Spintek Gaming Technologies, Inc.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 10, 1996
November 5, 1996
To the Stockholders of Spintek Gaming Technologies, Inc.:
You are cordially invited to attend the Annual Meeting of Stockholders of
Spintek Gaming Technologies, Inc., a California corporation (the Company ),
which will be held at the Imperial Palace Hotel, 3535 Las Vegas Boulevard South,
Las Vegas, Nevada at 10:00 a.m., Pacific time, on Tuesday, December 10, 1996, to
consider and act upon the following matters, all as more fully described in the
accompanying Proxy Statement which is incorporated herein by this reference:
1. To elect a Board of Directors to serve until the next annual meeting of
the Company's stockholders and until their successors have been elected and
qualify.
2. To ratify the Spintek Gaming Technologies, Inc. 1996 Stock Option Plan
and the grant of options to Gary L. Coulter and Robert E. Huggins.
3. To ratify the selection of Joseph Decosimo & Company as the Company s
independent public accountants for fiscal year 1997.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Stockholders of record of the Company s common stock at the close of
business on November 4, 1996, the record date fixed by the Board of Directors,
are entitled to notice of, and to vote at, the meeting.
THOSE WHO CANNOT ATTEND ARE URGED TO SIGN, DATE, AND OTHERWISE COMPLETE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. ANY STOCKHOLDER
GIVING A PROXY HAS THE RIGHT TO REVOKE IT ANY TIME BEFORE IT IS VOTED.
BY ORDER OF THE BOARD OF DIRECTORS
Gary L. Coulter
Chairman of the Board
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
901-B GRIER DRIVE, LAS VEGAS, NEVADA 89119
(702) 263-3660 FAX (702) 263-3680
Spintek Gaming Technologies, Inc.
_______________
PROXY STATEMENT
_______________
Approximate date proxy material first sent
to stockholders: November 5, 1996
_______________
The following information is in connection with the solicitation of proxies
for the Annual Meeting of Stockholders of Spintek Gaming Technologies, Inc., a
California corporation (the Company ), to be held at the Imperial Palace Hotel,
3535 Las Vegas Boulevard South, Las Vegas, Nevada at 10:00 a.m., Pacific Time,
on Tuesday, December 10, 1996, and the adjournments thereof (the Meeting ), for
the purposes stated in the Notice of Annual Meeting of Stockholders preceding
this Proxy Statement.
SOLICITATION AND REVOCATION OF PROXIES
A form of proxy is being furnished herewith by the Company to each
stockholder, and, in each case, is solicited on behalf of the Board of Directors
of the Company for use at the Meeting. The entire cost of soliciting these
proxies will be borne by the Company. The Company may pay persons holding shares
in their names or the names of their nominees for the benefit of others, such as
brokerage firms, banks, depositories, and other fiduciaries, for costs incurred
in forwarding soliciting materials to their principals. Members of the
management of the Company may also solicit some stockholders in person, or by
telephone, telegraph or telecopy, following solicitation by this Proxy
Statement, but will not be separately compensated for such solicitation
services.
Proxies duly executed and returned by stockholders and received by the
Company before the Meeting will be voted FOR the election of all of the
nominee-directors specified herein, and FOR the 1996 Stock Option Plan, and FOR
the ratification of the selection of Joseph Decosimo and Company as the Company
s independent public accountants for fiscal year 1997, unless a contrary choice
is specified in the proxy. Where a specification is indicated as provided in the
proxy, the shares represented by the proxy will be voted and cast in accordance
with the specifications made. As to other matters, if any, to be voted upon, the
persons designated as proxies will take such actions as they, in their
discretion, may deem advisable. The persons named as proxies were selected by
the Board of Directors of the Company and each of them is a director of the
Company.
Under California law, shares represented by proxies that reflect
abstentions or broker non-votes (i.e. shares held by a broker or nominee which
are represented at the Meeting, but with respect to which such broker or nominee
is not empowered to vote on a particular proposal) will be counted as shares
that are present and entitled to vote for purpose of determining the presence of
a quorum. Any shares not voted (whether by abstention, broker non-vote, or
otherwise) will have no impact in the election of directors, except to the
extent that the failure to vote for an individual results in another individual
receiving a larger proportion of votes. Any shares represented at the Meeting
but not voted (whether by abstention, broker non-vote or otherwise) with respect
to the proposal to approve the 1996 Stock Option Plan will have no effect on the
vote for such proposal except to the extent the number of abstentions causes the
number of shares voted in favor of the proposal not to equal or exceed a
majority of the quorum required for the Meeting. Any shares represented at the
Meeting but not voted (whether by abstention, broker non-vote or otherwise) with
respect to the proposal to ratify the selection of Joseph Decosimo and Company
as the Company s independent public accountants for fiscal year 1997 will have
no effect on the vote for such proposal except to the extent the number of
abstentions causes the number of shares voted in favor of the proposal not to
equal or exceed a majority of the quorum required for the Meeting.
Your execution of the enclosed proxy will not affect your right as a
stockholder to attend the Meeting and to vote in person. Any stockholder giving
a proxy has a right to revoke it at any time by either (a) a later-dated proxy,
(b) a written revocation sent to and received by the Secretary of the Company
prior to the Meeting, or (c) attendance at the Meeting and voting in person.
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
The Company has 100,000 shares of preferred stock authorized, of which
7,202 shares were outstanding, and 100,000,000 shares of common stock
authorized, of which 11,052,902 shares were outstanding, as of the close of
business on November 4, 1996 (the Record Date ). Only common stockholders of
record on the books of the Company at the close of business on the Record Date
will be entitled to vote at the Meeting. Each share of common stock is entitled
to one vote. Representation at the Meeting by the holders of a majority of the
outstanding common stock of the Company, either by personal attendance or by
proxy, will constitute a quorum. Preferred stock has no right to vote on any
matters.
Changes in Control
On September 14, 1995, the stockholders of the Company approved the
acquisition of Spintek Gaming, Inc., a Georgia corporation, effected by an
exchange of the common stock of the entities, with the acquisition deemed to be
effective as of July 1, 1995. For accounting purposes, the acquisition has been
treated as an acquisition of Spintek Gaming Technologies, Inc. (formerly GSA,
Inc.) by Spintek Gaming, Inc. and as such constitutes a recapitalization of
Spintek Gaming, Inc. On September 26, 1995, the Company effected a reverse split
on a 1 share for 2 share basis, changed the value of its common stock from no
par value to $.002 par value per share, and changed its name from GSA, Inc. to
Spintek Gaming Technologies, Inc. As a consequence of the above described
transactions, the Company became the holding company of its wholly-owned
subsidiary, Spintek Gaming, Inc.
On October 30, 1995, the Company consummated a Rule 504 offering whereby
70,000 shares of its common stock held in treasury were sold to an accredited
investor for $250,000 which netted the Company $218,500 after costs and expenses
of the transaction. On November 28, 1995, the Company consummated a second Rule
504 offering whereby 75,000 shares of its common stock held in treasury were
sold to a different accredited investor for $300,000 which after expenses netted
the Company $262,500. On December 22, 1995, the Company sold 454,545 shares of
its common stock to overseas investors pursuant to Regulation S for $1,000,000,
which after costs of the offering, netted the Company approximately $820,000.
Between January 12 and April 4, 1996, the Company received $1,000,000 in
advances from the Malcolm C. Davenport V Family Trust and the Lanier M.
Davenport, Sr. Family Trust (hereinafter referred to collectively as the
"Davenport Trusts"), two separate entities and, pursuant to an agreement signed
on February 16, 1996, with Board of Directors approval, this debt was converted
to 454,545 shares of the Company's common stock, which bear a restricted legend,
at a price of $2.20 per share. The trustees of the Malcolm C. Davenport V Family
Trust are Malcolm C. Davenport V, Director of the Company and brother to Lanier
M. Davenport, former Chairman and Chief Executive Officer of the Company and a
current stockholder, and Malcolm C. Davenport, Jr., a stockholder of the Company
and father of Lanier M. Davenport and Malcolm C. Davenport V. The Trustee of the
Lanier M. Davenport Sr. Family Trust is Malcolm C. Davenport, Jr.
On July 16, 1996, pursuant to an understanding with the trustees of the
Davenport Trusts, $440,000 of an additional $920,000 of debt to the Davenport
Trusts was converted to 401,140 shares of the Company's common stock, that bear
a restricted legend. The remaining $480,000, plus accrued interest of
approximately $15,000, was converted to notes payable to the Davenport Trusts.
Also on July 16, 1996, the Company issued a $7,143,000, 4% Convertible Debenture
("Debenture") due December 31, 1997 to RBB Bank Aktiengesellschaft ("RBB")
offshore investors. The Debenture, plus any accrued interest, automatically
converts into common stock of the Company on December 31, 1997 or at any time
after August 30, 1996 at the option of the holder. Pursuant to the terms and
conditions of the Debenture, the price at which the debt underlying the
Debenture will be converted to equity ranges from a minimum of $1 to a maximum
of $3 per share, subject to certain conditions. The conversion price could fall
below the $1 minimum if the Company fails to become listed on the NASDAQ
National Market by November 13, 1996, or, if the Company's actual profits are
not at least eighty percent (80%) of the projected quarterly profits for either
of the quarters ending September 30, 1996 or December 31, 1996. Should either of
these events occur, the Debenture holder could conceivably convert the
underlying debt to common stock of the Company at a price which could give the
holder a majority of the shares outstanding in the Company.
On August 6, 1996 the Board of Directors was granted authority by a consent
of a majority of the stockholders of the Company to issue up to 100,000 shares
of preferred stock, without nominal or par value per share. Pursuant to the
provisions of the terms of the Debenture described above, the Board of Directors
issued 7,202 shares of preferred stock to satisfy the underlying debt of said
Debenture while incorporating certain rights of the Debenture holder into the
preferred stock. All such preferred stock issued to the Debenture holder plus
any accrued and unpaid dividends thereon will be converted to common stock of
the Company on or before December 31, 1997, pursuant to the terms of the
Debenture.
Certain mandatory and optional redemption provisions apply to the preferred
stock. The Company has the right to redeem some or all of the preferred stock in
the event that the shareholder's optional conversion rights are exercised. The
Company has the obligation to redeem the preferred stock in the event that the
Company transfers substantially all of its assets or if a change in control
occurs (i.e. (i) anyone other than the Company or certain affiliates owns a
majority of the voting stock of the Company, (ii) the Company is involved in
certain mergers or consolidations, or (iii) the persons who constituted the
majority of the Board of Directors of the Company on July 10, 1996 cease to
constitute a majority).
Also, because the five day average bid price for the Company's common stock
did not reach $3 per share within the ninety (90) days ended October 14, 1996,
the terms of the Debenture that have been continued notwithstanding satisfaction
of the indebtedness of the Debenture obligate the Company to effect a reverse
stock split sufficient to raise the bid price to $3.25 per share based upon the
five day average bid price. The directors intend to proceed with the reverse
stock split when required by RBB.
In addition, the Company has issued Warrants to Third World Investments,
Ltd. to acquire 250,000 shares of common stock of the Company at an exercise
price that ranges from $1 to $2 per share exercisable in the whole or part
between October 1, 1996 and September 30, 2001.
The effect of the preferred stock issued to satisfy the indebtedness of the
Debenture and the outstanding Warrants is to create the possibility of a change
in control of the majority of the common stock of the Company.
Beneficial Ownership
The following table sets forth certain information regarding the beneficial
ownership of the Company s common stock as of the Record Date as to (a) each
director, (b) each executive officer identified in the Summary Compensation
Table below, (c) all officers and directors of the Company as a group, and (d)
each person known to the Company to beneficially own five percent or more of the
outstanding shares of common stock.
[TABLE CONTINUED ON FOLLOWING PAGE]
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Amount and Nature Percent of
Title of Class Beneficial Owner(1) of Beneficial Owner Class(2)(3)
Directors and
Executive Officers:
<S> <C> <C> <C>
Common Stock Malcolm C. Davenport V 1,104,675(4) 10.0%
Common Stock Gary L. Coulter 611,000(2) 5.2%
Common Stock Michael D. Fort 150,862 1.4%
Common Stock Robert E. Huggins 300,000(2) 2.7%
All directors and executive officers
as a group (4 persons) 2,166,537 19.6%
Five Percent (5%)
or Greater
Shareholders:
Common Stock Lanier M. Davenport, Sr. 3,617,719(5) 32.7%
______________
<FN>
(1) The address of all directors and executive officers is c/o the Company,
901-B Grier Drive, Las Vegas, Nevada 89119. Mr. Lanier Davenport's address is
Suit 609, Two Union Square, Chattanooga, Tennessee 37402.
(2) Percent of class is based on the number of shares outstanding on the
Record Date plus, with respect to each named person, the number of shares of
common stock, if any, which the stockholder has the right to acquire within 60
days of such date. This includes options to acquire 600,000 shares with respect
to Mr. Coulter and 250,000 shares with respect to Mr. Huggins.
(3) The percentages have been computed without giving effect to certain
rights to acquire stock arising out of the Company's issuance of the Debenture
and Warrants in July 1996. If those rights are fully exercised, the rights
holders would control a majority of the Company's common stock and there would
be substantial dilution of the percentage of class held by the named
shareholders. See "Changes in Control".
(4) Includes 313,416 shares held by Mr. M. Davenport s spouse, and 477,843
shares by the Malcolm C. Davenport V Family Trust in which Mr. M. Davenport has
beneficial control, though no economic interest.
(5) Includes 626,832 shares held by Mr. L. Davenport's spouse and 470,121
shares held by Mr. L. Davenport s minor children, with respect to which Mr.
Davenport disclaims any beneficial ownership.
</FN>
</TABLE>
NOMINATION AND ELECTION OF DIRECTORS
(Proposal 1 on the Proxy Card)
The Company s directors are to be elected at each annual meeting of
stockholders. At this Meeting, three directors are to be elected to serve until
the next annual meeting of the stockholders and until their successors are
elected and qualify. The three nominees for election as directors at this
Meeting set forth in the table below are all recommended by the Board of
Directors of the Company. Mr. L. Davenport, formally Chairman of the Board and
Chief Executive Officer, resigned from such positions on October 18, 1996 for
personal reasons. Michael D. Fort was appointed to the Board by the remaining
members on October 23, 1996 to fill the unexpired portion of Mr. L. Davenport's
term on the Board. Mr. M. Davenport V was elected as a director at the last
Annual Meeting, and Mr. Coulter was appointed as a director by the Board of
Directors on April 1, 1996 to fill a vacancy in the Board of Directors resulting
from the resignation of Mr. Norman J. Hoskin.
In the event that any of the nominees for director should become unable to
serve if elected, it is intended that shares represented by proxies which are
executed and returned will be voted for such substitute nominee(s) as may be
recommended by the Company s existing Board of Directors.
The three nominee-directors receiving the highest number of votes cast at
the Meeting will be elected as the Company s directors to serve until the next
annual meeting of stockholders and until their successors are elected and
qualify. Subject to certain exceptions specified below, stockholders of record
on the Record Date are entitled to cumulate their votes in the election of the
Company s directors (i.e., they are entitled to the number of votes determined
by multiplying the number of shares held by them times the number of directors
to be elected) and may cast all of their votes so determined for one person, or
spread their votes among two or more persons as they see fit. No stockholder
shall be entitled to cumulate votes for a given candidate for director unless
such candidate s name has been placed in nomination prior to the vote and the
stockholder has given notice at the Meeting, prior to the voting, of the
stockholder s intention to cumulate his or her votes. If any one stockholder has
given such notice, all stockholders may cumulate their votes for candidates in
nomination. Discretionary authority to cumulate votes is hereby solicited by the
Board of Directors.
The following table sets forth certain information concerning the nominees
for election as directors (all of such nominees being continuing members of the
Company s present Board of Directors):
Name, Position with Company,
Principal Occupation
and Other Directorships Age
Gary L. Coulter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Chairman of the Board and Chief Executive Officer of the Company since
October 1996; Vice Chairman and Chief Operating Officer of the Company from
April 1996 until October 1996; President, Chief Operating Officer, and Director
from April 1994 until March 1996 of Private Biologicals Corporation, a developer
of biological products and treatments for cancer; private practice of law from
August 1992 until December 1992; Chief Executive Officer and Director from
December 1992 until March 1994 of Omega International, Inc., developer of
natural products for the treatment of AIDS; President, Chief Operating Officer,
and Director from March 1986 until August 1, 1996 of Woodruff Investment Co., a
developer, manager, and financer of real estate investments; from April 1996 to
present, Vice-Chairman of the Board of Directors of Tapistron International,
Inc., a publicly traded company that filed for protection from creditors under
Chapter 11 of the United States Bankruptcy Code in June 1996; and from January
1996 to the present he has practiced law with Malcolm C. Davenport V, a director
of the Company.
Malcolm C. Davenport V . . . . . . . . . . . . . . . . . . . . . . . . . 44
Director of the Company since September 1995 and Secretary since October
1996; Director for Spintek Gaming, Inc., a wholly-owned subsidiary of the
Company, since June 1995; in addition, Mr. Davenport practiced law in Dalton,
Georgia, from 1990 through November 1992 with William Ponder as Ponder and
Davenport, P.C.; from January 1993 through January 1995, he practiced law in his
own name in Lanett, Alabama and West Point, Georgia; from January 1996 to the
present he has been engaged in the practice of law from West Point, Georgia with
Gary L. Coulter, the Chairman of the Board and Chief Executive Officer of the
Company; and from January 1995 to the present, he has practiced as a certified
public accountant in Roanoke, Alabama, as Davenport & Sikes, Certified Public
Accountants.
Michael D. Fort . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Director of Manufacturing and Development for the company since May 1995.
Prior to joining the Company, Mr. Fort had been retired since 1991. Prior to his
retirement he had worked for 20 years in the international business environment
in various capacities. From 1967 until 1974 Mr. Fort was employed by Ingram
Contractors (which was acquired by J. Ray McDermott in 1972), as a Project
Manager working New Orleans, Rio and London and Brussels . Mr. Fort joined
Jardine Offshore, Singapore, in 1974 staying with that company until his return
to the United States in 1986. From 1986 until his retirement in 1991 Mr. Fort
was involved in real estate development in Hawaii.
There were 26 meetings of the Board of Directors of the Company during the
last fiscal year of the Company. Each of the directors of the Company attended
at least 75% of the meetings. The Company does not have a nominating committee
of the Board of Directors. The nominees for election as directors at the Meeting
were selected by the Board of Directors of the Company. The Company also does
not have a compensation committee of the Board of Directors or an audit
committee of the Board of Directors.
Compensation of Directors
For service on the Board of Directors, directors who are not employees of
the Company currently receive no compensation for each meeting of the Board of
Directors other than reimbursement for expenses which are related to attending
board meetings. Directors who are employees of the Company receive no additional
compensation for serving on the Board of Directors.
Certain Transactions
The Lanier M. Davenport, Sr. Family Trust and the Malcolm C. Davenport V
Family Trust, the trustees of which are Malcolm C. Davenport V, Director of the
Company and brother of Lanier M. Davenport, former Chairman and Chief Executive
Officer of the Company, and Malcolm C. Davenport, Jr., a stockholder of the
Company and father of Lanier M. Davenport and Malcolm C. Davenport V, have made
advances in the aggregate of $1,920,000, of which $1,000,000 has been converted
into shares of common stock of the Company, which bear a restricted legend, as
of June 30, 1996. The remaining $920,000 is in the form of demand notes and
bears interest at a rate of 10% per annum. The accrued and unpaid interest was
$11,414 at June 30, 1996.
