITEM 6.
    
    EXHIBITS.31.1
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.31.2
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.32.1
    
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 19




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SIGNATURES
  Signature
    
    Title
    
    Date/s/ Jay M. Meilstrup

Jay M. Meilstrup
    
    Chief Executive Officer and President
(Principal Executive Officer)
    
    March 16, 2006/s/ James C. Wilson

James C. Wilson
    
    Chief Financial Officer
(Principal Financial Officer)
    
    March 16, 2006/s/ Ann D. McKenzie

Ann D. McKenzie
    
    Corporate Controller
(Principal Accounting Officer)
    
    March 16, 2006
 20




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EXHIBIT INDEX
 EXHIBITS31.1
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.31.2
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.32.1
    
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 21