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
<C> <C> <C>
<S>
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
EXHIBIT 3.6
CERTIFICATE OF AMENDMENT OF THE
ARTICLES OF INCORPORATION OF
SPINTEK GAMING TECHNOLOGIES, INC.
(Formerly known as GSA, Inc.)
Lanier M. Davenport and Gary L. Coulter certify that:
1. We are respectively the President and Chief Executive Officer, and the
Secretary of Spintek Gaming Technologies, Inc., a California corporation
(the "Corporation").
2. Article IV of the Articles of Incorporation of this Corporation is amended
to read in its entirety as follows:
"This Corporation is authorized to issue One Hundred Million One
Hundred Thousand (100,100,000) shares of Capital Stock consisting
of One Hundred Million (100,000,000) shares of Common Stock of
the par value of $0.002 per share each and One Hundred Thousand
(100,000) shares of Preferred Stock without nominal par value.
As to the Preferred Stock of the Corporation, the power to issue
any shares of Preferred Stock of any class or any series of any
class and designation, numbers, voting powers, or the denial of
voting powers, preferences, and relative, participating, optional
or other rights, if any, or the qualifications, limitation, or
restrictions thereof, shall be determined by the Board of
Directors."
3. These amendments have been duly approved by the requisite number of
shareholders of the Corporation in accordance with Sections 603 and 902 of
the California Corporations Code. The Corporation, prior to this
amendment, had one class of shares. Each outstanding share is entitled to
one vote only. The Corporation has Ten Million Six Hundred Forty One
Thousand Six Hundred Sixty Three (10,641,663) shares of Common Stock
outstanding, and hence the total number of shares entitled to vote with
respect to the amendment was Ten Million Six Hundred Forty One Thousand Six
Hundred Sixty Three (10,641,663) shares. The number of shares approving
the amendment exceeded the number of shares necessary to approve the
amendment, in that the affirmative approval of a majority, that is, more
than fifty percent (50%) of the outstanding shares was required for
approval of the amendment and the amendment was approved by Five Million
Nine Hundred Forty Thousand Seven Hundred Forty Four (5,940,744) shares,
or approximately fifty six percent (56%) of the outstanding shares.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this certificate on September
2, 1996.
/s/ LANIER M. DAVENPORT
Lanier M. Davenport
President and Chief Executive
Officer
/s/ GARY L. COULTER
Gary L. Coulter
Secretary
Each of the undersigned declares under penalty of perjury that the matters set
forth in the foregoing certificate are true and correct of his own knowledge
and that this declaration was executed on September 2, 1996 at Las Vegas,
Nevada.
/s/ LANIER M. DAVENPORT
Lanier M. Davenport
President and Chief Executive
Officer
/s/ GARY L. COULTER
Gary L. Coulter
Secretary
EXHIBIT 10.13
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is made this 14th day of September,
1995, by and between Spintek Gaming Technologies, Inc., a California corporation
(the "Company"), having its principal place of business at The Tallan Building,
2 Union Square, Chattanooga, Tennessee 37402, and Sailfin Investments, Ltd., a
foreign corporation ("Consultant"), having its principal place of business at
17-19 Seaton Place, St. Helier, Jersey JE2 3QL, Channel Islands.
WHEREAS, the Company is engaged in the business of research,
development, design, manufacture, marketing and distribution of gaming machines
and equipment, as well as gaming related support, accounting and monitoring
systems; and
WHEREAS, Consultant is desirous of performing certain duties in
accordance with the terms of this Agreement.
WHEREAS, the parties desire Consultant to perform its duties as an
independent contractor of the Company;
NOW, THEREFORE, in consideration of the mutual promises and covenant
herein set forth, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Duties of Consultant. Consultant shall provide engineering,
component costing, quality control and manufacturing supervision
services to the Company in connection with the design and manufacture of
the Company's products. Consultant shall perform such services in such
manner and through such methods as Consultant deems necessary and
proper, without any influence or control exerted by the Company.
Consultant's performance shall be evaluated solely with regard to
whether the result of Consultant's performance is satisfactory to the
Company.
2. Place of Business. Consultant shall maintain its own place of
business, separate and distinct from that of the Company, and shall not
otherwise identify itself or its employees or agents as being an
integral part of the Company's regular business operations, except to
identify itself as an independent contractor currently under contract to
consult with the Company.