On July 16, 1996, pursuant to an understanding with the trustees of the
Davenport Trusts, $440,000 of the $920,000 of debt to the Lanier M. Davenport,
Sr. Family Trust and the Malcolm C. Davenport V Family Trust was converted to
401,140 shares of the Company's common stock, which bears a restricted legend.
The remaining $480,000, plus accrued interest of approximately $15,000, was
converted to notes payable, with interest accruing at a rate of 10%, to the
Davenport Trusts. Payments of $20,000, including interest, are to be paid on the
15th of each month until paid, and commenced August 15, 1996.
Mr. Lanier M. Davenport, the former Chairman and Chief Executive Officer,
has made loans to the Company in the aggregate amount of $330,000 at an annual
interest rate of 10% in the form of demand notes, of which $119,108, plus
accrued and unpaid interest of $8,843, remained outstanding as of June 30, 1996.
Malcolm C. Davenport, Jr., stockholder of the Company and father of both
Lanier M. Davenport, former Chairman and Chief Executive Officer of the Company,
and Malcolm C. Davenport V, Director of the Company, has made loans in the
aggregate amount of $418,500 at an annual interest rate of 10% in the form of
demand notes, of which $323,000 plus accrued and unpaid interest of $29,992
remained outstanding as of September 30, 1996.
Sarah L. Davenport, stockholder of the Company and mother of both Lanier M.
Davenport, former Chairman and Chief Executive Officer of the Company, and
Malcolm C. Davenport V, Director of the Company, has made loans in the aggregate
amount of $20,000 at an annual interest rate of 10% in the form of demand notes,
which amount plus accrued and unpaid interest of $1,842 remained outstanding as
of June 30, 1996.
Davenport Investments, Inc., a corporation controlled by Lanier M.
Davenport, former Chairman and Chief Executive Officer of the Company, has made
loans in the aggregate amount of $56,500 at an annual interest rate of 10% in
the form of demand notes, of which $26,000 plus accrued and unpaid interest of
$2,109 remained outstanding as of June 30, 1996. It is also party to an
agreement with the Company pursuant to which it received lease payments in the
aggregate amount of $19,346 for office space used by the Company for its
corporate offices in Chattanooga, Tennessee during the period ended June 30,
1996. This agreement terminated on September 30, 1996.
Coulter & Davenport, Attorneys-at-Law, whose partners are Gary L. Coulter,
Esquire, Chairman and Chief Executive Officer of the Company, and Malcolm C.
Davenport V, Esquire, Director of the Company, has billed the Company for legal
fees and expenses in the aggregate amount of $162,754 of which $117,754 remained
outstanding as of June 30, 1996.
Interest expense to all related parties was $2,181, $49,403, and $51,584,
for the periods March 31, 1995 (Inception) to June 30, 1995, the year ended June
30, 1996, and March 31, 1995 (Inception) to June 30, 1996, respectively.
The Company has made loans as part of an agreement dated April 13, 1995 to
Spintek International, Inc., a corporation controlled by Lanier M. Davenport,
former Chairman and Chief Executive Officer of the Company, in the aggregate
amount of approximately $186,000 at an annual interest rate of 10% in the form
of demand notes, of which $159,910 plus accrued and unpaid interest of $17,366
remained outstanding as of June 30, 1996.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Information with respect to Mr. Coulter appears above under Nomination and
Election of Directors . Information with respect to the other executive officers
of the Company is as follows:
Robert E. Huggins has been Chief Financial Officer for the Company since
November 15, 1995. Mr. Huggins is a Certified Public Accountant. Since September
1992, he has served as a Series B director for Gold River Hotel and Casino
Corporation. From February 1992 until February 1995, Mr. Huggins served as the
Chief Accounting Officer and Secretary for Elsinore Corporation. Elsinore
Corporation filed for protection under Chapter 11 of the United States
Bankruptcy Code in August, 1995. Prior to February 1992, he served in various
capacities with other gaming companies, including: Vice President, Finance and
Chief Financial Officer for United Gaming, Inc., as well as President of two of
its casino subsidiaries; Controller for Caesars Palace; and Controller for M&R
Investments, Inc. (Dunes Hotel & Country Club). Prior to his industry
experience, Mr. Huggins was a CPA with the firm of Haskins & Sells for four
years.
Jonathan P. Hoover has been Secretary and Treasurer for the Company since
September 14, 1995. He has also served as Secretary and Treasurer for the
Company s wholly-owned subsidiary, Spintek Gaming, Inc., since March 1995; and
for Spinteknology, Inc., the wholly-owned subsidiary of Spintek Gaming, Inc.,
since May 1995. Pursuant to a severance agreement, dated August 24, 1996, Mr.
Hoover s employment agreement terminated on September 30, 1996, and he no longer
fills the aforementioned positions. Mr. Hoover has served as an independent
consultant since February 1994, and Comptroller since February 1995 for Spintek
International, Inc., the former parent company of Spintek Gaming, Inc. He has
served since February 1994 as Executive Vice President for Davenport
Investments, Inc., a Chattanooga, Tennessee-based, privately-held company
engaged in management consulting. From May 1993 until January 1994, Mr. Hoover
served as Technology Support Analyst for Tapistron International, Inc., a
Ringold, Georgia-based, publicly-held company (reported on the NASDAQ National
Market System) engaged in specialty textile machinery manufacturing.
Lanier M. Davenport was Chairman of the Board, Chief Executive Officer, and
President of the Company from September 1995 until October 18, 1996, on which
date he resigned from all offices with the Company and its subsidiaries;
Chairman, Chief Executive Officer, and Director of Spintek Gaming, Inc., a
wholly-owned subsidiary of the Company, from March 1995 through October 18,
1996; Chairman, Chief Executive Officer, and Director of Spinteknology, Inc., a
wholly-owned subsidiary of the Company, from May 1995 through October 18, 1996;
Chairman, Secretary, and Treasurer for Spintek International, Inc. since July
1993; Chairman since December 1991 for Davenport Investments, Inc., a management
consulting firm; and Chairman from February 1986 until July 1994 and January
1996 until August 1996 of Tapistron International, Inc., a specialty textile
machinery manufacturer which filed for protection from creditors pursuant to
Chapter 11 of the United States Bankruptcy Code on June 1996.
Executive Compensation
The following table sets forth information concerning compensation of the
chief executive officer and all other executive officers of the Company whose
salary and bonus exceeded an annual rate of $100,000 during the fiscal year
ended June 30, 1996:
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
Securities
Name and Other Annual Underlying
Principal Position Year Salary Compensation Options/SARs
<S> <C> <C> <C> <C>
Lanier M. Davenport (1) .............. 1996 $65,640 $68,483 (1) --
Chairman of the Board, Chief
Executive Officer and President
Gary L. Coulter (2) .................. 1996 $28,615 -- --
Director and Chief Operating Officer
Jonathan P. Hoover (3) ............... 1996 $50,404 $82,950 (3) --
Secretary and Treasurer
Robert E. Huggins (4) ............... 1996 $72,680 $21,538 (4) --
Chief Financial Officer
________________
<FN>
(1) Includes $50,979 of consulting for the Company s subsidiary Spintek
Gaming, Inc. and the conversion of options to purchase 4,000 common shares of
Spintek Gaming, Inc. into actual shares of the common stock of the Company in
conjunction with the acquisition of Spintek Gaming, Inc. on September 14, 1995.
Mr. Davenport resigned effective October 18, 1996.
(2) Mr. Coulter was hired on April 1, 1996 at a base salary of $120,000.
Mr. Coulter was granted options to acquire 600,000 shares of Company common
stock on October 16, 1996. The Company provides a leased car and permits Mr.
Coulter to use a Company apartment when he is in Las Vegas.
(3) Includes $4,200 of consulting for the Company s subsidiary Spintek
Gaming, Inc., the conversion of options to purchase 50,000 common shares of
Spintek Gaming, Inc. into actual shares of the common stock of the Company in
conjunction with the acquisition of Spintek Gaming, Inc. on September 14, 1995,
and the issuance of common shares of the Company to extinguish an employment
contract that Mr. Hoover held with Spintek Gaming, Inc. Mr. Hoover's
compensation is actual for the fiscal year ended June 30, 1996. Mr. Hoover
resigned effective September 30, 1996.
(4) Mr. Huggins was hired on November 15, 1995 at a base salary of
$120,000. Mr. Huggins was a consultant to the Company from October 1, 1995 until
November 15, 1995 for which he received $15,300 in consulting fees. Mr. Huggins
was granted an option to acquire 250,000 shares of Company common stock on
October 16, 1996. The Company also provides a car allowance and pays for a
portion of health insurance.
</FN>
</TABLE>
Employment Agreements
The Company has entered into two-year employment agreements with each of
Mr. L. Davenport and Mr. Hoover which became effective September 14, 1995,
pursuant to which their salaries were $120,000 and $36,000 per year,
respectively. Pursuant to an amendment of Mr. Hoover s employment agreement,
effective January 1, 1996, Mr. Hoover s salary was increased to $72,000 per
year. The Company has entered into an employment agreement extending through
October 18, 1998 with Mr. Robert E. Huggins, Chief Financial Officer, pursuant
to which his salary is $120,000 per year. The Company has entered into an
agreement extending through October 18, 1998 with Mr. Gary L. Coulter, Chairman
and Chief Executive Officer pursuant to which his salary is $120,000 per year.
Each of Mr. L. Davenport, Mr. Hoover and Mr. Huggins also received an automobile
allowance of $750 per month as well as reimbursement for health and disability
insurance held separately from the Company. The Company pays for a leased car
and apartment rental for Mr. Coulter while he is in Las Vegas. On August 24,
1996, the Company entered into a severance agreement with Mr. Hoover whereby Mr.
Hoover s employment agreement terminated on September 30, 1996, and Mr. Hoover
shall perform consulting services for the Company thereafter for a period of
twelve (12) months for $2,000 per month. On October 18, 1996, Mr. L. Davenport
resigned as a director and officer of the Company.
Change-in-Control Severance Agreements
For the purpose of certain employment agreements of the Company, a "Change
in Control" generally is deemed to occur if: (i) any one other than the Company
or certain affiliated entities becomes the owner of 40% or greater of the voting
securities of the Company; or (ii) the Company is involved in a merger or
consolidation (with exceptions for certain events) or (iii) the persons who
constituted a majority of the Board of Directors on October 18, 1996 cease to
constitute the majority. As part of the employment agreements with Mr. Huggins
and Mr. Coulter, in the event of a Change in Control, Mr. Huggins and Mr.
Coulter shall each be considered immediately terminated and entitled to two year
s salary as severance, to be paid no less than monthly over the subsequent
twenty-four (24) months. No change in control has occurred under those
agreements.
Option Grants in Last Fiscal Year
On June 30, 1996, an option to purchase 150,000 shares of the common stock
of the Company was issued and outstanding. Such option was issued on May 2,
1996, at a purchase price of $1.20 per share, the closing bid price of the
Company s common stock on that date, and does not expire until December 31,
2001. This option was not issued pursuant to an incentive or employee stock
option plan and carries piggyback registration rights.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
There were no options exercised during the last fiscal year ended June 30,
1996, and there were 150,000 unexercised options outstanding as of the end of
the same period.
Compliance With Section 16 of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires directors,
executive officers and 10% or greater shareholders of the Company ( Reporting
Persons ) to file with the Securities and Exchange Commission initial reports of
ownership (Form 3) and reports of changes in ownership of equity securities of
the Company (Form 4 and Form 5). To the Company s knowledge, based solely on its
review of the copies of such reports furnished to the Company and written
representations that certain reports were not required, during the fiscal year
ended June 30, 1996, the Reporting Persons have complied with all applicable
Section 16(a) filing requirements, with the following noted exceptions,
designating the Form with respect to which there was noncompliance:
Name Position Exceptions
Lanier M. Davenport Chairman, CEO, President, Form 3 filed late.
Director(1) One Form 4 transaction
filed late.
Gary L. Coulter Vice Chairman, COO, Director Form 3 filed late.
Malcolm C. Davenport V Director Form 3 filed late.
Two Form 4 transactions
filed late.
Norman J. Hoskin Director (September 1995 - Company received no
March 1996)(2) copies of any
Forms 3, 4, or 5
Robert E. Huggins Chief Financial Officer Form 3 filed late.
One Form 4 transaction
filed late.
Jonathan P. Hoover Secretary and Treasurer Form 3 filed late.
_______________________
(1) Lanier M. Davenport resigned effective October 18, 1996.
(2) Norman J. Hoskin resigned effective March 7, 1996.
RATIFICATION OF THE COMPANY S 1996 STOCK OPTION PLAN AND GRANT OF OPTIONS
(Proposal 2 on the Proxy Card)
Subject to the approval of the shareholders, on October 16, 1996, the Board
of Directors approved the Spintek Gaming Technologies, Inc. 1996 Stock Option
Plan (the Plan ) and the granted options pursuant to the Plan to Gary L. Coulter
and Robert E. Huggins (the "Option Grants"). The brief summary of the Plan which
follows is qualified in its entirety by reference to the complete text, a copy
of which is attached to this Proxy Statement as Exhibit A.
The Company has established a stock option plan to enable executive
officers, other key employees, Independent Directors and consultants of the
Company to participate in the ownership of the Company. The 1996 Stock Option
Plan is designed to attract and retain executive officers, other key employees,
Independent Directors and consultants and to provide incentives to such persons
to maximize performance. The 1996 Stock Option Plan provides for the award to
executive officers, other key employees, Independent Directors and consultants
of the Company of nonqualified stock options and incentive stock options and
provides for the grant to executive officers, other key employees, Independent
Directors and consultants of nonqualified stock options.
The 1996 Stock Option Plan is administered by the Board of Directors, or a
Committee established by the Board, which is authorized to select from among the
eligible participants the individuals to whom options are to be granted and to
determine the number of shares to be subject thereto and the terms and
conditions thereof. The members of the Board who are not affiliated with the
Company will select from among the eligible participants the individuals to whom
stock options are to be granted, except as set forth below, and will determine
the number of shares to be subject thereto and the terms and conditions thereof.
The Board is also authorized to adopt, amend and rescind rules relating to the
administration of the 1996 Stock Option Plan.
Nonqualified stock options will provide for the right to purchase stock at
a specified price which may be less than fair market value on the date of grant
(but not less than par value), and usually will become exercisable in
installments after the grant date. Nonqualified stock options may be granted for
any reasonable term. Upon exercise, the recipient will have taxable income in an
amount equal to the fair market value of the stock received over the amount
paid, while the Company will receive a deduction for compensation paid in a like
amount.
Incentive stock options will be designed to comply with the provisions of
the Internal Revenue Code of 1986, as amended (the "Code") and will be subject
to restrictions contained in the Code, including exercise prices equal to at
least 100% of fair market value of Company stock on the grant date and a ten
year restriction on their term, but may be subsequently modified to disqualify
them from treatment as an incentive stock option. The recipient will defer any
tax consequences until a disposition of the stock received upon exercise, at
which time all gain will be capital in nature, while the grant and exercise has
no tax effect in the Company.
The Company estimates that in the fiscal year ending June 30, 1997, it will
issue to executive officers, other key employees, Independent Directors and
consultants of the Company options to purchase at least 1,200,000 shares of
common stock pursuant to the Plan. As of October 16, 1996, approximately 15
persons were eligible to participate in the Plan, of which approximately four
were officers, directors or consultants to the Company.
Shareholders are also being asked to ratify the grant of certain
nonqualified stock options to Gary L. Coulter, currently Chairman of the Board
and President of the Company, and Robert E. Huggins, the Chief Financial Officer
of the Company. Subject to shareholder ratification and approval, the Board of
Directors granted to Messrs. Coulter and Huggins, on October 16, 1996, certain
nonqualifed options to acquire shares of common stock of the Company pursuant to
the 1996 Stock Option Plan. The options granted by the Board of Directors were
granted at the fair market value of the stock as of the date of grant. The
following table summarizes the Option Grants:
Name Number of Shares Exercise Price Expiration Date
Gary L. Coulter 600,000 $0.75 October 2001
Robert E. Huggins 250,000 $0.75 October 2001
The foregoing table sets forth all options which have been granted as of
the Record Date, and also constitutes all options which have been granted to
officers and directors as a group.
The affirmative vote of the holders of the greater of a majority of the
outstanding shares of common stock of the Company present and entitled to vote
on the proposed Plan is required to ratify the Plan and the Option Grants. A
shareholder who abstains with respect to the proposed Plan and the Option Grants
is considered to be present and entitled to vote at the meeting, and is in
effect casting a negative vote, but a shareholder (including a broker) who does
not give authority to a Proxy to vote on the proposed Plan and Option Grants
shall not be considered present and entitled to vote on the proposed Plan and
Option Grants. All shares represented by proxies will be voted FOR approval of
the proposed Plan and Option Grants unless a contrary choice is specified.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
(Proposal 3 on the Proxy Card)
The Board of Directors has selected Joseph Decosimo and Company as the
Company s independent auditors for the current fiscal year. Although not
required by law or otherwise, the selection is being submitted to the
stockholders of the Company as a matter of corporate policy for their approval.
Joseph Decosimo and Company, an international firm of certified public
accountants, has audited the financial statements of the Company since 1995.
It is anticipated that a representative of Joseph Decosimo and Company will
be present at the meeting and, if present, such representative will be given the
opportunity to make a statement if he desires to do so. It is also anticipated
that such representative will be available to respond to appropriate questions
from stockholders.
MISCELLANEOUS
The Company will pay the cost of soliciting proxies in connection with the
1996 annual meeting. In addition to solicitation by use of the mails, certain
directors, officers and regular employees of the Company may solicit the return
of proxies by telephone, facsimile or other means, or personal interview, and
may request brokerage houses and custodians, nominees and fiduciaries to forward
soliciting material to their principals and will agree to reimburse them for
their reasonable out-of-pocket expenses.
REPORT ON FORM 10-KSB
A copy of the Company s Report on Form 10-KSB for the period ended June 30,
1996, filed with the Securities and Exchange Commission (including related
financial statements and schedules) is included with this Proxy Statement, in
lieu of an Annual Report to Shareholders. If a shareholder does not receive a
copy with this Proxy Statement, a copy will be available to the shareholder
without charge, upon written request to Robert E. Huggins, Chief Financial
Officer, Spintek Gaming Technologies, Inc., 901-B Grier Drive, Las Vegas, Nevada
89119. Exhibits referenced in the Form 10-KSB that are not included with the
Form 10-KSB will also be available to the shareholder without charge upon
written request to Mr. Huggins for the same.
FUTURE PROPOSALS OF STOCKHOLDERS
All proposals of stockholders intended to be presented at the 1997 annual
meeting of stockholders must be received by the Company not later than July 31,
1997, for inclusion in the Company s 1997 proxy statement and form of proxy
relating to the 1997 annual meeting. Upon timely receipt of any such proposal,
the Company will determine whether or not to include such proposal in the proxy
statement and proxy in accordance with applicable regulations and provisions
governing the solicitation of proxies.
Under the Bylaws of the Company, stockholders entitled to vote in the
election of directors may nominate one or more persons for election as directors
only if written notice of such shareholder s intent to make such nomination or
nominations has been given either by personal delivery or by United States mail,
postage prepaid, to the Secretary of the Company not later than 90 days prior to
the anniversary date of the immediately preceding annual meeting. Such notice
must set forth: (a) the name and address of the shareholder who intends to make
the nomination and of the person or persons to be nominated; (b) a
representation that the shareholder is a holder of record of stock of the
Company; (c) description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the shareholder; (d) such other information regarding each nominee proposed by
such shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission; and (e)
the consent of each nominee to serve as a director of the Company if so elected.
