Gametech International:

Business:

On July 2, 2012, GameTech International Inc., along with its affiliates, filed a voluntary petition for reorganization under Chapter 11 in the US Bankruptcy Court for the District of Delaware.

GameTech International, Inc. engages in developing, manufacturing, and marketing gaming entertainment products and systems primarily in North America. The company operates in two segments, Bingo and Video Lottery Terminals. The Bingo segment is involved in the design, development, marketing, and leasing of interactive electronic bingo systems consisting of portable and fixed-based systems, and wireless server-based gaming technologies. It markets portable, handheld and stationary, and fixed-base bingo player devices; electronic and paper bingo games, including Big Bad Bingo and Crystal Ball Bingo; other related for-fun games, such as solitaire; and bingo management systems. Its devices display electronic bingo card images for each game and assist the players in managing and marking their bingo cards in physical bingo facilities operated in charitable, Native American, commercial, and military locations. The Video Lottery Terminals segment engages in the design, development, manufacture, marketing, sale, and licensing of gaming equipment comprising video lottery terminals, slot machine equipment, related software, a and game content. Its equipment is operated in casinos, bar/taverns, and truck stops. This segment sells its machines to route operators, bar/tavern gaming operators, and distributors. GameTech International, Inc. was founded in 1994 and is headquartered in Reno, Nevada.

Gametech funded a large acquisition in 2007 with a secured loan. On June 27^th, 2012 the loan was purchased by a competitor that attempted to use the loan to force a merger of the two companies. Gametech believed that alternative transactions exist which would provide more value for the company than the suggested merger. Gametech requested a forbearance agreement to work through the issues with their competitor but the competitor refused, forcing the company to file for bankruptcy. 

Financial Results:

Gametech’s revenue in 2011 was $30.9 million and according to a July 2^nd statement to the court from the CFO, revenue is projected to decline modestly in 2012 and grow in 2013. 

The company has faced a number of challenges in the past few years including a competitive and difficult business environment since 2008. Also, Gametech’s  acquisition of Summit Amusement and Distributing in 2007 saddled the company with large debt and failed to perform to expectations.  In addition, the company spent million on a new headquarters building at the same time the business was deteriorating.  Gametech recently sold the building and used the proceeds to reduce the balance on the bank note from $23 million to $16 million. 

Gametech has large market share (26% of the total market) and positive EBITDA and cash flow.

In 2011, Gametech had adjusted EBITDA of $2.85 million. In the first quarter of 2012 EBITDA was $1.8 million.

Gametech lost $4.5 million in 2011 on an adjusted basis. This is due to falling revenue and the inability to right size expenses quick enough while revenue fell. For the first quarter of 2011, Gametech made $.9 million.  This is due to reduced operating expenses.

Value Of Business:

Gametech has two companies that are interested in buying their business. One is the competitor that purchased the note and forced them into bankruptcy. “The Debtors have identified a number of operational initiatives that they believe will substantially improve their business operations and have considered a variety of strategic transactions that could result in substantial value for the Debtors estates.”

Gametech has leading market share in its industry and two parties interested in buying them. Since the company has such high SG&A, the synergies with a competitor would be significant.   

Gametech acquired Summit Amusement for around 1.5x revenue. In addition, Yuri Itkis purchased Fortunet back in 2009 at 1.5x revenue (the company was EBITDA positive).

Gametech has 11.8 million shares outstanding and $16 million of debt.  CA are in line with CL.  EV is $18.5 million.  The company recently sold the corporate headquarters and used proceeds to pay note down from $23 million to $16 million. 

Notes:

1)      Gametech’s 2 year average NI is negative.

2)      At October 30, 2011 the Company had net remaining operating loss carryforwards for federal and state income tax purposes of $9.1 million and $24.2 million.  

3)      Other claims filled by parties during the bankruptcy process haven’t been included. To date they are small.