<PAGE>
3. Rights Upon Breach. The Company shall have no right to
terminate its obligations under this Agreement unless the Company
determines in the good faith exercise of its business judgement that
Consultant has not produced a result that is satisfactory to the
Company. Consultant shall have no right to terminate its obligations
under this Agreement except upon the breach by the Company of any of its
obligations hereunder or pursuant to a mutual termination of this
Agreement.
4. Term. The term ("Term") of this Agreement shall commence upon
the execution of this Agreement and shall continue for a period of
twenty (20) months. The Company may elect to extend the Term of this
Agreement for an additional forty (40) month period by giving Consultant
written notice at least thirty (30) days prior to the expiration of the
first twenty month period.
5. Compensation.
(a) Consultant shall receive as compensation from the
Company for the performance of Consultant's duties hereunder a fee
equal to $5.00 per each "accuhopper unit", or any part thereof, sold by
the Company during each month of the Term. Such fee shall be payable
monthly, and each month's fee shall be due and payable within thirty
(30) days after the last day of such month. In the event the Company's
sales of the accuhopper units are less than 4000 units in any month,
Consultant shall receive a minimum fee of $20,000.00 for such month. In
no event shall Consultant's aggregate compensation hereunder exceed
$250,000 during the Term. In the event the Company terminates this
Agreement for any reason other than pursuant to Paragraph 3 above,
Consultant shall be paid $20,000 for each remaining month of the
original twenty month period of the Term.
6. Covenant Not to Compete. Neither Consultant nor any officer,
director, shareholder, employee or agent of Consultant, shall directly
or indirectly engage in, or provide consulting services to any company
engaged in, the same business as the Company, as described herein,
during the Term and for a period of two (2) years following the
termination of this Agreement for any reason, within a circular
geographic area, the center-point of which is the main United States
Post Office in Las Vegas, Nevada, and the radius of which is 100 miles
(the "Territory"). Indirect competition shall include, without
limitation, the holding by any of Consultant or any officer, director,
shareholder, employee or agent of Consultant, holding the position as a
shareholder, partner, member, officer, director, agent or employee of
any corporation, general or limited partnership, limited liability
company, joint venture, association, proprietorship, or any other entity
engaged in the same business as the Company; provided, however,
ownership by Consultant or any officer, director, shareholder, employee
or agent of Consultant, of not more than five percent (5%) of the
outstanding securities of a company which is subject to Section 12(g) of
the Securities Exchange Act of 1934, as amended, and which is engaged in
the same business as the Company, alone shall not be deemed indirect
competition hereunder.
<PAGE>
7. Non-solicitation of Customers. During the term hereof, and
for a period of two (2) years following the termination of this
Agreement for any reason, neither Consultant nor any officer, director,
shareholder, employee or agent of Consultant, shall, except pursuant to
this Agreement, solicit or call upon, or attempt to solicit or call
upon, any of the customers of the Company, with whom Consultant had
any communication during the term hereof or within the year immediately
preceding the date of this Agreement, for the purpose of competing with
the Company in the same business as the Company.
8. Nondisclosure and Nonuse of Confidential Information.
Consultant recognizes that in the course of its providing services for
the Company, any of Consultant or any officer, director, shareholder,
employee or agent of Consultant, may be exposed to and/or generate
confidential information otherwise not publicly known, which relates to
the business and affairs of the Company. Consultant agrees that neither
Consultant nor any officer, director, shareholder, employee or agent of
Consultant, shall disclose to any person, firm or company, nor use for
his, her or its own or another's benefit, during the Term of this
Agreement and for a period of three (3) years thereafter, any such
confidential information unless specifically authorized in writing by
the Company. Confidential information covered by this Agreement
includes, but is not limited to, customer lists, price lists, the design
and specifications of any and all equipment, machines computer programs
or other devices developed, manufactured or distributed by the Company,
processes, formulas, and any other details or information regarding the
conduct of the Company's business which is not a matter of public
knowledge. Consultant agrees to be bound by the decision of the Company
as to the confidential nature of any particular information.
9. Noninterference with Personnel. During the term of this
Agreement and for a period of one (1) years following the termination
hereof, neither Consultant nor any officer, director, shareholder,
employee or agent of Consultant, shall solicit, entice or persuade any
employee(s) or agent(s) of the Company to leave the services of the
Company for any reason whatsoever.