OTHER MATTERS
The Management of the Company does not know of any other matters which are
to be presented for action at the Meeting. Should any other matters come before
the Meeting or any adjournment thereof, the persons named in the enclosed proxy
will have the discretionary authority to vote all proxies received with respect
to such matters in accordance with their collective judgment.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Gary L. Coulter
Gary L. Coulter
Chairman of the Board
STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES AND TO DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL
AND YOUR COOPERATION WILL BE APPRECIATED.
<PAGE>
EXHIBIT A
THE 1996 STOCK OPTION PLAN
OF
SPINTEK GAMING TECHNOLOGIES, INC.
Spintek Gaming Technologies, Inc., a California corporation, has adopted
The 1996 Stock Option Plan of Spintek Gaming Technologies, Inc. (the "Plan"),
effective October 16, 1996, for the benefit of its eligible employees,
consultants and directors. The Plan consists of two plans, one for the benefit
of key Employees (as such term is defined below), Independent Directors (as such
term is defined below) and consultants and a second solely for the benefit of
Independent Directors.
The purposes of this Plan are as follows:
(1) To provide an additional incentive for directors, key Employees and
consultants to further the growth, development and financial success of the
Company by personally benefiting through the ownership of Company stock and/or
rights which recognize such growth, development and financial success.
(2) To enable the Company to obtain and retain the services of directors,
key Employees and consultants considered essential to the long range success of
the Company by offering them an opportunity to own stock in the Company and/or
rights which will reflect the growth, development and financial success of the
Company.
ARTICLE I
DEFINITIONS
1.1 General. Wherever the following terms are used in this Plan they shall
have the meaning specified below, unless the context clearly indicates
otherwise.
1.2 Board. "Board" shall mean the Board of Directors of the Company.
1.3 Change in Control. "Change in Control" shall mean a change in ownership
or control of the Company effected through either of the following transactions:
(a) any person or related group of persons (other than the Company or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Company) directly or indirectly acquires beneficial
ownership (within the meaning of Rule 13d-3 under the Exchange Act) of
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities pursuant to a tender or exchange
offer made directly to the Company's stockholders which the Board does not
recommend such stockholders to accept; or
(b) there is a change in the composition of the Board over a period of
twenty-four (24) consecutive months (or less) such that a majority of the Board
members (rounded up to the nearest whole number) ceases, by reason of one or
more proxy contests for the election of Board members, to be comprised of
individuals who either (i) have been Board members continuously since the
beginning of such period or (ii) have been elected or nominated for election as
Board members during such period by at least a majority of the Board members
described in clause (i) who were still in office at the time such election or
nomination was approved by the Board.
1.4 Code. "Code" shall mean the Internal Revenue Code of 1986, as amended.
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1.5 Committee. "Committee" shall mean the Board or any Compensation
Committee of the Board, or another committee, or a subcommittee of the Board,
appointed as provided in Section6.1.
1.6 Common Stock. "Common Stock" shall mean the common stock of the
Company.
1.7 Company. "Company" shall mean Spintek Gaming Technologies, Inc., a
California corporation.
1.8 Corporate Transaction. "Corporate Transaction" shall mean any of the
following stockholder-approved transactions to which the Company is a party:
(a) a merger or consolidation in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change the
State in which the Company is incorporated, form a holding company or effect a
similar reorganization as to form whereupon this Plan and all Options are
assumed by the successor entity;
(b) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, in complete liquidation or
dissolution of the Company in a transaction not covered by the exceptions to
clause (a), above; or
(c) any reverse merger in which the Company is the surviving entity but in
which securities possessing more than fifty percent (50%) of the total combined
voting power of the Company's outstanding securities are transferred to a person
or persons different from those who held such securities immediately prior to
such merger.
1.9 Director. "Director" shall mean a member of the Board.
1.10 Employee. "Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Company, or of
any corporation which is a Subsidiary.
1.11 Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1.12 Fair Market Value. "Fair Market Value" of a share of Common Stock as
of a given date shall be (i) the closing price of a share of Common Stock on the
principal exchange on which shares of Common Stock are then trading, if any (or
as reported on any composite index which includes such principal exchange), on
the trading day previous to such date, or if shares were not traded on the
trading day previous to such date, then on the next preceding date on which a
trade occurred, or (ii) if Common Stock is not traded on an exchange but is
quoted on NASDAQ or a successor quotation system, the mean between the closing
representative bid and asked prices for the Common Stock on the trading day
previous to such date as reported by NASDAQ or such successor quotation system;
or (iii) if Common Stock is not publicly traded on an exchange and not quoted on
NASDAQ or a successor quotation system, the Fair Market Value of a share of
Common Stock as established by the Committee (or the Board, in the case of
grants to Independent Directors) acting in good faith.
1.13 Incentive Stock Option. "Incentive Stock Option" shall mean an option
which conforms to the applicable provisions of Section 422 of the Code and which
is designated as an Incentive Stock Option by the Committee.
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<PAGE>
1.14 Independent Director. "Independent Director" shall mean a member of
the Board who is not an Employee of the Company.
1.15 Non-Qualified Stock Option. "Non-Qualified Stock Option" shall mean an
Option which is not designated as an Incentive Stock Option by the Committee.
1.16 Option. "Option" shall mean a stock option granted under Article III
of this Plan. An Option granted under this Plan shall, as determined by the
Committee, be either a Non- Qualified Stock Option or an Incentive Stock Option;
provided, however, that Options granted to Independent Directors and consultants
shall be Non-Qualified Stock Options.
1.17 Optionee. "Optionee" shall mean an Employee, consultant or Independent
Director granted an Option under this Plan.
1.18 Plan. "Plan" shall mean The 1996 Stock Option Plan of Spintek Gaming
Technologies, Inc.
1.19 QDRO. "QDRO" shall mean a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder.
1.20 Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended from time to time.
1.21 Subsidiary. "Subsidiary" shall mean (i) any corporation in an unbroken
chain of corporations beginning with the Company if each of the corporations
other than the last corporation in the unbroken chain then owns stock possessing
50 percent or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain and (ii) any partnership or limited
liability company in which the Company (A) directly or indirectly holds a
managing partner or managing member interest or (B) is entitled to 50 percent or
more of the profits or assets upon dissolution.
1.22 Termination of Consultancy. "Termination of Consultancy" shall mean
the time when the engagement of an Optionee as a consultant to the Company or a
Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, by resignation, discharge, death or retirement; but
excluding terminations where there is a simultaneous commencement of employment
with the Company or any Subsidiary. The Committee, in its absolute discretion,
shall determine the effect of all matters and questions relating to Termination
of Consultancy, including, but not by way of limitation, the question of whether
a Termination of Consultancy resulted from a discharge for good cause, and all
questions of whether particular leaves of absence constitute Terminations of
Consultancy. Notwithstanding any other provision of this Plan, the Company or
any Subsidiary has an absolute and unrestricted right to terminate a
consultant's service at any time for any reason whatsoever, with or without
cause, except to the extent expressly provided otherwise in writing.
1.23 Termination of Directorship. "Termination of Directorship" shall mean
the time when an Optionee who is an Independent Director ceases to be a Director
for any reason, including, but not by way of limitation, a termination by
resignation, failure to be elected, death or retirement. The Board, in its sole
and absolute discretion, shall determine the effect of all matters and questions
relating to Termination of Directorship with respect to Independent Directors.
1.24 Termination of Employment. "Termination of Employment" shall mean the
time when the employee-employer relationship between an Optionee and the Company
or any Subsidiary
3
<PAGE>
is terminated for any reason, with or without cause, including, but not by
way of limitation, a termination by resignation, discharge, death, disability or
retirement; but excluding (i)terminations where there is a simultaneous
reemployment or continuing employment of an Optionee by the Company or any
Subsidiary, (ii)at the discretion of the Committee, terminations which result
in a temporary severance of the employee-employer relationship, and (iii) at the
discretion of the Committee, terminations which are followed by the simultaneous
establishment of a consulting relationship by the Company or a Subsidiary with
the former employee. The Committee, in its absolute discretion, shall determine
the effect of all matters and questions relating to Termination of Employment,
including, but not by way of limitation, the question of whether a Termination
of Employment resulted from a discharge for good cause, and all questions of
whether particular leaves of absence constitute Terminations of Employment;
provided, however, that, with respect to Incentive Stock Options, a leave of
absence, change in status from an employee to an independent contractor or other
change in the employee-employer relationship shall constitute a Termination of
Employment if, and to the extent that, such leave of absence, change in status
or other change interrupts employment for the purposes of Section 422(a)(2) of
the Code and the then applicable regulations and revenue rulings under said
Section. Notwithstanding any other provision of this Plan, the Company or any
Subsidiary has an absolute and unrestricted right to terminate an Employee's
employment at any time for any reason whatsoever, with or without cause, except
to the extent expressly provided otherwise in writing.
ARTICLE II
SHARES SUBJECT TO PLAN
2.1 Shares Subject to Plan. The shares of stock subject to Options shall be
Common Stock, initially shares of the Company's Common Stock. The aggregate
number of such shares which may be issued upon exercise of such options under
the Plan shall not exceed One Million Five Hundred Thousand (1,500,000) shares
of Common Stock. The shares of Common Stock issuable upon exercise of such
options may be either previously authorized but unissued shares or treasury
shares.
2.2 Add-back of Options and Other Rights. If any Option, or other right to
acquire shares of Common Stock under any other award under this Plan, expires or
is canceled without having been fully exercised, or is exercised in whole or in
part for cash as permitted by this Plan, the number of shares subject to such
Option or other right but as to which such Option or other right was not
exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Furthermore, any shares subject to Options or other awards which are
adjusted pursuant to Section 10.3 and become exercisable with respect to shares
of stock of another corporation shall be considered cancelled and may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Shares of Common Stock which are delivered by the Optionee or withheld by
the Company upon the exercise of any Option under this Plan, in payment of the
exercise price thereof, may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. Notwithstanding the provisions of
this Section 2.2, no shares of Common Stock may again be optioned if such action
would cause an Incentive Stock Option to fail to qualify as an incentive stock
option under Section 422 of the Code.
ARTICLE III
GRANTING OF OPTIONS
3.1 Eligibility. Any Employee, Independent Director or consultant selected
by the Committee pursuant to Section 3.4(a)(i) shall be eligible to be granted
an Option.
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<PAGE>
3.2 Disqualification for Stock Ownership. No person may be granted an
Incentive Stock Option under this Plan if such person, at the time the Incentive
Stock Option is granted, owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
then existing Subsidiary or parent corporation (within the meaning of Section
422 of the Code) unless such Incentive Stock Option conforms to the applicable
provisions of Section 422 of the Code.
3.3 Qualification of Incentive Stock Options. No Incentive Stock Option
shall be granted unless such Option, when granted, qualifies as an "incentive
stock option" under Section 422 of the Code. No Incentive Stock Option shall be
granted to any person who is not an Employee.
3.4 Granting of Options
(a) The Committee shall from time to time, in its absolute discretion, and
subject to applicable limitations of this Plan:
(i) Determine which Employees are key Employees and select from among the
key Employees, Independent Directors or consultants (including Employees,
Independent Directors or consultants who have previously received Options or
other awards under this Plan) such of them as in its opinion should be granted
Options;
(ii) Determine the number of shares to be subject to such Options granted
to the selected key Employees, Independent Directors or consultants;
(iii) Determine whether such Options are to be Incentive Stock Options or
Non-Qualified Stock Options and whether such Options are to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the Code;
and
(iv) Determine the terms and conditions of such Options, consistent with
this Plan; provided, however, that the terms and conditions of Options intended
to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall include, but not be limited to, such terms and
conditions as may be necessary to meet the applicable provisions of Section
162(m) of the Code.
(b) Upon the selection of a key Employee, Independent Director or
consultant to be granted an Option, the Committee shall instruct the Secretary
of the Company to issue the Option and may impose such conditions on the grant
of the Option as it deems appropriate. Without limiting the generality of the
preceding sentence, the Committee may, in its discretion and on such terms as it
deems appropriate, require as a condition on the grant of an Option to an
Employee, Independent Director or consultant that the Employee, Independent
Director or consultant surrender for cancellation some or all of the unexercised
Options, or other rights which have been previously granted to him under this
Plan or otherwise. An Option, the grant of which is conditioned upon such
surrender, may have an option price lower (or higher) than the exercise price of
such surrendered Option or other award, may cover the same (or a lesser or
greater) number of shares as such surrendered Option or other award, may contain
such other terms as the Committee deems appropriate, and shall be exercisable in
accordance with its terms, without regard to the number of shares, price,
exercise period or any other term or condition of such surrendered Option or
other award.
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<PAGE>
(c) Any Incentive Stock Option granted under this Plan may be modified by
the Committee to disqualify such option from treatment as an "incentive stock
option" under Section 422 of the Code.
ARTICLE IV
TERMS OF OPTIONS
4.1 Option Agreement. Each Option shall be evidenced by a written Stock
Option Agreement, which shall be executed by the Optionee and an authorized
officer of the Company and which shall contain such terms and conditions as the
Committee (or the Board, in the case of grants to Independent Directors) shall
determine, consistent with this Plan. Stock Option Agreements evidencing Options
intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall contain such terms and conditions as may be
necessary to meet the applicable provisions of Section 162(m) of the Code. Stock
Option Agreements evidencing Incentive Stock Options shall contain such terms
and conditions as may be necessary to meet the applicable provisions of Section
422 of the Code.
4.2 Option Price. The price per share of the shares subject to each Option
shall be set by the Committee; provided, however, that such price shall be no
less than the par value of a share of Common Stock, unless otherwise permitted
by applicable state law, and (i) in the case of Incentive Stock Options and
Options intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code, such price shall not be less than 100% of the
Fair Market Value of a share of Common Stock on the date the Option is granted;
(ii) in the case of Incentive Stock Options granted to an individual then owning
(within the meaning of Section 424(d) of the Code) more than 10% of the total
combined voting power of all classes of stock of the Company or any Subsidiary
or parent corporation thereof (within the meaning of Section 422 of the Code)
such price shall not be less than 110% of the Fair Market Value of a share of
Common Stock on the date the Option is granted; and (iii) in the case of grants
to Independent Directors, such price shall equal 100% of the Fair Market Value
of a share of Common Stock on the date the Option is granted; provided, however,
that the price of each share subject to each Option granted to Independent
Directors on the date of the initial public offering of Common Stock shall equal
the initial public offering price per share of Common Stock.
4.3 Option Term. The term of an Option shall be set by the Committee in its
discretion; provided, however, that, (i) in the case of grants to Independent
Directors, the term shall be ten (10) years from the date the Option is granted,
and (ii) in the case of Incentive Stock Options, the term shall not be more than
ten (10) years from the date the Incentive Stock Option is granted, or five (5)
years from such date if the Incentive Stock Option is granted to an individual
then owning (within the meaning of Section 424(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of the Company or any
Subsidiary or parent corporation thereof (within the meaning of Section 422 of
the Code). Except as limited by requirements of Section 422 of the Code and
regulations and rulings thereunder applicable to Incentive Stock Options, the
Committee may extend the term of any outstanding Option in connection with any
Termination of Employment or Termination of Consultancy of the Optionee, or
amend any other term or condition of such Option relating to such a termination.
4.4 Option Vesting
(a) The period during which the right to exercise an Option in whole or in
part vests in the Optionee shall be set by the Committee and the Committee may
determine that an Option may not be exercised in whole or in part for a
specified period after it is granted. At any time after grant of an
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Option, the Committee may, in its sole and absolute discretion and subject
to whatever terms and conditions it selects, accelerate the period during which
an Option.
(b) No portion of an Option which is unexercisable at Termination of
Employment, Termination of Directorship or Termination of Consultancy, as
applicable, shall thereafter become exercisable, except as may be otherwise
provided by the Committee in the case of Options granted to Employees,
Independent Directors or consultants either in the Stock Option Agreement or by
action of the Committee following the grant of the Option.
(c) To the extent that the aggregate Fair Market Value of stock with
respect to which "incentive stock options" (within the meaning of Section 422 of
the Code, but without regard to Section 422(d) of the Code) are exercisable for
the first time by an Optionee during any calendar year (under the Plan and all
other incentive stock option plans of the Company and any Subsidiary) exceeds
$100,000, such Options shall be treated as Non-Qualified Options to the extent
required by Section 422 of the Code. The rule set forth in the preceding
sentence shall be applied by taking Options into account in the order in which
they were granted. For purposes of this Section 4.4(c), the Fair Market Value of
stock shall be determined as of the time the Option with respect to such stock
is granted.
4.5 Consideration. In consideration of the granting of an Option, the
Committee may require the Optionee to agree, in the written Stock Option
Agreement, to remain in the employ of (or to consult for or to serve as an
Independent Director of, as applicable) the Company or any Subsidiary for a
period of at least one year after the Option is granted or, in the case of an
Independent Director, to the end of such Independent Director's current Board
term (or such shorter period as may be fixed in the Stock Option Agreement or by
action of the Committee or the Board following grant of the Option). Nothing in
this Plan or in any Stock Option Agreement hereunder shall confer upon any
Optionee any right to continue in the employ of, or as a consultant for, the
Company or any Subsidiary, or as a director of the Company, or shall interfere
with or restrict in any way the rights of the Company and any Subsidiary, which
are hereby expressly reserved, to discharge any Optionee at any time for any
reason whatsoever, with or without good cause.
4.6 Other Terms. The Stock Option Agreement may contain such other terms
and conditions as the Committee may deem appropriate, including, but not limited
to, the granting of rights to require the Company to register the securities
received upon exercise; provided, however, that no term may be included which
would violate the terms of this Plan or any applicable law.
ARTICLE V
EXERCISE OF OPTIONS
5.1 Partial Exercise. An exercisable Option may be exercised in whole or in
part. However, an Option shall not be exercisable with respect to fractional
shares and the Committee (or the Board, in the case of Options granted to
Independent Directors) may require that, by the terms of the Option, a partial
exercise be with respect to a minimum number of shares.
5.2 Manner of Exercise. All or a portion of an exercisable Option shall be
deemed exercised upon delivery of all of the following to the Secretary of the
Company or his office:
(a) A written notice complying with the applicable rules established by the
Committee (or the Board, in the case of Options granted to Independent Directors
pursuant to Section 3.4(d)) stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion;
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(b) Such representations and documents as the Committee (or the Board, in
the case of Options granted to Independent Directors, in its absolute
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act of 1933, as amended, and any other
federal or state securities laws or regulations. The Committee or Board may, in
its absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation, placing
legends on share certificates and issuing stop-transfer notices to agents and
registrars;
(c) In the event that the Option shall be exercised pursuant to Section
7.1 by any person or persons other than the Optionee, appropriate proof of the
right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the shares with
respect to which the Option, or portion thereof, is exercised. However, the
Committee (or the Board, in the case of Options granted to Independent
Directors) may in its discretion (i)allow a delay in payment up to thirty (30)
days from the date the Option, or portion thereof, is exercised; or (ii)allow
payment, in whole or in part, through the delivery of shares of Common Stock
owned by the Optionee, duly endorsed for transfer to the Company with a Fair
Market Value on the date of delivery equal to the aggregate exercise price of
the Option or exercised portion thereof.
5.3 Conditions to Issuance of Stock Certificates. The Company shall not be
required to issue or deliver any certificate or certificates for shares of stock
purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed;
(b) The completion of any registration or other qualification of such
shares under any state or federal law, or under the rulings or regulations of
the Securities and Exchange Commission or any other governmental regulatory body
which the Committee or Board shall, in its absolute discretion, deem necessary
or advisable;
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee (or Board, in the case of
Options granted to Independent Directors shall, in its absolute discretion,
determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the exercise of
the Option as the Committee (or Board, in the case of Options granted to
Independent Directors may establish from time to time for reasons of
administrative convenience; and
(e) The receipt by the Company of full payment for such shares, including
payment of any applicable withholding tax.
5.4 Rights as Stockholders. The holders of Options shall not be, nor have
any of the rights or privileges of, stockholders of the Company in respect of
any shares purchasable upon the exercise of any part of an Option unless and
until certificates representing such shares have been issued by the Company to
such holders.
5.5 Ownership and Transfer Restrictions. The Committee, in its absolute
discretion, may impose such restrictions on the ownership and transferability of
the shares purchasable upon the exercise of an Option as it deems appropriate.
Any such restriction shall be set forth in the respective Stock
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Option Agreement and may be referred to on the certificates evidencing such
shares. The Committee may require the Employee to give the Company prompt notice
of any disposition of shares of Common Stock acquired by exercise of an
Incentive Stock Option within (i) two years from the date of granting such
Option to such Employee or (ii) one year after the transfer of such shares to
such Employee. The Committee may direct that the certificates evidencing shares
acquired by exercise of an Option refer to such requirement to give prompt
notice of disposition.
ARTICLE VI
ADMINISTRATION
6.1 Compensation Committee. The Compensation Committee (or another
committee or a subcommittee of the Board assuming the functions of the Committee
under this Plan) shall consist solely of two or more Independent Directors
appointed by and holding office at the pleasure of the Board, each of whom is
(i) a "non-employee director" (as defined by Rule 16b-3), (ii) to the extent
required by the applicable provisions of Rule 16b-3, a "disinterested person"
(as defined by Rule 16b-3) and (iii) an "outside director" for purposes of
Section162(m) of the Code. Appointment of Committee members shall be effective
upon acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee may be filled
by the Board.
6.2 Duties and Powers of Committee. It shall be the duty of the Committee
to conduct the general administration of this Plan in accordance with its
provisions. The Committee shall have the power to interpret this Plan and the
agreements pursuant to which Options are granted or awarded, and to adopt such
rules for the administration, interpretation, and application of this Plan as
are consistent therewith and to interpret, amend or revoke any such rules.
Notwithstanding the foregoing, the full Board, acting by a majority of its
members in office, shall conduct the general administration of the Plan with
respect to grants to Independent Directors. Any such grant or award under this
Plan need not be the same with respect to each Optionee. Any such
interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code. In its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under this Plan except with respect to
matters which under Rule 16b-3 or Section 162(m) of the Code, or any regulations
or rules issued thereunder, are required to be determined in the sole discretion
of the Committee.
6.3 Majority Rule; Unanimous Written Consent. The Committee shall act by a
majority of its members in attendance at a meeting at which a quorum is present
or by a memorandum or other written instrument signed by all members of the
Committee.
6.4 Compensation; Professional Assistance; Good Faith Actions. Members of
the Committee shall receive such compensation for their services as members as
may be determined by the Board. All expenses and liabilities which members of
the Committee incur in connection with the administration of this Plan shall be
borne by the Company. The Committee may, with the approval of the Board, employ
attorneys, consultants, accountants, appraisers, brokers, or other persons. The
Committee, the Company and the Company's officers and Directors shall be
entitled to rely upon the advice, opinions or valuations of any such persons.
All actions taken and all interpretations and determi nations made by the
Committee or the Board in good faith shall be final and binding upon all
Optionees, Grantees, Restricted Stockholders, the Company and all other
interested persons. No members of the Committee or Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to this Plan or Options, and all members of the Committee and the Board
shall be fully protected by the Company in respect of any such action,
determination or interpretation.
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ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 Not Transferable. Options under this Plan may not be sold, pledged,
assigned, or transferred in any manner other than by will or the laws of descent
and distribution or pursuant to a QDRO, unless and until such rights or awards
have been exercised, or the shares underlying such rights or awards have been
issued, and all restrictions applicable to such shares have lapsed. No Option or
interest or right therein shall be liable for the debts, contracts or
engagements of the Optionee or his successors in interest or shall be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment or
any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect, except to
the extent that such disposition is permitted by the preceding sentence.
During the lifetime of the Optionee, only he may exercise an Option or
other right or award (or any portion thereof) granted to him under the Plan,
unless it has been disposed of pursuant to a QDRO. After the death of the
Optionee, any exercisable portion of an Option or other right or award may,
prior to the time when such portion becomes unexercisable under the Plan or the
applicable Stock Option Agreement or other agreement, be exercised by his
personal representative or by any person empowered to do so under the deceased
Optionee's will or under the then applicable laws of descent and distribution.
7.2 Amendment, Suspension or Termination of this Plan. Except as otherwise
provided in this Section 7.2, this Plan may be wholly or partially amended or
otherwise modified, suspended or terminated at any time or from time to time by
the Board or the Committee. However, without approval of the Company's
stockholders given within twelve months before or after the action by the Board
or the Committee, no action of the Board or the Committee may, except as
provided in Section 7.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under this Plan, and no action of
the Committee may be taken that would otherwise require stockholder approval as
a matter of applicable law, regulation or rule. No amendment, suspension or
termination of this Plan shall, without the consent of the holder of Options,
alter or impair any rights or obligations under any Options theretofore granted
or awarded, unless the award itself otherwise expressly so provides. No Options
may be granted or awarded during any period of suspension or after termination
of this Plan, and in no event may any Incentive Stock Option be granted under
this Plan after the first to occur of the following events:
(a) The expiration of ten years from the date the Plan is adopted by the
Board; or
(b) The expiration of ten years from the date the Plan is approved by the
Company's stockholders under Section7.4.
7.3 Changes in Common Stock or Assets of the Company, Acquisition or
Liquidation of the Company and Other Corporate Events.
(a) Subject to Section 7.3(d), in the event that the Committee (or the
Board, in the case of grants to Independent Directors) determines that any
dividend or other distribution (whether in the form of cash, Common Stock, other
securities, or other property), recapitalization, reclassification, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, liquidation, dissolution, or sale, transfer, exchange
or other disposition of all or substantially all of the assets of the Company
(including, but not limited to a Corporate Transaction), or exchange of
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Common Stock or other securities of the Company, issuance of warrants or
other rights to purchase Common Stock or other securities of the Company, or
other similar corporate transaction or event, in the Committee's sole discretion
(or in the case of grants to Independent Directors, the Board's sole
discretion), affects the Common Stock such that an adjustment is determined by
the Committee to be appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the Plan
or with respect to an Option, then the Committee (or the Board, in the case of
grants to Independent Directors) shall, in such manner as it may deem equitable,
adjust any or all of
(i) the number and kind of shares of Common Stock (or other securities or
property) with respect to which Options may be granted under the Plan
(including, but not limited to, adjustments of the limitations in Section 2.1 on
the maximum number and kind of shares which may be issued),
(ii) the number and kind of shares of Common Stock (or other securities or
property) subject to outstanding Options, and
(iii) the grant or exercise price with respect to any Option.
(b) Subject to Sections 7.3(b)(vii) and 7.3(d), in the event of any
Corporate Transaction or other transaction or event described in Section 7.3(a)
or any unusual or nonrecurring transactions or events affecting the Company, any
affiliate of the Company, or the financial statements of the Company or any
affiliate, or of changes in applicable laws, regulations, or accounting
principles, the Committee (or the Board, in the case of grants to Independent
Directors) in its discretion is hereby authorized to take any one or more of the
following actions whenever the Committee (or the Board, in the case of grants to
Independent Directors) determines that such action is appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan or with respect to any option, right or
other award under this Plan, to facilitate such transactions or events or to
give effect to such changes in laws, regulations or principles:
(i) In its sole and absolute discretion, and on such terms and conditions
as it deems appropriate, the Committee (or the Board, in the case of grants to
Independent Directors) may provide, either by the terms of the agreement or by
action taken prior to the occurrence of such transaction or event and either
automatically or upon the optionee's request, for either the purchase of any
such Option for an amount of cash equal to the amount that could have been
attained upon the exercise of such option, right or award or realization of the
optionee's rights had such option, right or award been currently exercisable or
payable or fully vested or the replacement of such option, right or award with
other rights or property selected by the Committee (or the Board, in the case of
grants to Independent Directors) in its sole discretion;
(ii) In its sole and absolute discretion, the Committee (or the Board, in
the case of grants to Independent Directors) may provide, either by the terms of
such Option or by action taken prior to the occurrence of such transaction or
event that it cannot be exercised after such event;
(iii) In its sole and absolute discretion, and on such terms and conditions
as it deems appropriate, the Committee (or the Board, in the case of grants to
Independent Directors) may provide, either by the terms of such Option or by
action taken prior to the occurrence of such transaction or event, that for a
specified period of time prior to such transaction or event, such option, right
or award shall be exercisable as to all shares covered
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thereby, notwithstanding anything to the contrary in (i) Section 4.4 or
(ii) the provisions of such Option;
(iv) In its sole and absolute discretion, and on such terms and conditions
as it deems appropriate, the Committee (or the Board, in the case of grant to
Independent Directors) may provide, either by the terms of such Option or by
action taken prior to the occurrence of such transaction or event, that upon
such event, such option, right or award be assumed by the successor or survivor
corporation, or a parent or subsidiary thereof, or shall be substituted for by
similar options, rights or awards covering the stock of the successor or
survivor corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices; and
(v) In its sole and absolute discretion, and on such terms and conditions
as it deems appropriate, the Committee (or the Board, in the case of grants to
Independent Directors) may make adjustments in the number and type of shares of
Common Stock (or other securities or property) subject to outstanding Options
and/or in the terms and conditions of (including the grant or exercise price),
and the criteria included in, outstanding options which may be granted in the
future.
(vi) None of the foregoing discretionary terms of this Section 7.3(b) shall
be permitted with respect to Options granted toIndependent Directors to the
extent that such discretion would be inconsistent with the applicable exemptive
conditions of Rule 16b-3. In the event of a Change in Control or a Corporate
Transaction, to the extent that the Board does not have the ability under Rule
16b-3 to take or to refrain from taking the discretionary actions set forth in
Section 7.3(b)(iii) above, each Option granted to an Independent Director shall
be exercisable as to all shares covered thereby upon such Change in Control or
during the five days immediately preceding the consummation of such Corporate
Transaction and subject to such consummation, notwithstanding anything to the
contrary in Section 4.4 or the vesting schedule of such Options. In the event of
a Corporate Transaction, to the extent that the Board does not have the ability
under Rule 16b-3 to take or to refrain from taking the discretionary actions set
forth in Section 7.3(b)(ii) above, no Option granted to an Independent Director
may be exercised following such Corporate Transaction unless such Option is, in
connection with such Corporate Transaction, either assumed by the successor or
survivor corporation (or parent or subsidiary thereof) or replaced with a
comparable right with respect to shares of the capital stock of the successor or
survivor corporation (or parent or subsidiary thereof).
(c) Subject to Section 7.3(d) and 7.8, the Committee (or the Board, in the
case of grants to Independent Directors) may, in its discretion, include such
further provisions and limitations in any Option as it may deem equitable and in
the best interests of the Company.
(d) With respect to Incentive Stock Options and Options intended to qualify
as performance-based compensation under Section162(m), no adjustment or action
described in this Section7.3 or in any other provision of the Plan shall be
authorized to the extent that such adjustment or action would cause the Plan to
violate Section422(b)(1) of the Code or would cause such option or stock
appreciation right to fail to so qualify under Section 162(m), as the case may
be, or any successor provisions thereto. Furthermore, no such adjustment or
action shall be authorized to the extent such adjustment or action would result
in short-swing profits liability under Section 16 or violate the exemptive
conditions of Rule 16b-3 unless the Committee (or the Board, in the case of
grants to Independent Directors) determines that the option or other award is
not to comply with such exemptive conditions.
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The number of shares of Common Stock subject to any option, right or award
shall always be rounded to the next whole number.
(e) In the event of any Corporate Transaction, each outstanding Option
shall, immediately prior to the effective date of the Corporate Transaction,
automatically become fully exercisable for all of the shares of Common Stock at
the time subject to such rights or fully vested, applicable, and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
However, an outstanding right shall not so accelerate if and to the extent: (i)
such right is, in connection with the Corporate Transaction, either to be
assumed by the successor or survivor corporation (or parent thereof) or to be
replaced with a comparable right with respect to shares of the capital stock of
the successor or survivor corporation (or parent thereof) or (ii) the
acceleration of exercisability of such right is subject to other limitations
imposed by the Plan Administrator at the time of grant. The determination of
comparability of rights under clause (i) above shall be made by the Plan
Administrator, and its determination shall be final, binding and conclusive.
7.4 Approval of Plan by Stockholders. This Plan will be submitted for the
approval of the Company's stockholders within twelve months after the date of
the Board's initial adoption of this Plan. Options may be granted prior to such
stockholder approval, provided that such Options shall not be exercisable prior
to the time when this Plan is approved by the stockholders, and provided further
that if such approval has not been obtained at the end of said twelve-month
period, all Options previously granted under this Plan shall thereupon be
canceled and become null and void.
7.5 Tax Withholding. The Company shall be entitled to require payment in
cash or deduction from other compensation payable to each Optionee of any sums
required by federal, state or local tax law to be withheld with respect to the
issuance, vesting or exercise of any Option. The Committee (or the Board, in the
case of grants to Independent Directors) may in its discretion and in
satisfaction of the foregoing requirement allow such Optionee to elect to have
the Company withhold shares of Common Stock otherwise issuable under such Option
or other award (or allow the return of shares of Common Stock) having a Fair
Market Value equal to the sums required to be withheld.
7.6 Loans. The Committee may, in its discretion, extend one or more loans
to key Employees in connection with the exercise or receipt of an Option granted
under this Plan. The terms and conditions of any such loan shall be set by the
Committee.
7.7 Forfeiture Provisions. Pursuant to its general authority to determine
the terms and conditions applicable to awards under the Plan, the Committee (or
the Board, in the case of grants to Independent Directors) shall have the right
(to the extent consistent with the applicable exemptive conditions of Rule
16b-3) to provide, in the terms of Options or other awards made under the Plan,
or to require the recipient to agree by separate written instrument, that (i)
any proceeds, gains or other economic benefit actually or constructively
received by the recipient upon any receipt or exercise of the award, or upon the
receipt or resale of any Common Stock underlying such award, must be paid to the
Company, and (ii) the award shall terminate and any unexercised portion of such
award (whether or not vested) shall be forfeited, if (a) a Termination of
Employment, Termination of Consultancy or Termination of Directorship occurs
prior to a specified date, or within a specified time period following receipt
or exercise of the award, or (b) the recipient at any time, or during a
specified time period, engages in any activity in competition with the Company,
or which is inimical, contrary or harmful to the interests of the Company, as
further defined by the Committee (or the Board, as applicable).
7.8 Limitations Applicable to Section 16 Persons and Performance-Based
Compensation. Notwithstanding any other provision of this Plan, this Plan, and
any Option granted to any individual who is then subject to Section 16 of the
Exchange Act, shall be subject to any additional
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limitations set forth in any applicable exemptive rule under Section 16 of
the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act)
that are requirements for the application of such exemptive rule. To the extent
permitted by applicable law, the Plan and Options granted hereunder shall be
deemed amended to the extent necessary to conform to such applicable exemptive
rule. Furthermore, notwithstanding any other provision of this Plan or any
Option intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall be subject to any additional limitations
set forth in Section 162(m) of the Code (including any amendment to Section
162(m) of the Code) or any regulations or rulings issued thereunder that are
requirements for qualification as performance-based compensation as described in
Section 162(m)(4)(C) of the Code, and this Plan shall be deemed amended to the
extent necessary to conform to such requirements.
7.9 Effect of Plan Upon Options and Compensation Plans. The adoption of
this Plan shall not affect any other compensation or incentive plans in effect
for the Company or any Subsidiary. Nothing in this Plan shall be construed to
limit the right of the Company (i)to establish any other forms of incentives or
compensation for Employees, Independent Directors or consultants of the Company
or any Subsidiary or (ii)to grant or assume options or other rights otherwise
than under this Plan in connection with any proper corporate purpose including
but not by way of limitation, the grant or assumption of options in connection
with the acquisition by purchase, lease, merger, consolidation or otherwise, of
the business, stock or assets of any corporation, partnership, firm or
association.
7.10 Compliance with Laws. This Plan, the granting and vesting of Options
under this Plan and the issuance and delivery of shares of Common Stock under
this Plan or under Options hereunder are subject to compliance with all
applicable federal and state laws, rules and regulations (including but not
limited to state and federal securities law and federal margin requirements) and
to such approvals by any listing, regulatory or governmental authority as may,
in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. Any securities delivered under this Plan shall be subject
to such restrictions, and the person acquiring such securities shall, if
requested by the Company, provide such assurances and representations to the
Company as the Company may deem necessary or desirable to assure compliance with
all applicable legal requirements. To the extent permitted by applicable law,
the Plan or Option granted hereunder shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
7.11 Titles. Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Plan.
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7.12 Governing Law. This Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Nevada without regard to conflicts of laws thereof.
* * *
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PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD DECEMBER 10, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPINTEK GAMING TECHNOLOGIES, INC.
901-B Grier Drive
Las Vegas, Nevada 89119
The undersigned shareholder hereby appoints Malcolm C. Davenport V and Gary
L. Coulter, as Proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote, as designated below, all the
shares of common stock of Spintek Gaming Technologies, Inc., held of record by
the undersigned on November 4, 1996, at the Annual Meeting of Shareholders to be
held on December 10, 1996, or any adjournment thereof.
The Board of Directors recommends a vote FOR (1), (2) and (3).
1. ELECTION OF DIRECTORS.
Nominees to serve a one-year term expiring in 1997:
Malcolm C. Davenport V
Gary L. Coulter
Michale D. Fort
___FOR all nominees (except names ___ WITHHOLD AUTHORITY to vote
marked to the contrary above). for all nominees listed above.
(INSTRUCTION: To withhold authority to vote for any individual nominee
strike nominee's name in the list above).
2. RATIFY THE SPINTEK GAMING TECHNOLOGIES, INC. 1996 STOCK OPTION PLAN AND THE
GRANT OF OPTIONS TO GARY L. COULTER AND ROBERT E. HUGGINS.
___ FOR ___ AGAINST ___ ABSTAIN
3. RATIFY THE SELECTION OF JOSEPH DECOSIMO & COMPANY AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR FISCAL YEAR 1997.
___ FOR ___ AGAINST ___ ABSTAIN
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 THROUGH 3.
Please sign exactly as name appears on your certificate. When shares are
held by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
DATED: _______________________, 1996
______________________________________
Signature
______________________________________
Signature if held jointly
<PAGE>
ANNUAL REPORT
SPINTEK GAMING TECHNOLOGIES, INC.
901-B Grier Drive, Las Vegas, Nevada 89119
(702) 263-3660 Fax (702) 263-3680
The annual report of the Company to the Securities and Exchange Commission
on Form 10-KSB is being distributed to the shareholders as the annual report of
the Company to accompany the Company's proxy statement for the annual
shareholders meeting.
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
X Annual Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934
For the Fiscal Year Ended June 30, 1996
Transition Report Pursuant To Section 13 Or 15(d) Of The Exchange Act
Commission file number 0-27226
SPINTEK GAMING TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
California 33-0134823
(State or other jurisdiction of (IRS Employer Identification No.)
incorportion or organization)
901-B Grier Drive, Las Vegas, Nevada 89119 (702) 263-3660
(Address of principal executive offices) (Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
Title of class Name of exchange on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.002 par value
(Title of Class)
Indicate by mark whether the issuer (1) filed all reports to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
Indicate by mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
The issuer's revenues for the fiscal year ended June 30, 1996 were: $0.
There were 10,651,762 outstanding shares of common stock, par value $0.002
per share, on August 2, 1996. The aggregate market value of the voting stock of
the Registrant held by non-affiliates of the Registrant, as of August 2, 1996,
was $9,013,454, based on the last sales price on such date.