10. Notices. Any notice required or permitted to be given to
Consultant pursuant to this Agreement shall be sufficiently given if
sent to Consultant by registered or certified mail addressed to
Consultant at the address set forth below the Consultant's name at the
end of this Agreement, or at such other address as he shall designate
by notice to the Company, and any notice required or permitted to be
given to the Company shall be sufficiently given if sent to the Company
by registered or certified mail addressed to:
<PAGE>
Spintek Gaming Technologies, Inc.
609 Tallan Building
2 Union Square
Chattanooga, Tennessee 37402
Attention: Lanier M. Davenport
or at such other address as it shall designate by notice to the
Consultant.
11. Assignment. The Assignment by Consultant of this Agreement or
any interest herein, or of any money due or to become due by reason of
the terms hereof, without the prior written consent of the Company shall
be void; however, such assignment shall not be unreasonably withheld by
the Company; this Agreement may be assigned by the Company to any
subsidiary or successor, provided, however, that in the event of any
such assignment, the Company shall obtain an instrument in writing from
such assignee assuming the obligations of the Company hereunder and
shall deliver an executed copy thereof to Consultant.
12. Entire Agreement. This Agreement embodies the entire
agreement of the parties hereto relating to the subject matter hereof.
No amendment or modification of this Agreement shall be valid or
binding upon the Company unless made in writing and signed by a duly
authorized officer of the Company, or upon the Consultant unless made in
writing and signed by him.
13. Applicable Law. This Agreement shall be construed and the
legal relations between the parties determined in accordance with the
laws of the State of Georgia.
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
15. Waiver of Breach. The waiver by the Company of a breach of
any provision of this Agreement by the Consultant shall not operate or
be construed as a waiver of any subsequent breach of the same or any
other provision by the Consultant.
16. Headings. Paragraph headings or subparagraph headings
herein are for convenience only and shall in no case be considered in
construing this Agreement.
17. Severability of Provisions. The covenants herein contained,
including without limitation Paragraphs 6 and 7 and each paragraph
thereof, are separate and independent, and in the event any paragraph
or subparagraph hereof shall be declared invalid by a court or
governmental agency, such invalidity shall not in any manner affect the
validity or enforceability of any other Section, paragraph or
subparagraph.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.
SPINTEK GAMING TECHNOLOGIES, INC.
By: /s/ LANIER M. DAVENPORT
Its: Chairman and Chief Executive Officer
Attest:
[CORPORATE SEAL]
/s/ JONATHAN P. HOOVER
Secretary
SAILFIN INVESTMENTS, LTD.
By: /s/ Michael Chamberlayne
Its: Managing Director
EXHIBIT 10.14
AGREEMENT
THIS AGREEMENT, made and entered into as of this the 23rd day of July 1996,
by and between Spintek Gaming, Inc., ("Company") a Georgia corporation having
its principal place of business at 901 Grier Dr., Suite B, Las Vegas, Nevada,
89119-3702 and Steven J. Blad, ("Blad") an individual residing at Las Vegas,
Nevada,
WITNESSETH:
WHEREAS, Blad has served as a consultant to Company in regard to its Gaming
Technology also known as the MANAGERS System (a weight measuring device and
associated electronics designed to measure, periodically, by weight, the number
of coins in a hopper);
WHEREAS, Blad and Company now desire to sever this relationship in a
manner mutually satisfactory to both parties;
NOW, THEREFORE, for and in consideration of the mutual covenants and
monetary consideration hereinafter stated the parties hereto do hereby agree as
follows:
1.
Compensation/Services
Company agrees to pay to Blad the following sums by Company check payable
to Blad on the dates hereinafter stated:
July 23, 1996 $20,000
August 15, 1996 $10,000
September 15, 1996 $10,000
From and after this date Blad shall be solely responsible and liable for the
Skytel Pager and cellular phone and all charges to the pager or mobile phone
number 702-493-4879. Blad agrees to transfer said pager and phone from Company
on or before August 1, 1996. Blad in turn agrees to provide Company with
twenty-four (24) days of consulting between July 24, 1996 and December 31, 1996.