DOCUMENTS INCORPORATED BY REFERENCE: The information required by Part III
of Form 10-KSB is incorporated herein by reference to the registrant's
definitive Proxy Statement relating to its 1996 Annual Meeting of Stockholders
which will be filed with the Commission within 120 days after the end of the
registrant's fiscal year.
Transitional Small Business Disclosure Format: Yes No X
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Spintek Gaming Technologies, Inc. ("The Company" or "Spintek") is a Las
Vegas, Nevada based company whose common stock trades on the OTC Bulletin Board,
under the symbol "SPTK". The Company was organized as GSA, Inc., and
incorporated in the State of California on September 11, 1984. Until the
completion of the fiscal year ended June 30, 1995, the Company conducted its
business under the trade name "TAGG Industries" and distributed products in the
medical first aid and personal safety field from its corporate offices in Laguna
Hills, California.
On September 14, 1995, the stockholders of the Company approved the
acquisition of Spintek Gaming, Inc. ("Gaming"), a Georgia corporation that was
incorporated in December, 1993. Such acquisition, effected by an exchange of the
common stock of the entities, was deemed to be effective as of July 1, 1995. As
part of the transaction whereby the Company acquired Gaming, the medical, first
aid and related safety product distribution business of the Company, as well as
substantially all of its assets, together with its liabilities, were sold to and
assumed by a Limited Liability Company, owned by its former president and former
controlling shareholder for $150,000. This transaction was also approved by the
stockholders of the Company on September 14, 1995. On September 26, 1995, the
Company filed an amendment to its articles of incorporation pursuant to which it
effected a reverse split on a 1 share for 2 share basis, changed the value of
its common stock from no par value to $.002 par value per share and changed its
name from GSA, Inc. to Spintek Gaming Technologies, Inc. As a consequence of the
above described transactions, the Company became the holding company of its
wholly-owned subsidiary Gaming as well as Gaming's wholly-owned subsidiary,
Spinteknology, Inc. ("Spinteknology").
Equipment and Technology
The Company's corporate mission calls for it to identify, refine and then
market and license proprietary gaming technology on a worldwide basis. Since
March 31, 1995, the Company, through its subsidiaries, has devoted its efforts
to the development of a slot machine, slot machine coin hopper, a device that
measures the contents of a coin hopper, and an off-line data collection and
accounting system for slot machines. Management of the Company believes that
competition from other manufacturers of slot machines and coin hoppers for slot
machines, as well as the cost to bring these products to market, dictates that
the Company discontinue its development of these products and focus on its coin
hopper measurement device, which it believes to be unique to the gaming
industry.
Slot Machines. Gaming currently has a license to utilize certain patented
slot machine technology under a licensing agreement dated April 6, 1995, with
Spintek International, Inc. ("International"), a company which is neither a
parent nor a subsidiary of the Company, but is controlled by the Company's
current Chairman and Chief Executive Officer. The licensing agreement requires
Gaming to pay International a minimum annual royalty of $100,000 beginning April
6, 1996. The Company currently has 47 completed slot and video gaming machines,
some of which incorporates a proprietary external data collection system to
collect machine operational data. To date the Company has yet to consummate any
sales for this product and as a result, Management has discontinued its efforts
on this product line and is currently pursuing selling and/or licensing its
rights for the patented slot machine technology.
<PAGE>
Coin Hopper. Spinteknology has allowed to lapse a license to manufacture a
coin hopper for use in slot and video gaming machines. This hopper was
designed to incorporate the Company's coin hopper measurement device and is
called ACCUHOPPER. Despite trials of the ACCUHOPPER at two locations,
no sales have been consummated. Feedback from these trials indicated that
while there was a keen interest in the hopper measurement device, there was a
reluctance to change to an unproven hopper. As a result, Management
determined that it would be in the best interest of the Company to discontinue
the development of its hopper and instead pursue a method to retrofit hoppers
currently in use in the industry with its measurement device, known as the
M.A.N.A.G.E.R.S. system. Spinteknology has been successful in its retrofit
efforts, and anticipates that it will now be able to retrofit virtually every
type hopper manufactured.
Hopper Measurement Device. On March 19, 1996, Spinteknology acquired the
rights to its coin hopper measurement device which is known as the
M.A.N.A.G.E.R.S. system (Mass and Numeric Gauging Electronic Recording System)
for which United States and Worldwide patents have been applied. The
M.A.N.A.G.E.R.S. system incorporates a weight measurement device and certain
custom electronics by which the number of coins in the hopper of a slot or video
gaming machine is determined by weighing the hopper at predetermined intervals
in addition to each time coins in the hopper can be accessed by employees. The
M.A.N.A.G.E.R.S. system can either connect into a casino's on-line accounting
system, or transmit its data to Spinteknology's "off-line" data collection
system, known as ACCUDATA.
Off-line Data Collection / Accounting System. Spinteknology's off-line data
collection / accounting system is known as ACCUDATA. Management developed
ACCUDATA to meet the need for an off-line system to record the data transmitted
from the M.A.N.A.G.E.R.S. system for those potential customers who do not have
an on-line data collection and accounting system. When the M.A.N.A.G.E.R.S.
system is used in conjunction with ACCUDATA, the entire system is known as the
ACCUSYSTEM. This system is ideally suited for slot route operators who, because
of the relatively few machines at each location, are hard pressed to justify the
cost of an on-line system. The ACCUSYSTEM allows authorized personnel to touch a
data collection pen to an external machine port to collect the information from
the M.A.N.A.G.E.R.S. system as well as all of the pertinent meter readings from
the slot or video gaming device and therefor provide essentially the same
information as an on-line system. The information collected on the data pen is
then downloaded to a computer to generate the various accounting and auditing
reports for analysis. As of August 31, 1996, the ACCUSYSTEM had been installed
on a test basis at three locations for three separate route operators in Las
Vegas, Nevada. While Management feels the tests are providing the necessary
information to the route operators, there can be no assurances that any of the
tests will ultimately result in sales of the ACCUSYSTEM.
<PAGE>
Marketing
Management intends to market its products in one of two ways: direct sales
to casinos and route operators, or licensing arrangements with manufacturers of
coin hoppers.
Direct Sales. Management of the Company intends to make direct contact to
strategic targets in the gaming industry to offer its products for sale in the
form of retrofit kits which can either be installed on hoppers by the Company
for a fee, or the Company will train the purchaser's technicians to perform the
procedure. Hoppers retrofitted with the M.A.N.A.G.E.R.S. system can either be
installed by the Company, or once again the Company will train the purchaser's
technicians on installation procedures. The same technique will be applied to
sales of ACCUDATA and the ACCUSYSTEM.
License Agreements. As of June 30, 1996 the Company had two licensing
agreements in place. One was with IGT and the other was with SUZO International,
(N.L.) B.V. Each of the agreements require a fee to be paid to the Company for
each of the M.A.N.A.G.E.R.S. systems used by these entities on their hoppers.
Risk Factors
Limited Operating History and Results; New Business. Although founded in
September 1994, the Company as it exists today began operations on March 31,
1995. The Company's operations are subject to all the risks inherent in the
establishment of a new business enterprise and the marketing of a new product.
The Company is still considered to be a development stage company and has a
limited operating history. Since March 31, 1995, its inception, the Company has
experienced a net loss of approximately $4,938,000, including approximately
$1,491,000 that has been expended for research and development for its various
products. There can be no assurances as to when the Company will be profitable,
if at all.
Unproven Methods of Operation: Lack of Management Experience. The
success of the Company is dependent on, among other things, the Company's
ability to sell or license a sufficient number of its M.A.N.A.G.E.R.S.
systems, ACCUDATA systems, or ACCUSYSTEMS to support its operations.
However, given the start-up nature of its operations, the lack of
experience and expertise of its management in this field, and other risk
factors discussed herein, there can be no assurance that the Company will
be able to operate at a profitable level. Management of the Company has no
marketing experience in this industry and, as a result, there can be no
assurance that the Company will be able to formulate a successful marketing
strategy or that there will be significant demand for its products. There
can be no assurance that the Company's officers will be able to operate or
manage the Company's business successfully or that the Company will be able
to achieve profitable operations.
<PAGE>
Need for Financing. The Company had a negative working capital
position of approximately $2,617,000 as of June 30, 1996, and to date,
absent revenue from operations, has funded itself primarily through equity
and debt transactions. On October 30, 1995, the Company consummated a Rule
504 offering whereby 70,000 shares of its common stock held in treasury
were sold to an accredited investor for $250,000 which netted the Company
$218,500 after costs and expenses of the transaction. On November 28, 1995,
the Company consummated a second Rule 504 offering whereby 75,000 shares of
its common stock held in treasury were sold to a different accredited
investor for $300,000 which after expenses netted the Company $262,500. On
December 22, 1995, the Company sold 454,545 shares of its common stock to
overseas investors pursuant to Regulation S for $1,000,000, which after
costs of the offering, netted the Company $820,000. Between January 12 and
April 4, 1996, the Company received $1,000,000 in advances from the Malcolm
C. Davenport V Family Trust and the Lanier M. Davenport, Sr. Family Trust
(hereinafter referred to collectively as the "Davenport Trusts"), two
separate entities and, pursuant to an agreement signed on February 16,
1996, with Board of Directors approval, this debt was converted to 454,545
shares of the Company's common stock, which bear a restricted legend, at a
price of $2.20 per share. The trustees of the Malcolm C. Davenport V Family
Trust are Malcolm C. Davenport V, Director of the Company and brother to
Lanier M. Davenport, Chairman and Chief Executive Officer of the Company,
and Malcolm C. Davenport, Jr., a stockholder of the Company and father of
Lanier M. Davenport and Malcolm C. Davenport V. The trustee of the Lanier
M. Davenport, Sr. Family Trust is Malcolm C. Davenport, Jr. In addition,
these same sources had loaned an additional $920,000 to the Company as of
June 30, 1996.
Financing transactions subsequent to June 30, 1996. On July 16,
1996, pursuant to an understanding with the trustees of the Davenport
Trusts, $440,000 of the above mentioned $920,000 of debt to the
Davenport Trusts will be converted to 401,140 shares of the Company's
common stock, that will bear a restricted legend. The remaining
$480,000, plus accrued and unpaid interest of approximately $15,000,
was converted to notes payable to the Davenport Trusts. Payments of
$20,000 including interest are to be paid on the 15th of each month
commencing August 15, 1996 until paid. Also on July 16, 1996 the
Company issued a $7,143,000, 4% Convertible Debenture ("Debenture")
due December 31, 1997. The Debenture was issued to offshore investors
pursuant to Regulation S promulgated under the Act at a discount of
30%. The Debenture netted the Company $4,400,000 after discount and
costs associated with the offering. The Debenture, plus any accrued
interest, automatically converts into common stock of the Company on
December 31, 1997 or, at any time after August 30, 1996 at the option
of the holder.
Although the Company expects that its cash and funds anticipated
to be generated from sales will be sufficient to fund operations,
there can be no assurance that a sufficient level of sales will be
attained, or that unbudgeted costs will not be incurred (see Patents
below). Future events, including the problems, delays, expenses and
difficulties frequently encountered by development stage companies, as
well as changes in economic, regulatory or competitive conditions, may
lead to cost increases that could make its current cash holdings and
funds anticipated to be generated from operations insufficient to meet
cash requirements for the next twelve months or beyond. If any
additional financing is required, there can be no assurances that the
Company will be able to obtain such additional financing on terms
acceptable to the Company and at times required by the Company, if at
all.
<PAGE>
Potential Reverse Stock Split. Pursuant to the terms and
conditions of the Company's July 16, 1996 Debenture, the Company must
attain a five day average bid price of $3 for the Company's common
stock by October 14, 1996. In the event the five day average does not
reach $3 per share, the Company may be required to effect a reverse
stock split sufficient to raise the bid price to $3.25 per share based
upon a five day average bid price. (The closing bid price for the
common stock of the Company on September 13, 1996 was $1.125.)
Dilution; Possible Change of Control. Pursuant to the terms and
conditions of the Company's July 16, 1996 Debenture, the price at
which the debt underlying the Debenture will be converted to equity
ranges from a minimum of $1 to a maximum of $3 per share, subject to
certain conditions. The conversion price could fall below the $1
minimum if the Company fails to become listed on the NASDAQ National
Market by November 13, 1996; or, if the Company's actual profits are
not at least eighty percent (80%) of the projected quarterly profits
for either of the quarters ending September 30, 1996 or December 31,
1996. Should either of these events occur, the Debenture holder could
conceivably convert the underlying debt to common stock of the Company
at a price which could give the holder a majority of the shares
outstanding in the Company.
Lack Of Patent Protection. Although the Company currently has
patent applications for its M.A.N.A.G.E.R.S. system pending with the
United States Patent Office, there can be no assurance that the
patents will be granted or, if granted, will be effective in
preventing competitors from developing similar systems. As a result,
there are no technological barriers to entry by other companies into
the Company's business. In the event the Company's M.A.N.A.G.E.R.S.
system is successful, third parties may enter a similar business.
There can be no assurance that the Company will be able to compete
successfully against any competitors who may enter the business. With
respect to the Company's patent application pending with the United
States Patent Office, on August 2, 1996, the Company received
correspondence from attorneys representing Bally Gaming International,
Inc. ("Bally"), that Bally has been issued a patent which may overlap
and be in conflict with the Company's patent application for the
M.A.N.A.G.E.R.S. system. The Company's outside legal counsel and its
patent counsel have been retained to review the matter. To date no
litigation has been undertaken. Based on discussion with counsel,
Management of the Company believes that its patent for the
M.A.N.A.G.E.R.S. system, when and if issued, would have priority over
the Bally patent. However, due to the preliminary nature of the
matter, Management is currently unable to estimate the ultimate
financial effect, if any, it might have on the Company.
Development and Installation Delays; Dependence on Third Party Suppliers.
On July 22, 1996, the Company received an order for 600 ACCUSYSTEMS from
Americas Gaming International, Inc. ("AGI"). Such sale requires that the
Company develop ACCUSYSTEM retrofit kits which AGI will install on their slot
machines in South America. In connection with the development and acquisition
of the necessary components of such retrofit kits, a number of events over
which the Company will have no control could occur that might adversely affect
the cost of completion and installation. Such events include shortages of,
or inability to obtain, labor and/or materials, inability of subcontractors to
perform, adverse weather conditions and acts of God and changes in state or
local laws or regulations. In addition the Company is dependent upon third
parties for the components needed to complete the retrofit kits. Although the
Company believes that it will be able to secure the components necessary to
complete the retrofit kits in a timely manner, failure to do so could
adversely
affect anticipated future sales to this customer. Further, the Company expects
to experience significant fluctuations in its operating results due to
anticipated initial dependence upon a small number of major customers.
<PAGE>
Issuance of Preferred Stock. On August 6, 1996 the Board of
Directors was granted authority by a consent of a majority of the
stockholders of the Company to issue up to 100,000 shares of preferred
stock, without nominal or par value per share, in one or more series
and to fix the number of shares constituting any such series, the
voting powers, designation, preferences and relative participation,
optional or other special rights and qualifications, limitations or
restrictions thereof, including the dividend rights and dividend rate,
terms of redemption (including sinking fund provisions), redemption
price or prices, conversions rights and liquidation preferences of the
shares constituting any series, without any further vote or action by
the stockholders. The issuance of preferred stock by the Board of
Directors could adversely affect the rights of the holders of the
Company's common stock. For example, such issuance could result in a
class of securities outstanding that would have preferences with
respect to voting rights and dividends and in liquidation over the
common stock, and could (upon conversion or otherwise) enjoy all of
the rights appurtenant to common stock.
The authority possessed by the Board of Directors to issue preferred stock
could potentially be used to discourage attempts by others to obtain control of
the Company through a merger, tender offer, proxy contest or otherwise by making
such attempts more difficult to achieve or more costly. There are currently no
issued and outstanding preferred shares, however pursuant to the provisions of
the terms of the Debenture described above, it is the intention of the Board of
Directors to issue shares of preferred stock to satisfy the underlying debt of
said Debenture. All such preferred stock issued to the Debenture holder plus any
accrued and unpaid dividends thereon will be converted to common stock of the
Company on or before December 31, 1997, pursuant to the terms of the Debenture.
No Dividends. The Company has not paid any dividends, other than a dividend
aggregating approximately $150,000 that was distributed to stockholders of
record on August 22, 1995, a date which preceded the acquisition of Gaming. The
Company does not intend to pay any dividends in the foreseeable future.
Earnings, if any, are expected to be retained for use in developing and
expanding the Company's business.
Impact of Environmental Laws
The Company is not aware of any federal, state or local environmental
laws which would effect its operations.
Raw Materials and Principal Suppliers
The components of the M.A.N.A.G.E.R.S. systems and the data
collection and accounting systems are made from currently available
materials. Such raw materials include steel, aluminum, copper, brass,
plastics, zinc, and silicon. All are currently widely available to
both the Company and its competitors. The Company sometimes purchases
the raw materials directly, which it subcontracts to assemblers for
assembly, and sometimes it purchases completed sub-parts and
subassemblies from suppliers. There can be no assurance that certain
raw materials used in the Company's products will remain available in
the future or that the Company will be able to find alternate
materials in the event that such materials become unavailable.
<PAGE>
The Company is dependent on various suppliers for the components of
its M.A.N.A.G.E.R.S. systems and data collection and accounting systems.
Although Management believes that there are a number of alternative sources
for most of these components, the Company presently must obtain certain
components from a limited number of suppliers. The loss of any significant
supplier, in the absence of timely and satisfactory alternative arrangements,
could materially affect the Company. In addition, the Company could be
adversely affected by delays in delivery or an inability to obtain products
from
suppliers.
The principal suppliers to the Company for the components that make up
its M.A.N.A.G.E.R.S. systems and data collection and accounting systems are:
All American Semiconductor, Arrow Electronics, FAI Electronics Corporation,
Hottinger Baldwin Messtechnik, Richey Electronics, and River Electronics.
Patents, Licenses and Royalty Agreements
The Company is obligated to pay royalty payments of $100 per gaming
apparatus for all licensed gaming apparatus (embodying certain technology) sold
by Gaming under a license agreement, dated April 6, 1995, with Spintek
International, Inc. ("International") a company which is neither a parent nor a
subsidiary of the Registrant and is controlled by the Company's current Chairman
and Chief Executive Officer. The term of the agreement is for the life of the
last to expire of the existing patent and copyright and such patents as may be
granted on the applications covered by the agreement. The agreement requires a
minimum royalty of $100,000 per year commencing one year after its effective
date. Whether the terms of the license agreements which the Registrant has
entered into with International, a company in which Lanier M. Davenport,
Chairman and Chief Executive Officer of the Registrant, is a controlling
stockholder, are as favorable as the Company may have obtained from unaffiliated
parties cannot be objectively ascertained because there is no other source for
the gaming technology developed by International.
On May 26, 1995, Spinteknology Inc. entered into an agreement under which
it was licensed to include the M.A.N.A.G.E.R.S. system in associated gaming
equipment it manufactures and distributes. This agreement was superseded on
March 19, 1996, when Spinteknology acquired the rights to the M.A.N.A.G.E.R.S.
system from the inventor for $950,000. A patent application has been filed for
the M.A.N.A.G.E.R.S. system.
In conjunction with Management's decision to cease development
and production of slot machines and coin hoppers for slot machines,
the Company has allowed both a license to a coin hopper and a license
to a multi-game video slot machine to lapse, and has not elected to
renew them.
On October 14, 1995, the Company entered into a technology
assignment agreement in which it received all rights and claims to an
input/output circuit board ("I/O Board"), jointly developed by the
Company and one of its consultants, which is the key component of the
Company's ACCUDATA system. The agreement requires the Company to pay
$5 for each I/O Board sold by the Company, to be remitted on a
quarterly basis net of any returns.
As of June 30, 1996, the Company had no franchises, no
trademarks, nor is it subject to any union labor contracts.
<PAGE>
Government Approvals
The manufacture and distribution of associated gaming equipment
is subject to extensive federal, state and local regulation. Although
these regulations vary, for the most part, permits, licenses, findings
of suitability and other approvals are required to be held by business
entities and their key personnel in connection with the manufacture
and distribution of associated gaming equipment. The Company and its
key personnel has applied or will apply for all government licenses,
permits, findings of suitability and other approvals necessary for the
manufacture and distribution of its associated gaming equipment in the
jurisdictions in which it intends to do business. However, no
assurance can be given that such licenses, permits or approvals will
be given or renewed in the future.
Regulation of Stockholders of Publicly Traded Corporations
In most jurisdictions, at the discretion of the gaming regulatory
authorities, a stockholder can be required to file an application for
a license, finding of suitability or other approval, and in the
process to subject himself or herself to an investigation by those
authorities.
Nevada Regulation
The Company is subject to regulation by authorities in most
jurisdictions in which its products are sold or used by persons or
entities licensed to conduct gaming activities, including but not
limited to, Nevada. The gaming regulatory requirements vary from
jurisdiction to jurisdiction, and licensing, other approval or finding
of suitability processes with respect to the Company, its personnel
and its products can be lengthy and expensive. Generally, gaming
regulatory authorities may deny applications for licenses, other
approvals or findings of suitability for any cause they deem
reasonable. The Company's ACCUSYSTEM is generally classified as
"associated gaming equipment" which is equipment that is not
classified as a "gaming device", but which has such an integral
relationship to the conduct of licensed gaming that regulatory
authorities have discretion to require manufacturers and distributors
of "associated equipment" to meet licensing or suitability
requirements prior to or concurrent with the use of such equipment in
the respective jurisdiction. In Nevada, manufacturers and distributors
of "associated equipment" are not required to be licensed or found
suitable, unless the Nevada Gaming Commission ("Nevada Commission")
upon the recommendation of the Nevada State Gaming Control Board
("Nevada Board") elects to require that such manufacturer and
distributor file an application for a finding of suitability to
manufacture and distribute associated equipment for use or play in
Nevada. However, associated equipment must be approved by the Nevada
Board and to date, the Company has complied with the associated
equipment approval process for each location at which the ACCUSYSTEM
is installed and in use in Nevada. To date, the Company has not been
required by the Nevada Board or Nevada Commission to apply for a
finding of suitability as a manufacturer and distributor of
"associated equipment". In the event that the Company were required to
apply for a finding of suitability, it would have to file the required
applications and be found suitable by the Nevada Commission in order
to continue to manufacture and distribute the ACCUSYSTEM for use or
play in Nevada.
<PAGE>
Other Jurisdictions
Many jurisdictions that have legalized gaming require various
licenses, permits and approvals for manufacturers and distributors of
associated equipment. In general, such requirements involve
restrictions similar to those of Nevada.
Federal Regulation
The federal Gambling Devices Act of 1962 (the "Federal Act")
makes it unlawful, in general, for a person to manufacture, deliver,
or receive gaming machines, gaming machine type devices, and
components across state lines or to operate gaming machines unless
that person has first registered with the Attorney General of the
United States. In addition, various record keeping and equipment
identification requirements are imposed by the Federal Act. Violation
of the Federal Act may result in seizure and forfeiture of the
equipment, as well as other penalties.
Present Licensing Status
The Company, acting through Gaming, applied for one license with
the Nevada Board for its ACCUHOPPER. Management contemplated that upon
a successful trial of the device conducted in the MGM Grand Hotel and
Casino in Las Vegas, Nevada, the ACCUHOPPER would receive approval as
associated gaming equipment which could be sold in Nevada. On October
13, 1995, this approval was received. Subsequently, on December 13,
1995, the Company received approval from the Nevada Gaming Commission
of what is described as an "ACCUSYSTEM" consisting of the following:
ACCUHOPPER coin hopper, ACCUTRACK software program and DATA COLLECTION
BOARD with portable interface, the TEK TOUCH PEN 2000, for data
collection and the ACCUTRACK DATABASE. These approved items comprise
what is known today as the M.A.N.A.G.E.R.S. system and ACCUDATA
system, which when combined comprise the ACCUSYSTEM.
The Company and each of its subsidiaries has requested and
received registration under the Gambling Devices Act of 1962. Such
registration is renewable annually, and the Company intends to renew
each year.
Application of Future or Additional Regulatory Requirements
In the future, the Company intends to seek the necessary
licenses, approvals and findings of suitability for the Company, its
products and its personnel in other jurisdictions throughout the world
where significant sales are expected to be made. However, there is no
assurance that such licenses, approvals or findings of suitability
will be obtained and that they will not be revoked, suspended or
unsuitably conditioned or that the Company will be able to timely
obtain the necessary approvals for its future products as they are
developed, or at all. If a license, approval or finding of suitability
is required by a regulatory authority and the Company fails to seek or
does not receive the necessary license or finding of suitability, the
Company may be prohibited from selling its products for use in that
jurisdiction or may be required to sell its products through other
licensed entities at a reduced profit to the Company.
<PAGE>
Competition
The Company faces intense competition in the data collection and
accounting system industry. The Company not only faces competition from
domestic manufacturers of "on-line" and "off-line" data collection and
accounting systems, but also risks market entry of foreign manufacturers.
There can be no assurance that competitors with greater financial resources
and/or superior technology, including manufacturers or distributors of similar
products, will not elect to enter the market for data collection and
accounting
systems.
The market for the Company's products is characterized by changing
technologies, new legislation, and evolving industry standards. The
introduction of products embodying new technologies, the adoption of new
legislation, or the emergence of new industry standards could render existing
products obsolete and unmarketable. The Company's ability to anticipate
changes in gaming technologies, legislation and industry standards and to
successfully develop and introduce new and enhanced products on a timely basis
is crucial to its ability to grow and remain competitive.
The Company currently has several principal competitors in the market
for data collection and accounting systems, including, but not limited to,
Mikohn Gaming Corporation, Electronic Data Technologies, a subsidiary of
International Game Technology, Bally Systems, a subsidiary of Bally Gaming
International, Inc., Casino Data Systems, and Acres Gaming, Inc. Competition
is based on price, technology, and service in this market.
Employees
As of June 30, 1996, the Company had 12 full-time employees at its
corporate facility in Las Vegas, Nevada, and 2 full-time employees at its
Chattanooga, Tennessee offices. As anticipated sales begin, the Company will
be required to hire additional employees to assemble the Company's products.
In addition, the Company anticipates entering into contracts with independent
sales representatives to locate potential purchasers of the Company's products
and licensees of the Company's technology. The Company believes that its
relations with its employees are satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate headquarters are located in Las Vegas,
Nevada. The Company subleases a 15,182 square foot facility from
International Technical Systems. The Company pays $7,662 per month for this
lease which terminates August 31, 1997. Presently there is excess capacity
at this location which will diminish in the event distribution and production
activities increase because of future sales.
The Company also has use of 1,048 square feet of office space in
Chattanooga, Tennessee, through an arrangement with Davenport Investments,
Inc., a business entity owned by Lanier M. Davenport, Chairman and Chief
Executive Officer of the Company. The lease cost of this facility is $1,380
per month, is on a month-to-month basis, and has served as the Company's
administrative office. The Company believes the terms of this lease are
comparable with terms that may have been obtained from an unaffiliated party
elsewhere in Chattanooga. The Company's administrative office has been
relocated to its Las Vegas facility and as of September 30, 1996, the Company
will no longer utilize nor bear the cost of this office.
<PAGE>
There are currently no proposed programs for the renovation,
improvement or development of the properties currently leased by the
Company. In the opinion of Management, each of the above described
properties are adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any legal proceedings
that it believes could have, either individually or in the aggregate,
a material adverse effect on its business or financial condition.
However, the Company has applied for a United States patent for its
M.A.N.A.G.E.R.S. system, and is awaiting action by the patent office.
On August 2, 1996, the Company received correspondence from attorneys
representing Bally Gaming International, Inc. ("Bally"), that Bally
has been issued a patent which may overlap and be in conflict with the
Company's patent application for the M.A.N.A.G.E.R.S. system. The
Company's outside legal counsel and its patent counsel have been
retained to review the matter. To date no litigation has been
undertaken. Based on discussion with counsel, Management of the
Company believes that its patent for the M.A.N.A.G.E.R.S. system, when
and if issued, would have priority over the Bally patent. However, due
to the preliminary nature of the matter, Management is currently
unable to estimate the ultimate financial effect, if any, it might
have on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter ended June 30, 1996.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The common stock of the Company, subsequent to the acquisition of
Spintek Gaming, Inc., began trading in September 1995 on the OTC Bulletin
Board under the symbol "SPTK". Previously, the common stock of the
Company was traded on the OTC Bulletin Board under the symbol "GSAC".
The following table sets forth the high and low quotations from the National
Quotation Bureau, Inc. The quotations shown reflect inter-dealer prices,
without retail mark-up, mark-down, or commission and may not represent
actual transactions. THESE FIGURES HAVE BEEN ADJUSTED TO
REFLECT A 1 FOR 10 REVERSE SPLIT ON AUGUST 31, 1994 AND A
REVERSE SPLIT OF 1 FOR 2 EFFECTIVE SEPTEMBER 21, 1995.
Common Stock Price
Bid Prices Ask Prices
High Low High Low
1994
July 1 through August 19 $ .20 $ .20 $ 1.60 $ 1.60
August 22 through August 30 (NOT AVAILABLE)
August 31 through September 30 .25 .25 1.25 1.25
October 3 through December 30 .25 .13 1.50 1.25
1995
January 3 through March 31 .50 .25 1.50 1.25
April 3 through June 30 .25 .25 1.25 1.25
July 3 through September 30 6.00 .25 8.00 1.25
October 2 through December 29 6.63 1.44 7.50 3.38
1996
January 1 through March 29 4.13 1.88 4.38 1.91
April 1 through June 28 2.79 1.06 3.00 1.13
The number of record holders of the Company's common stock as of
August 2, 1996, was 711.
The Company has not paid any dividends, other than a dividend
aggregating approximately $150,000 that was distributed to stockholders of
record on August 22, 1995, a date which preceded the acquisition of Gaming.
The Company does not intend to pay any dividends in the foreseeable future.
ITEM 6. PLAN OF OPERATION
The following is Management's plan of operation for the next
twelve (12) months and analysis of certain significant factors which
have affected the Company's financial position and operating results
during the period included in the accompanying consolidated financial
statements which include the Company's wholly-owned subsidiary,
Spintek Gaming, Inc. and its wholly-owned subsidiary Spinteknology,
Inc. This plan of operation should be viewed in conjunction with the
accompanying financial statements, including the notes thereto.
<PAGE>
Results of Operation
For the year ended June 30, 1996, the Company incurred net losses
of approximately $4,181,000 and negative cash flows from operating
activities of nearly $3,494,000. Cumulatively, for the fifteen months
from inception (March 31, 1995) to June 30, 1996, net losses and
negative cash flows from operating activities were approximately
$4,659,000 and about $3,926,000, respectively. The losses reflect
expenses related to continuing product development, the purchase of
technology, settlement of a former employee lawsuit, the expansion of
the Company's marketing program, and the writedown of inventory of
approximately $280,000 due to a change in strategic direction for the
Company. The Company has elected to discontinue the manufacture of
both slot machines and slot machine coin hoppers, each of which would
require significant capital to produce in what Management believes to
be a highly competitive market for these products. The Company will
focus instead on selling and/or licensing its M.A.N.A.G.E.R.S. system
which Management believes to be the only system available in the
gaming industry that can provide an accurate real time measurement of
the amount of coins in the hopper of a gaming device, its ACCUDATA
system and its ACCUSYSTEM. The loss also includes $524,052 for the
extinguishment of employee contracts, paid in the form of the common
stock of the Company to certain key employees and/or their designees.
Management does not foresee this noncash expense to be recurring.
Therefore, the operating results for the year ended June 30, 1996 are
not necessarily indicative of the results that may be expected for the
year ending June 30, 1997.
Liquidity and Working Capital and Plan of Operation
The Company had a negative working capital position of
approximately $2,617,000 as of June 30, 1996, and to date, absent
revenue from operations, has funded itself primarily through equity
and debt transactions. On October 30, 1995, the Company consummated a
Rule 504 offering whereby 70,000 shares of its common stock held in
treasury were sold to an accredited investor for $250,000 which netted
the Company $218,500 after costs and expenses of the transaction. On
November 28, 1995, the Company consummated a second Rule 504 offering
whereby 75,000 shares of its common stock held in treasury were sold
to a different accredited investor for $300,000 which after expenses
netted the Company $262,500. On December 22, 1995, the Company sold
454,545 shares of its common stock to overseas investors pursuant to
Regulation S for $1,000,000, which after costs of the offering, netted
the Company approximately $820,000. Between January 12 and April 4,
1996, the Company received $1,000,000 in advances from the Malcolm C.
Davenport V Family Trust and the Lanier M. Davenport, Sr. Family Trust
(hereinafter referred to collectively as the "Davenport Trusts"), two
separate entities and, pursuant to an agreement signed on February 16,
1996, with Board of Directors approval, this debt was converted to
454,545 shares of the Company's common stock, which bear a restricted
legend, at a price of $2.20 per share. The trustees of the Malcolm C.
Davenport V Family Trust are Malcolm C. Davenport V, Director of the
Company and brother to Lanier M. Davenport, Chairman and Chief
Executive Officer of the Company, and Malcolm C. Davenport, Jr., a
stockholder of the Company and father of Malcolm C. Davenport V and
Lanier M. Davenport. The trustee of the Lanier M. Davenport, Sr.
Family Trust is Malcolm C. Davenport, Jr. In addition, these same
sources had loaned an additional $920,000 to the Company as of June
30, 1996.
<PAGE>
Financing transactions subsequent to June 30, 1996. On July 16,
1996, pursuant to an understanding with the trustees of the Davenport
Trusts, $440,000 of the above mentioned $920,000 of debt to the
Davenport Trusts will be converted to 401,140 shares of the Company's
common stock, that will bear a restricted legend. The remaining
$480,000, plus accrued and unpaid interest of approximately $15,000 ,
was converted to notes payable to the Davenport Trusts. Payments of
$20,000 including interest are to be paid on the 15th of each month
commencing August 15, 1996 until paid. Also on July 16, 1996 the
Company issued a $7,143,000, 4% Convertible Debenture ("Debenture")
due December 31, 1997. The Debenture was issued to an offshore
investor pursuant to Regulation S promulgated under the Act at a
discount of 30%. The Debenture netted the Company $4,400,000 after
discount and costs associated with the offering. The Debenture, plus
any accrued interest, automatically converts into Common Stock of the
Company on December 31, 1997 or, at any time after August 30, 1996 at
the option of the holder.
Pursuant to the terms and conditions of the Debenture, the
price at which the debt underlying the Debenture will be
converted to equity ranges from a minimum of $1 to a maximum of
$3 per share, subject to certain conditions. The conversion price
could fall below the $1 minimum if the Company fails to become
listed on the NASDAQ National Market be November 13, 1996; or, if
the Company's actual profits are not at least eighty percent
(80%) of the projected quarterly profits for either of the
quarters ending September 30, 1996 or December 31, 1996. Should
either of these events occur, the Debenture holder could
conceivably convert the underlying debt to common stock of the
Company at a price which could give the holder a majority of the
shares outstanding in the Company.
On August 6, 1996 the Board of Directors was granted
authority by a consent of a majority of the stockholders of the
Company to issue up to 100,000 shares of preferred stock, without
nominal or par value per share. There are currently no issued and
outstanding preferred shares, however pursuant to the provisions
of the terms of the Debenture described above, it is the
intention of the Board of Directors to issue shares of preferred
stock to satisfy the underlying debt of said Debenture. All such
preferred stock issued to the Debenture holder plus any accrued
and unpaid dividends thereon will be converted to common stock of
the Company on or before December 31, 1997, pursuant to the terms
of the Debenture.
Based upon current projections of operations, and the
anticipated cost to produce and market its products, should the
Company fail to achieve projected revenues during the fiscal year
ending June 30, 1997, or secure additional financing, the Company
will be unable to continue as a going concern.
<PAGE>
Management intends to forge strategic alliances with
companies that are already successful in the gaming industry who
are presently looking to expand their presence in foreign markets
as opportunities for sales growth. The Company has signed two
technology licensing agreements, in which the Company has given a
nonexclusive license to two separate companies for the
M.A.N.A.G.E.R.S. system. These two license agreements are with
SUZO International, (N.L.) B.V. and IGT, discussed below. No
sales have taken place to, or from, any of these companies.
On December 1, 1995, the Company entered into an agreement
with the Virginian Hotel and Casino in Reno, Nevada for the sale
and corresponding purchase of ACCUSYSTEMS, subject to approval
after an extensive field trial of the product. As of June 30,
1996, the Company still had units in place on a test basis.
However, to date, the Virginian has made no firm commitment to
purchase any units and there can be no assurance that the
Company's products will successfully meet the operating
requirements of the Virginian Hotel & Casino, or that the Company
will be able to recognize any revenue from this source.
On March 1, 1996, the Company entered into a licensing
agreement with SUZO International, (N.L.) B.V. ("SUZO"), a coin
hopper manufacturer headquartered in the Netherlands. This
licensing agreement provided SUZO with a non-exclusive license to
utilize the M.A.N.A.G.E.R.S. system as an attachment to SUZO's
coin hoppers. The agreement provides for a minimum annual royalty
of $700,000, except for calendar year 1996, in which SUZO's
minimum annual royalty is $350,000. On July 31, 1996, however,
the license agreement was modified to defer the minimum annual
royalty requirements for one year. There can be no assurance,
however, that Suzo will meet its royalty requirements.
On March 11, 1996, the Company received a purchase order
from Sun International Ltd. ("Sun"), a company which owns and
operates casinos in South Africa, for a field trial of fifty
M.A.N.A.G.E.R.S. system retrofit kits. These retrofit kits are of
a trial nature and may be returned by Sun without obligation
should they fail to meet their operating requirements. There can
be no assurance that the Company will be able to recognize any
revenue from this source.
On March 19, 1996, the Company entered into an Installment
Purchase Agreement with Bitstream Technologies, Inc. This
agreement exercised the Company's option to purchase the
technology (called the M.A.N.A.G.E.R.S. system) for which it has
an exclusive license from Bitstream Technologies for the sum of
nine hundred and fifty thousand dollars ($950,000). This
agreement provided for an initial down payment of $100,000 and
the issuance of a promissory note, which was paid in full on
September 17, 1996.
On May 15, 1996, the Company entered into a licensing
agreement with IGT, a subsidiary of International Game
Technology, Inc., a slot machine and on-line data collection and
accounting system manufacturer. This licensing agreement provided
IGT with a non-exclusive license to utilize the M.A.N.A.G.E.R.S.
system as an attachment to IGT's coin hoppers. There are no
minimum royalty requirements, and there can be no assurance that
the Company will be able to recognize any revenue from this
source.
<PAGE>
On July 22, 1996, the Company received an order for 600
ACCUSYSTEMS from Americas Gaming International, Inc. ("AGI"), an international
route operator. Although the Company has received a substantial deposit for
this order, as of the date of this document, no product has been shipped to
AGI. There can be no assurance that the Company will be able to ship the
product in a timely manner, if at all, or that the product shall perform
adequately, or that, in such event, the Company will be able to recognize any
revenue from this source.