The parties agree that these days will be at the discretion of Company;
however, Company will provide Blad with forty-eight hours notice prior to
requiring his services. For the purpose of this Agreement a "consulting day"
shall consist of nine consecutive hours occurring on the same day. Blad shall
be responsible for all expenses incurred for consulting in Las Vegas, Nevada,
and unless approved in writing prior to being incurred, all other expenses
shall be borne by Blad, provided, however, Blad shall not be required to travel
outside Las Vegas without a prior agreement on out of pocket expense
reimbursement.
<PAGE>
2.
Automobile
Company will continue to pay the customary monthly charges associated with
the rental of the Lincoln Town Car presently operated/rented by Blad through
August 5, 1996. Blad will be solely responsible for all charges not customary
and all rental charges incurred from and after August 6, 1996.
3.
Agreements Surviving Execution
Company and Blad agree the attached Confidentiality and Non-Competition
Agreement(Exhibit "A") and General Release (Exhibit "B") are a part and partial
of this Agreement and the execution by Blad and delivery to Company constitute
a condition precedent to Company's obligations hereunder.
4.
Notification
The parties hereto agree that they will make a joint notification to all
parties that either of them determine should receive notice of termination of
the relationship between Company and Blad. The parties further agree that they
will include, as deemed appropriate by either party, the formation by Blad of a
new corporate entity through which he will be providing services to the gaming
industry. Blad further agrees to work directly with Lanier M. Davenport,
Chairman, or his designee to accomplish the immediate and orderly transition to
Company of all correspondence, contacts, potential sales opportunities and
relationships to Company in regard to the Gaming Technology, this shall include
specifically but not be limited to IGT, The Mirage, Treasure Island, and MGM.
Further, subject to the prior written approval of Company, Blad will have the
right to explain in writing this change in relationships to his contacts.
5.
Personalty
The parties hereto agree that Blad shall have possession and ownership of
all artwork, small refrigerator, stereo equipment, small conference room
furniture, Toshiba laptop computer, facsimile in his office, personal printer in
his office, his personal items stored in Company's warehouse and his small
miscellaneous office accessories.
6.
Commission/Distribution
Company agrees to negotiate and to execute with Blad a commission
arrangement for future introductions which lead to sales of Gaming Technology.
The parties further agree this will be on a case by case basis with commissions
to be one and one/half (1.5%) percent of the collected sales price. The parties
do further agree to negotiate and to execute a non-exclusive distribution
<PAGE>
agreement with Blad permitting him to distribute Gaming Technology to the Cruise
Industry. This distribution agreement will contain all of the normal and usual
provisions including a provision for quotas and term; provided the initial term
shall be not less than three years and the initial quota shall be the sale and
collection of all proceeds of the sale of not less than $2,000,000 worth of
Gaming Technology units on or before April 30, 1997. All expenses associated
with commission work, unless approved in writing by Company prior to being
incurred will be the sole responsibility of Blad. Notwithstanding the foregoing
provisions providing for a potential commission and distribution arrangement it
is expressly understood and agreed by the parties hereto that Blad is not an
agent or representative of the company and has no right or authority to
obligate, speak for, represent, or incur any expenses on behalf of the Company
in any form or manner except as may be hereinafter expressly agreed to by the
Parties in writing.
7.
Release
In consideration of the benefits to be paid or otherwise provided to Blad
pursuant to this Agreement and the other terms and conditions of this Agreement,
Blad for and on behalf of himself and his heirs, executors, administrators,
successors and assigns, hereby fully and forever releases and discharges the
Company, any past or present general and limited partners, parent, sister and
subsidiary companies, affiliates, divisions, branches, shareholders, officers,
directors, employees, agents, trustees, successors and assigns and all Spintek
International, Inc. ("Released Parties-Company") of and from any and all rights,
claims, demands, damages, debts, liabilities, obligations, accounts, costs,
expenses, suits, actions and causes of action of whatever kind or nature in law
or equity or otherwise, whether known or unknown, suspected or unsuspected,
which Blad had, may have had, has or may now or in the future have, in his own
right, or by assignment or otherwise against the Released Parties-Company or any
of them, related to or by reason of his association in any manner with the
Company, Blad's separation from consulting with the Company, or any other event
from the beginning of the world to the date Blad signs this Agreement; provided,
however, this shall not apply to any duties and obligations of the Company to
Blad or rights of Blad pursuant to this Agreement.