The Company currently has its ACCUSYSTEM on trial with three major
slot route operators in Las Vegas. Management believes that the trials are
proceeding well and that the Company will more likely than not be able to
recognize sales as a result of these trials in the second quarter of fiscal
1997. However, to date there has been no commitment from any of the route
operators to purchase the ACCUSYSTEM and there can be no assurance that the
Company will recognize any revenue from these trials.
The Company plans to incur research and development expenses of
approximately $720,000 over the next twelve months on both current and new
products. The Company has agreed to advance Spintek International, Inc.
amounts sufficient to satisfy certain of its obligations. This amount is not
expected to exceed $225,000, of which, as of June 30, 1996, the Company had
already advanced approximately $186,000. The Company expects to purchase
approximately $75,000 in operating equipment over the next twelve months.
The Company currently has 14 full-time employees and expects that it will
employ approximately 20 full-time employees by the end of the next twelve
months.
ITEM 7. FINANCIAL STATEMENTS
Index to Consolidated Financial Statements.
Page No.
Report of Independent Accountants F-1
Consolidated Balance Sheet at June 30, 1996 F-2
Consolidated Statement of Operations - Inception to June 30, 1995;
Year Ended June 30, 1996; Inception to June 30, 1996 F-3
Consolidated Statement of Changes in Stockholders'
Equity (Deficit) - Year Ended June 30, 1996 F-4
Consolidated Statement of Cash Flows - Inception to June 30, 1995;
Year Ended June 30, 1996; Inception to June 30, 1996 F-5
Notes to Consolidated Financial Statements F-7
<PAGE>
JOSEPH DECOSIMO
AND COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
A TENNESSEE REGISTERED LIMITED LIABILITY PARTNERSHIP
__________________________________________________________________________
Private Companies Practice Section
Member AICPA Division for CPA Firms
SEC Practice Section
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Spintek Gaming Technologies, Inc.
Chattanooga, Tennessee
We have audited the accompanying consolidated balance sheet
of Spintek Gaming Technologies, Inc. and subsidiaries (a
development stage enterprise and formerly GSA, Inc.) as of June
30, 1996, and the related consolidated statements of operations,
stockholders' deficit and cash flows for the year ended June 30,
1996 and the period from March 31, 1995 (inception) through June
30, 1995. These financial statements are the responsibility of
the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We belive that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Spintek Gaming Technologies, Inc. and
subsidiaries as of June 30, 1996, and the results of their
operations and their cash flows for the period from March 31,
1995 through June 30, 1995, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the companies will continue as a going
concern. As shown in the consolidated financial statements, the
companies have incurred net losses of $4,937,620 since inception
and have not begun to receive revenues from operations. These
facts raise substantial doubt about the companies ability to
continue as a going concern. Management's plans in regard to
these matters are described in the notes to the consolidated
financial statements. The consolidated financial statements do
not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and
classifications of liabilities that might be necessary should the
companies be unable to continue in existence.
/s/JOSEPH DECOSIMO AND COMPANY, LLP
Chattanooga, Tennessee
September 20, 1996
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
(a development stage company)
(formerly GSA, Inc.)
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
ASSETS
Current assets:
Cashs $ 120,664
Inventories 451,735
Prepaid and other 25,166
Total current assets 597,565
Furniture, fixtures and equipment - net 75,885
Licenses and patents 1,019,490
Note receivable from related company 159,910
Other assets 11,218
Total assets $1,864,068
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Demand notes payable $1,084,898
Demand notes payable to stockholders 1,408,108
Accounts payable 412,731
Accrued liabilities 233,286
Interest payable 75,701
Total current Liabilities 3,214,724
Commitments
Stockholders' deficit:
Common stock, $.002 par value, 100,000,000
shares authorized, 10,651,762 issued 21,338
Additional paid in capital 3,591,620
Deficit accumulated during development stage (4,937,620)
Treasury stock - 17,329 shares at cost (25,994)
Total stockholders', deficit (1,350,656)
Total liabilities and stockholders' deficit $1,864,068
The accompanying notes are an integral part of the financial statements.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
(a development stage company)
(formerly GSA, Inc.)
CONSOLIDATED STATEMENT OF OPERATIONS
Cumulative
March 31, 1995 Fiscal March
31,1995
(Inception) To Year Ended
(Inception)To
June 30 , 1995 June 30, 1996 June 30,
1996
(1)
Revenues:
Sales $ 0 $ 0 $ 0
Cost of sales 0 0 0
Gross profit 0 0 0
Operating expenses:
Selling, general &
administrative 310,906 2,857,011 3,167,917
Research and development 167,324 1,324,024 1,491,348
Total expenses 478,230 4,181,035 4,659,265
Operating Loss (478,230) (4,181,035)
(4,659,265)
Other income (expense):
Interest and other income 2,448 18,197 20,645
Depreciation & amortization (560) (10,645)
(11,205)
Loss on sale of securities (178,175) (798)
(178,973)
Interest expense (2,363) (106,459)
(108,822)
Net loss $ ( 656,880) $ (4,280,740) $
(4,937,620)
Net Loss Per Share Of Common Stock ($0.07) ($0.43)
($0.50)
Weighted Average Common
Shares Outstanding 9,275,001 9,943,869 9,778,357
(1) Weighted Average Common Shares Outstanding Restated To Reflect Effect
Of Acquisition Which Was Effective For Accounting Purposes As Of July 1,
1995.
The accompanying notes are an integral part of the financial statements.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
(a development stage company)
(formerly GSA, Inc.)
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
MARCH 31, 1995 (INCEPTION) TO JUNE 30, 1996
Deficit
Accumulated
Treasury Additional
During
Common Stock Stock Paid In
Development Employment
Shares Amount Amount Capital
Stage Contracts
<S> <C> <C> <C> <C>
<C> <C>
Inception, March 31, 1995
Issuance of common stock
for cash 3,324,383 $ 500 $ - $ - $
- $ -
Issuance of common stock
employment contracts
and prepaid services 44,531 445 74,149
(73,094)
Issuance of common stock
exchanged for debt 84,243 842 140,272
Issuance of common stock
for marketable equity
securities 217,740 2,177 362,557
Issuance of common stock
for cash 90,103 901 150,029
Net loss
( 656,880
Balance, June 30, 1995 3,761,000 4,865 0 727,007
( 656,880) (73,094)
Transactions resulting
from acquisition of
Spintek Gaming, Inc.:
Cancellation of Spintek
Gaming, Inc. stock (3,761,000)
Common stock acquired
in acquisition of
Spintek Gaming, Inc. 1,275,001
Issuance of common stock
in acquisition of
Spintek Gaming, Inc. 8,000,000 13,685 (13,760)
Contribution of common
stock to treasury (1,418,359) (2,127,539) 2,127,539
Issuance of treasury
stock to extinguishment
for extinguishment of
stock options 281,750 422,625 (169,050)
Issuance of treasury
stock for compensation 582,280 873,420 (349,368)
Issuance of treasury
stock for services
related to acquisition
Spintek Gaming, Inc. 392,000 588,000 (235,200)
Issuance of common stock
for services related
to acquisition of
Spintek Gaming, Inc. 475,000 950 426,550
Costs related to
acquisition of
Spintek Gaming, Inc. (1,014,275)
Issuance of treasury
stock pursuant
to Rule 504 145,000 217,500 263,500
Issuance of common stock
pursuant to
Regulation S 454,545 909 818,893
Write off of employment
contract
73,094
Issuance of common stock
to repay debt
to stockholders 454,545 909 999,091
Issuance of common
stock to repay note 10,000 20 10,693
Net loss for the year
ended June 30, 1996
(4,280,740)
Balance, June 30, 1996 10,651,762 $21,338 $ ( 25,994) $3,591,620
$(4,937,620) $ 0
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
(a development stage company)
(formerly GSA, Inc.)
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Cumulative
March 31, 1995 Fiscal
March 31, 1995
(Inception) To Year Ended
(Inception) To
June 30, 1995 June 30, 1996 June
30, 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(656,880) $(4,280,740)
$(4,937,620)
Adjustments to reconcile net loss
to net cash used by operating
used by operating activities:
Depreciation 560 10,505
11,065
Amortization 35 140
175
Allowance for obsolesence 28,000
28,000
Loss on sale of marketable securities 94,871 798
95,669
Unrealized loss on marketable securities 83,304
83,304
Noncash operating expenses for
common stock 597,146
597,146
Changes in operating
assets and liabilities:
Decrease (increase) in assets:
Inventories (15,500) (464,235)
(479,735)
Prepaid and other (30,167) ( 3,967) (
34,134)
Increase in liabilities:
Accounts payable 91,396 309,334
400,730
Accrued expenses 233,287
233,287
Interest payable 75,701
75,701
Net cash used by operating activities (432,381) (3,494,031)
(3,926,412)
Cash flows from investing activities:
Purchase of furniture, fixture
and equipment (2,829) ( 62,021) (
64.850)
Acquisition of licenses and patents (12,325) ( 145,167)
(157,492)
Proceeds from sale of securities 125,469 60,292
185,761
Note receivable from related company (139,189) ( 42,820) (
182,009)
Other (925)
( 925)
Net cash used by investing activities (29,799) ( 189,716) (
219,515)
Cash flows from financing activities:
Proceeds-demand notes
payable borrowings (net) 281,222 184,899
466,121
Proceeds-demand notes payable
to stockholders (net) 53,330 1,264,670
1,318,000
Proceeds-advances from stockholders 1,000,000
1,000,000
Repurchase partial shares ( 75)
75)
Issuance of common and treasury stock 151,430 1,331,115
1,482,545
Net cash provided by financing activities 485,982 3,780,609
4,266,591
Net increase in cash 23,802 96,862
120,664
Cash, beginning of period 0 23,802
0
Cash, end of period $ 23,802 $ 120,664 $
120,664
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
(a development stage company)
(formerly GSA, Inc.)
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Cumulative
March 31, 1995
March 31, 1995
(Inception) To Year Ended
(Inception)To
June 30, 1995 June 30, 1996 June
30, 1996
<S> <C> <C> <C>
Supplemental schedule of noncash investing
and financing activities:
Issuance of common stock for securities $ 364,734 $ _ $
364,734
Issuance of common stock for employment
contracts and prepaid services $ 75,594 $ - $
74,594
Issuance of common stock exhanged
for debt $ 141,114 $ 10,693 $
151,807
Issuance of common stock exchanged for
advances from stockholders $ - $1,000,000
$1,000,000
Issuance of common and treasury stock
for services related to acquisition
of public entity $ - $1,014,275
$1,014,275
Purchase of furniture, fixtures and
equipment through reduction in
receivable from related parties $ 22,100 $ - $
22,100
License and patent cost included in
accounts payable $ 11,999 $
11,999
License and patent cost included in
notes payable $ 850,000 $
850,000
Supplemental disclosure of cash
flow information:
Cash paid for interest $ - $ 33,121 $
33,121
</TABLE>
The accompanying note are an integral part of the financial statements.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
(formerly GSA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by the Company and
its subsidiaries are as follows:
ORGANIZATION - Spintek Gaming Technologies, Inc., hereinafter referred to as
"The Company", was organized as GSA, Inc. by the filing of articles of
incorporation with the Secretary of State of the State of California on
September 11, 1984.
On September 14, 1995, the stockholders of the Company approved the
acquisition of Spintek Gaming, Inc., a Georgia corporation, effected by an
exchange of the common stock of the entities, with the acquisition deemed to
be
effective as of July 1, 1995.
For accounting purposes, the acquisition has been treated as an acquisition of
Spintek Gaming Technologies, Inc. (formerly GSA, Inc.) by Spintek Gaming, Inc.
and as such constitutes a recapitalization of Spintek Gaming, Inc. The
historical financial statements of the Company prior to September 14, 1995 are
those of Spintek Gaming, Inc.
On September 26, 1995, the Company effected a reverse split on a 1 share for 2
share basis, changed the value of its common stock from no par value to $.002
par value per share, and changed its name from GSA, Inc. to Spintek Gaming
Technologies, Inc.
As a consequence of the above described transactions, the Company became the
holding company of its wholly-owned subsidiary, Spintek Gaming, Inc., which in
turn is the parent company of Spinteknology, Inc.
Spintek Gaming, Inc. ("Gaming") was incorporated under the laws of the State
of
Georgia in December, 1993, as a wholly-owned subsidiary of Spintek
International, Inc. ("International"), also a Georgia corporation. On April
12,
1995, Gaming was spun off from International through a dividend of Gaming
shares to stockholders of record of International, as of that date.
International is neither a parent nor a subsidiary of the Company. However,
it
is controlled by Mr. Lanier M. Davenport, Chairman and Chief Executive Officer
of the Company.
In May 1995, Spinteknology, Inc. ("Spinteknology") was incorporated in the
State
of Georgia as the wholly-owned subsidiary of Gaming.
Since inception, the Company and its subsidiaries have been in the development
stage and have not yet consummated any sales of products.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
(formerly GSA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
As shown in the financial statements, since its inception
the Company has had net losses of approximately $4,938,000 and
negative cash flows from operating activities of approximately
$3,919,000. Absent significant revenues, the Company has funded
itself primarily through equity and debt transactions. On October
30, 1995, the Company consummated a Rule 504 offering whereby
70,000 shares of its common stock held in treasury were sold to
an accredited investor for $250,000 which netted the Company
$218,500 after costs and expenses of the transaction. On November
28, 1995, the Company consummated a second Rule 504 offering
whereby 75,000 shares of its common stock held in treasury were
sold to a different accredited investor for $300,000 which after
expenses netted the Company $262,500. On December 22, 1995, the
Company sold 454,545 shares of its common stock to overseas
investors pursuant to Regulation S for $1,000,000, which after
costs of the offering, netted the Company $820,000. Between
January 12 and April 4, 1996, the Company received $1,000,000 in
advances from the Malcolm C. Davenport V Family Trust and the
Lanier M. Davenport, Sr. Family Trust (hereinafter referred to
collectively as the "Davenport Trusts"), two separate entities
and, pursuant to an agreement signed on February 16, 1996, with
Board of Directors approval, this debt was converted to 454,545
shares of the Company's common stock, which bears a restricted
legend, at a price of $2.20 per share. The trustees of the
Malcolm C. Davenport V Family Trust are Malcom C. Davenport V,
Director of the Company and brother of Lanier M. Davenport,
Chairman and Chief Executive Officer of the Company, and Malcolm
C. Davenport, Jr., a stockholder of the Company and father of
Malcolm C. Davenport V and Lanier M. Davenport. The sole trustee
of the Lanier M. Davenport, Sr. Family Trust is Malcolm C.
Davenport, Jr. In addition, these same sources had loaned an
additional $920,000 to the Company as of June 30, 1996.
As discussed under the note "Subsequent Events", on July 16,
1996, pursuant to an understanding with the trustees of the
Davenport Trusts, $440,000 of the above mentioned $920,000 of
debt to the Davenport Trusts will be converted to 401,140 shares
of the Company's common stock, which will bear a restricted
legend. The remaining $480,000, plus accrued interest of
approximately $15,000, was converted to notes payable to the
Davenport Trusts. Payments of $20,000, including interest are to
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
(formerly GSA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
be paid on the 15th of each month, commencing August 15,
1996 until paid. Also on July 16, 1996 the Company issued a
$7,143,000, 4% Convertible Debenture ("Debenture") due December
31, 1997. The Debenture was issued to an offshore investor
pursuant to Regulation S promulgated under the Act at a discount
of 30%. The Debenture netted the Company $4,400,000 after
discount and costs associated with the offering. The Debenture,
plus any accrued interest, automatically converts into common
stock of the Company on December 31, 1997 or, at any time after
August 30, 1996 at the option of the holder.
Pursuant to the terms and conditions of the Debenture, the
price at which the debt underlying the Debenture will be
converted to equity ranges from a minimum of $1 to a maximum of
$3 per share, subject to certain conditions. The conversion price
could fall below the $1 minimum if the Company fails to become
listed on the NASDAQ National Market be November 13, 1996; or, if
the Company's actual profits are not at least eighty percent
(80%) of the projected quarterly profits for either of the
quarters endeding September 30, 1996 or December 31, 1996. Should
either of these events occur, the Debenture holder could
conceivably convert the underlying debt to common stock of the
Company at a price which could give the holder a majority of the
shares outstanding in the Company.
On August 6, 1996 the Board of Directors was granted
authority by a consent of a majority of the stockholders of the
Company to issue up to 100,000 shares of preferred stock, without
nominal or par value per share. There are currently no issued and
outstanding preferred shares; however, pursuant to the provisions
of the terms of the Debenture described above, it is the
intention of the Board of Directors to issue shares of preferred
stock to satisfy the underlying debt of said Debenture. All such
preferred stock issued to the Debenture holders plus any accrued
and unpaid dividends thereon will be converted to common stock of
the Company on or before December 31, 1997, pursuant to the terms
of the Debenture.
The Company's ability to continue as a going concern depends
on its ability to begin and sustain profitable operations.
DESCRIPTION OF BUSINESS - The Company's corporate mission
calls for it to identify, refine and then market and license
proprietary gaming technology on a worldwide basis. The Company
intends to initially market its two principal products, a slot
machine coin hopper measurement device known as the
M.A.N.A.G.E.R.S. systems (Mass and Numeric Gauging Electronic
Recording System) and an off-line data collection and accounting
system, known as the ACCUDATA system. When combined these two
products form a product known as the ACCUSYSTEM. The Company
intends to distribute these products both within and outside of
the United States, principally in Central and South America and
Africa, and, to a lesser extent, in the Caribbean, Europe, and
Eastern Asia. The Company intends to market its products
principally through technology licensing to other companies and
through its own sales force.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
(formerly GSA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
The Company no longer plans to manufacture and distribute
reel-type slot machines and is currently attempting to sell
and/or lease its rights to the patent it controls for such
technology.
PRINCIPLES OF CONSOLIDATION - The consolidated financial
statements include the accounts of the Company, its wholly-owned
subsidiary, Spintek Gaming, Inc., and Spintek Gaming, Inc.'s
wholly-owned subsidiary, Spinteknology, Inc. All material
intercompany accounts and transactions have been eliminated in
consolidation.
ESTIMATES AND UNCERTANTIES - The preparation of financial
statements in conformity with generally accepted accounting
principles requires Management to make estimates and assmptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ
from those estimates.
Certain significant estimates were made in the preparation
of the financial statements. While Managements estimate's of the
Allowance for obsolete inventories and the Valuation allowance
for deferred taxes, were made based on the best information
currently available, it is reasonably possible that these
estimates could change by a material amount within one year.
CASH - The company maintains at financial institutions cash
accounts which may exceed federally insured amounts at times and
which may at times significantly exceed balance sheet amounts due
to outstanding checks.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
EQUIPMENT - Equipment is stated at cost. Expenditures for
repairs and maintenance are charged to expense as incurred and
additions and improvements that significantly extend the lives of
assets are capitalized. Upon sale or other retirement of
depreciable property, the cost and accumulated depreciation are
removed from the related accounts and any gain or loss is
reflected in operations.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
(formerly GSA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Depreciation is provided at the time equipment is placed in service using the
straight-line method over the estimated useful lives of the assets which range
from three to ten years.
ORGANIZATION COSTS - Organization costs are stated at unamortized cost and are
amortized using the straight-line method over five years.
DEFERRED PATENT COSTS - Spinteknology owns a patent application for certain
coin hopper technology. Deferred patent costs are recorded at cost and
will be amortized over the life of the patent when, and if, issued.
MARKETABLE EQUITY SECURITIES - Effective March 31, 1995, the Company adopted
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", which requires that investments in
debt and equity securities be designated as held-to-maturity, trading or
available-for-sale.
Securities classified as held-to-maturity are securities for which the Company
has demonstrated the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at cost and no adjustment is
made in the financial statements for unrealized gains and losses.
Trading securities are securities bought and held
principally for the purpose of selling them in the near future.
Securities classified as trading are stated at fair value and
unrealized holding gains and losses are included in income.
Securities that are not classified as held-to-maturity or
trading are classified as available-for-sale and are carried at
fair value with the unrealized gains and losses, net of tax,
reported as a separate component of stockholders' equity.
INCOME TAXES - Income taxes are computed based on the
provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." Deferred tax assets and
liabilities, if significant, are recognized for the estimated
future tax effects attributed to temporary differences between
the book and tax bases of assets and liabilities and for
carryforward items. The measurement of current and deferred tax
assets and liabilities is based on enacted law. Deferred tax
assets are reduced, if necessary, by a valuation allowance for
the amount of tax benefits that may not be realized.
The Company and its wholly-owned subsidiaries file a consolidated federal
income tax return.
NET LOSS PER SHARE - Net loss per share is computed using
the weighted average number of shares of common stock
outstanding, giving retroactive recognition for the number of
equivalent shares received by Spintek Gaming, Inc. in conjunction
with the acquisition on September 14, 1995, and giving effect to
the reverse split of one (1) share for two (2) shares on
September 26, 1995.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
(formerly GSA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
RECENT ACCOUNTING PRONOUNCEMENTS - The Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(SFAS 121) in March, 1995, to be effective for fiscal years
beginning after December 15, 1995. SFAS 121 establishes
accounting standards for the recognition and measurement of
impairment of long-lived assets, certain identifiable intangibles
and goodwill either to be held or disposed of. The Company
adopted SFAS 121 during the year ended June 30, 1996, with no
impact on operations.
STOCK-BASED COMPENSATION - Accounting Principles Board (APB)
Opinion 25 requires compensation cost for stock-based
compensation plans to be recognized based on the difference, if
any, between the fair market value of the stock on the date of
grant and the exercise price. In October, 1995 the Financial
Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) 123, "Accounting for Stock-Based
Compensation". SFAS 123 established a fair value-based method of
accounting for compensation cost related to stock options and
other forms of stock-based compensation plans. However, SFAS 123
allows an entity to continue to measure compensation costs using
the principles of APB Opinion 25 if certain pro forma disclosures
are made. SFAS 123 is effective for fiscal years beginning after
December 15, 1995. The Company intends to adopt the provisions
for pro forma disclosure requirements of SFAS in fiscal year
1997.
INVENTORIES
Inventories consist of the following:
Raw material $ 7,500
Finished goods 472,235
Less: Allowance for obsolescence (28,000)
Total Inventories 6/30/96 $451,235
FURNITURE, FIXTURES AND EQUIPMENT - NET
Furniture, fixtures and equipment consists of the following:
Furniture and fixtures $ 16,423
Equipment 70,526
86,949
Less: Accumulated depreciation (11,064)
Furniture, fixtures and equipment - net $ 75,885
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
(formerly GSA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMITMENTS
The Company has agreed to advance to International amounts
sufficient to satisfy certain of International's obligations.
This amount is not expected to exceed $225,000 and through June
30, 1996, such advances totaled approximately $186,000.
The Company is obligated to pay royalty payments of $100 per
gaming apparatus for all licensed gaming apparatus (embodying
certain technology) sold by Gaming under a license agreement,
dated April 6, 1995, with International. The term of the
agreement is for the life of the last to expire of the existing
patent and copyright and such patents as may be granted on the
applications covered by the agreement. The agreement requires a
minimum royalty of $100,000 per year commencing one year after
its effective date. To date no gaming apparatus have been sold
and royalty payments thus far have been applied toward reducing
the note receivable from International.
On May 26, 1995, Spinteknology entered into an agreement
under which it was licensed to include the M.A.N.A.G.E.R.S.
system in associated gaming equipment it manufactures and
distributes. The licensor has applied for a patent on the
M.A.N.A.G.E.R.S. system. This agreement was superseded on March
19, 1996, when Spinteknology acquired the rights to the
M.A.N.A.G.E.R.S. system from the inventor for $950,000.
The Company has allowed a license on a coin hopper and a
license on a multi-game video slot machine to both lapse, and has
not elected to renew these licenses.
On October 14, 1995, the Company entered into a technology
assignment agreement in which it received all rights and claims
to an input/output circuit board ("I/O Board"), jointly developed
by the Company and one of its consultants, which is the key
component of the Company s ACCUDATA system. The agreement
requires the Company to pay $5 for each I/O Board sold by the
Company, to be remitted on a quarterly basis net of any returns.
The Company subleases a 15,182 square foot facility in Las
Vegas, Nevada from International Technical Systems. The Company
pays $7,662 per month for the lease which terminates August 31,
1997. Minimum lease commitments under this noncancellable
operating lease as of June 30, 1996 are $91,944 for the year
ending June 30, 1997, and $15,324 thereafter. Total rent and
lease expense, including equipment, for each applicable period is
as follows:
Cumulative
March 31, 1995 March 31, 1995
(inception) To Year Ended (Inception) To
June 30, 1995 June 30, 1996 June 30, 1996
Rent and lease expense $ 13,730 $ 141,797 $ 155,527
As of June 30, 1996, the Company was committed to purchase approximately
$168,000 of inventory under two purchase order agreements.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
(formerly GSA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RELATED PARTY TRANSACTIONS
The Lanier M. Davenport, Sr. Family Trust and the Malcolm C.
Davenport V Family Trust, (hereinafter referred to collectively
as the "Davenport Trusts"), two separate entities, have made
advances in the aggregate of $1,920,000, of which $1,000,000 has
been converted into shares of common stock of the Company, which
bear a restricted legend, as of June 30, 1996. The trustees of
the Malcolm C. Davenport V Family Trust are Malcolm C. Davenport
V, Director of the Company and brother to Lanier M. Davenport,
Chairman and Chief Executive Officer, and Malcolm C. Davenport,
Jr., father of Malcolm C. Davenport V and Lanier M. Davenport.
The sole trustee of the Lanier M. Davenport Family Trust is
Malcolm C. Davenport, Jr. The remaining $920,000 is in the form
of demand notes and bears interest at a rate of 10% per annum.
The accrued and unpaid interest was $11,414 at June 30, 1996.(See
"Subsequent Events")
Mr. Lanier M. Davenport, Chairman, President, and Chief
Executive Officer, has made loans to the Company in the aggregate
amount of $330,000 at an annual interest rate of 10% in the form
of demand notes, of which $119,108, plus accrued and unpaid
interest of $8,843, remained outstanding as of June 30, 1996.
Malcolm C. Davenport, Jr., stockholder of the Company and
father of both Lanier M. Davenport, Chairman and Chief Executive
Officer of the Company, and Malcolm C. Davenport V, Director of
the Company, has made loans in the aggregate amount of $418,500
at an annual interest rate of 10% in the form of demand notes, of
which $323,000 plus accrued and unpaid interest of $21,850
remained outstanding as of June 30, 1996.
Sarah L. Davenport, stockholder of the Company and mother of
both Lanier M. Davenport, Chairman and Chief Executive Officer of
the Company, and Malcolm Clifton Davenport V, Director of the
Company, has made loans in the aggregate amount of $20,000 at an
annual interest rate of 10% in the form of demand notes, which
amount plus accrued and unpaid interest of $1,842 remained
outstanding as of June 30, 1996.
Davenport Investments, Inc., a corporation controlled by
Lanier M. Davenport, Chairman and Chief Executive Officer of the
Company, has made loans in the aggregate amount of $56,500 at an
annual interest rate of 10% in the form of demand notes, of which
$26,000 plus accrued and unpaid interest of $2,109 remained
outstanding as of June 30, 1996. It is also party to an agreement
with the Company pursuant to which it received lease payments in
the aggregate amount of $19,346 for office space used by the
Company for its corporate offices in Chattanooga, Tennessee
during the period ended June 30, 1996. This agreement will
terminate on September 30, 1996.
Coulter & Davenport, Attorneys-at-Law, whose partners are
Gary L. Coulter, Esquire, Vice Chairman and Chief Operating
Officer of the Company, and Malcolm C. Davenport, Esquire,
Director of the Company, has billed the Company for legal fees
and expenses in the aggregate amount of $162,754 of which
$117,754 remained outstanding as of June 30, 1996.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
(formerly GSA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RELATED PARTY TRANSACTIONS - continued
Interest expense to all related parties was $2,181, $49,403
and $51,584, for the periods March 31, 1995 (Inception) to June
30, 1995, the year ended June 30,1996 and March 31, 1995
(Inception) to June 30, 1996, respectively.
The Company has made loans as part of an agreement dated
April 13, 1995 to Spintek International, Inc., a corporation
controlled by Lanier M. Davenport, Chairman and Chief Executive
Officer of the Company, in the aggregate amount of approximately
$186,00 at an annual interest rate of 10% in the form of demand
notes, of which $159,909 plus accrued and unpaid interest of
$17,366 remained outstanding as of June 30, 1996.
STOCK OPTIONS
On September 14, 1995, all issued and outstanding options to
purchase the common stock of Gaming were extinguished by the
agreement of all option holders through the distribution of
281,750 common shares of the Company. Each option holder received
one (1)common share of the Company for each two (2) common shares
of Gaming for which the holder had an option to purchase.
At June 30, 1996 an option to purchse 150,000 shares of the
Company's common stock was issued and outstanding. Such option
was issued on May 2, 1996, at a purchase price of $1.20 per
share, the closing bid price of the Company's common stock on
that date, and does not expire until December 31, 2001. This
option was not issued pursuant to an incentive or employee stock
option plan and carries piggyback registration rights. (See also
"Subsequent Events").
INCOME TAXES
The provision for income taxes consists of the following:
March 31, 1995
(Inception) To Year Ended
June 30, 1995 June 30, 1996
Deferred provision $ (8,400) $
(64,900)
Tax benefit of net operating loss carryforward (263,000)
(1,537,500)
(271,400)
(1,602,400)
Change in valuation allowance 271,400 1,602,000
$ - $ -
The provision for income taxes differs from the amounts computed by applying
the federal statutory rate to income before provision for income taxes as
follows:
March 31, 1995
(Inception) To Year Ended
June 30, 1995 June 30, 1996
Income tax at federal statutory rate $ 223,300 $ 1,445,500
State income taxes, net of federal benefit 26,300 171,200
Valuation allowance (271,400)
(1,602,400)
Other 21,800 (
24,300)
$ - $ -
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
(formerly GSA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES - continued
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. A valuation allowance has been
recognized to offset the related deferred tax assets due to the
uncertainty of realizing the benefit of the loss carryforward.
As of June 30, 1996, the company has $4,924,000 net
operating loss carryforwards available to reduce future taxable
income of which $656,000 will expire in 2010.
The following is a summary of significant components of the Company's
deferred tax assets as of June 30, 1996:
Net operating loss carryforward $ 1,786,800
Accrued expenses 78,400
Other 8,600
Valuation allowance 1,873,800
$ -
SUBSEQUENT EVENTS
On July 16, 1996, pursuant to an understanding with the
trustees, $440,000 of the $920,000 of debt to the Davenport
Trusts will be converted to 401,140 shares of the Company's
common stock, which will bear a restricted legend. The remaining
$480,000, plus accrued interest of approximately $15,000, was
converted to notes payable, with interest accruing at a rate of
10%, to the Davenport Trusts. Payments of $20,000, including
interest are to be paid on the 15th of each month, commencing
August 15, 1996 until paid.
Also on July 16, 1996 the Company issued a $7,143,000, 4%
Convertible Debenture due December 31, 1997. The Debenture was
issued to offshore investors pursuant to Regulation S promulgated
under the Securities Act of 1933 at a discount of 30%. The
Debenture netted the Company $4,400,000 after discount and costs
associated with the offering. The Debenture, plus any accrued
interest, automatically converts into common stock of the Company
on December 31, 1997 or, at any time after August 30, 1996 at the
option of the holder.
Pursuant to the terms and conditions of the Debenture, the
price at which the debt underlying the Debenture will be
converted to equity ranges from a minimum of $1 to a maximum of
$3 per share, subject to certain conditions. The conversion price
could fall below the $1 minimum if the Company fails to become
listed on the NASDAQ National Market be November 13, 1996; or, if
the Company's actual profits are not at least eighty percent
(80%) of the projected quarterly profits for either of the
quarters endeding September 30, 1996 or December 31, 1996. Should
either of these events occur, the Debenture holder could
conceivably convert the underlying debt to common stock of the
Company at a price which could give the holder a majority of the
shares outstanding in the Company.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
(formerly GSA, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUBSEQUENT EVENTS - continued
On July 23, 1996 a former employee was granted a five and
one half year option to purchase 50,000 shares of the common
stock of the Company at a purchase price of $1.69 per share, the
closing bid price for the Company's common stock on that date.
The option was not issued pursuant to an incentive or employee
stock option plan and carries piggyback registration rights.
On July 31, 1996, a license agreement for use of the
M.A.N.A.G.E.R.S. system was modified to defer the minimum annual
royalties required by the agreement for a period of one year.
On August 2, 1996, the Company received correspondence from
attorneys representing Bally Gaming International, Inc.
("Bally"), that Bally has been issued a patent which may overlap
and be in conflict with the Company's patent application for the
M.A.N.A.G.E.R.S. system. The Company's outside legal counsel and
its patent counsel have been retained to review the matter. To
date no litigation has been undertaken. Based on discussion with
counsel, Management of the Company believes that its patent for
the M.A.N.A.G.E.R.S. system, when and if issued, would have
priority over the Bally patent. However, due to the preliminary
nature of this matter, Management is currently unable to ultimate
effect, if any, it might have on the Company's financial
statements.
On August 6, 1996 the Board of Directors was granted
authority by a consent of a majority of the stockholders of the
Company to issue up to 100,000 shares of preferred stock, without
nominal or par value per share. There are currently no issued and
outstanding preferred shares, however pursuant to the provisions
of the terms of the Debenture described above, it is the
intention of the Board of Directors to issue shares of preferred
stock to satisfy the underlying debt of said Debenture. All such
preferred stock issued to the Debenture holders plus any accrued
and unpaid dividends thereon will be converted to common stock of
the Company on or before December 31, 1997, pursuant to the terms
of the Debenture.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS;COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT
Incorporated by reference to the Company's Proxy Statement for Annual
Meeting of Stockholders to be filed with the Securities and Exchange
Commission within 120 days after the close of the fiscal year ended June 30,
1996.
ITEM 10. EXECUTIVE COMPENSATION
Incorporated by reference to the Company's Proxy Statement for Annual
Meeting of Stockholders to be filed with the Securities and Exchange
Commission within 120 days after the close of the fiscal year ended June 30,
1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Incorporated by reference to the Company's Proxy Statement for Annual
Meeting of Stockholders to be filed with the Securities and Exchange
Commission within 120 days after the close of the fiscal year ended June 30,
1996.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Incorporated by reference to the Company's Proxy Statement for Annual
Meeting of Stockholders to be filed with the Securities and Exchange
Commission within 120 days after the close of the fiscal year ended June 30,
1996.
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are submitted herewith:
Number Description
2.1 Valuation Engagement of GSA, Inc. as of June 30, 1995 and Related
Proxy Information (1)
2.2 Asset Purchase and Liability Assumption Agreement (1)
2.3 Interest Purchase Agreement (1)
2.4 Agreement for Bill of Sale and Assignment of Assets (1)
2.5 Assumption Agreement Dated September 14, 1995 (1)
2.6 Exchange of Stock Agreement and Plan of Reorganization, Dated August
25, 1995 (1)
3.1 Articles of Incorporation of the Registrant filed September 11, 1984
(1)
3.2 Certificate of Amendment filed January 9, 1987 (1)
3.3 Certificate of Amendment filed May 11, 1987 (1)
3.4 Certificate of Amendment filed May 20, 1994 (1)
3.5 Certificate of Amendment filed September 26, 1995 (1)
3.6 Certificate of Amendment filed September 11, 1996
3.7 By-laws of the Registrant adopted April 12, 1985 (1)
3.8 Amendment of By-laws dated April 9, 1987 (1)
10.1 Premise Lease Dated September 1, 1995 (1)
10.2 Employment Agreement with Lanier M. Davenport (1)
10.3 Employment Agreement with Jonathan P. Hoover (1)
10.4 Employment Agreement with Steven J. Blad (1)
10.5 License Agreement dated April 6, 1994 between Spintek International,
Inc. and Spintek Gaming, Inc. (1)
10.6 Licensing Agreement dated May 26, 1995 between Bitstream
Technologies, Inc. and Spinteknology, Inc. (1)
10.7 Option/Purchase Agreement with Bitstream Technologies, Inc. (3)
10.8 License Agreement between Spinteknology, Inc. and SUZO International
(N.L.) B.V. (4)
10.9 Installment Purchase Agreement with Bitstream Technologies, Inc. (4)
10.10 Debt Conversion and Securities Purchase Agreement with Trusts (4)
10.11 Employment Agreement with Robert E. Huggins (4)
10.12 Amendment to Employment Agreement with Jonathan P. Hoover (4)
10.13 Consulting Agreement with Sailfin Investments, Ltd.
10.14 Severance Agreement with Steven J. Blad
10.15 Stock Option Agreement with Steven J. Blad
10.16 Stock Option Agreement with Gregory A. Boris
10.17 Severance Agreement with Jonathan P. Hoover
10.18 Regulation S Securities Subscription Agreement (5)
10.19 Modification Agreement to the Convertible Debenture (5)
10.20 Attorney's Opinion on the Convertible Debentures of the Registrant
(5)
10.21 Escrow Agreement (5)
10.22 Irrevocable Instructions to Company as Transfer Agent (5)
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K - continued
(a) Exhibits - continued
21.1 List of subsidiaries of the Registrant (1)
27.1 Financial Data Schedule
99.1 Patent - Reel-type Machine (1)
99.2 Patent Application (1)
99.3 Securities Purchase Agreement for Private Placement Financing for the
Registrant Dated October 1995 (1)
99.4 Amendment to Securities Purchase Agreement for Private Placement
Financing for the Registrant, Dated December 1995 (2)
99.5 Approval by Nevada Gaming Commission of "ACCUSYSTEM"
marketed by the Registrant, dated December 13, 1995. (2)
________________
(1) Incorporated by reference to the specific exhibit to Form 10-SB, filed
November 9, 1995.
(2) Incorporated by reference to the specific exhibit to the Amendment No.
1 to Form 10-SB, filed January 30, 1996.
(3) Incorporated by reference to the specific exhibit to the Form 10-QSB
for
the period ended December 31, 1995.
(4) Incorporated by reference to the specific exhibit to the Form 10-QSB
for
the period ended March 31, 1996.
(5) Incorporated by reference to the specific exhibit to the Form 8-K,
filed
August 12, 1996.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the Company's fourth fiscal
quarter ended June 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities and Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SPINTEK GAMING TECHNOLOGIES,
INC.
By: /s/ LANIER M. DAVENPORT
Date: September 26, 1996 Lanier M. Davenport
Chairman of the Board
Pursuant to the requirements of the Securities and Exchange
of 1934, this report has been duly signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Name Title Date
/s/ LANIER M. DAVENPORT Chairman of the Board, September 26, 1996
Lanier M. Davenport Chief Executive Officer,
President and Director
(Principal Executive
Officer)
/s/ ROBERT E. HUGGINS Chief Financial Officer September 26, 1996
Robert E. Huggins (Principal Financial
and Accounting Officer)
/s/ GARY L. COULTER Director September 26, 1996
Gary L. Coulter
/s/ MALCOLM C. DAVENPORT V Director September 26, 1996
Malcolm C. Davenport V