Blad expressly understands and agrees that to the extent that any one or
more provision(s) of any law or of any principle(s) of common law of any state
is or are in any way applicable to limit the scope or operation of the release
set forth in this Section, including but not limited to limitations on the
effect of such release on unknown or unsuspected claims, such provision(s) and
principle(s) are hereby knowingly and voluntarily waived by Blad.
Company hereby agrees to and does hereby release Blad for all the monies
listed on the attached Exhibit "B".
<PAGE>
8.
Miscellaneous Provisions
The Parties hereto further covenant and agree as follows:
A. Gender and Interpretation of Terms and Provisions. The reference to
any Party and/or Parties, and/or any nouns, pronouns and/or the like utilized to
refer to any Party or Parties as the context may suggest or require in this
Agreement shall likewise include both the singular and the plural, a
corporation, co-partnership, individual or person acting in any fiduciary
capacity, as the intent, purpose and language of this Agreement may imply,
infer, state or suggest. All covenants and representations by any Party or
Parties to this Agreement shall be joint and several as the context of this
Agreement suggests or requires.
B. Entire Agreement. This Agreement and the Exhibits hereto constitute
the entire Agreement between the Parties hereto pertaining to the subject matter
hereof and supersedes all prior or contemporaneous agreements, offers,
understandings, negotiations and discussions, whether oral or written, of the
Parties in connection with the subject matter hereof, except as specifically
set forth herein. No supplements or modifications or waivers of this Agreement
or the Exhibits hereto shall be binding unless executed in writing by the Party
or Parties to be bound thereby. No waiver of any provisions of this Agreement
or any Exhibits hereto shall be deemed or shall constitute a waiver of any other
provision herein or therein (whether or not similar), nor shall any such waiver
constitute a continuing waiver unless otherwise expressly provided.
C. Binding on Successors. All of the terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of the Parties
hereto, their assigns if permitted, heirs, administrators, executors,
representatives, successors, agents, servants and employees.
D. Interpretation. The Parties hereto acknowledge and agree that each
has been given the opportunity to independently review this Agreement and each
Purchase Document with legal counsel, and/or has the requisite experience and
sophistication to understand, interpret, and agree to the particular language of
the provisions hereof without benefit of legal counsel. In the event of an
ambiguity in or dispute regarding the interpretation of any portion of this
Agreement or Exhibits hereto, the interpretation of this Agreement shall not be
resolved by any rule of interpretation providing for interpretation against the
Party who causes the uncertainty to exist or against the draftsman. In the
event of an ambiguity in or dispute over the interpretation of, or conflict
between the provisions, rights and remedies authorized in this Agreement any
Purchase Document(s), the provisions and terms of this Agreement and shall be
superior and controlling on all Parties hereto.
E. Good Faith and Fair Dealing. The covenant of good faith and fair
dealing shall apply to each and every term, covenant, condition and provision
of this Agreement and the Exhibits hereto.
F. Time of Essence. Time is of the essence of this Agreement and the
Exhibits hereto.
<PAGE>
G. Notices. All notices herein authorized or required to be given to
the Purchaser or the Seller shall be presumed received three (3) days after
deposit into the United States mail postage prepaid, by certified return receipt
to the addressee set forth below or to such other address as the parties may
designate from time to time in accordance with this subparagraph:
Company: Spintek Gaming Technologies, Inc.
Attention: Lanier M. Davenport
901 Grier Drive, Suite B
Las Vegas, NV 89119
Blad: Steven J. Blad
4267 Rochelle Lane
Las Vegas, NV 89121
IN WITNESS WHEREOF, the Parties hereto have caused their hand and seals to be
affixed hereto all done on the date and year first above written.
SPINTEK GAMING TECHNOLOGIES, INC.
By: /s/ LANIER M. DAVENPORT
Lanier M. Davenport
Its Chairman
ATTEST:
By: /s/ GARY L. COULTER
Gary L. Coulter
Its Assistant Secretary
By: /s/ STEVEN J. BLAD
Steven J. Blad
EXHIBIT 10.15
OPTION TO PURCHASE COMMON STOCK
OF
SPINTEK GAMING TECHNOLOGIES, INC.
Dated: May 2, 1996
Void after December 31, 2001
This certifies that, for value received, STEVEN J. BLAD, 4267 Rochell
Lane, Las Vegas, NV. 89121, his successors and/or assigns, individually and/or
jointly are/is entitled to purchase, on or after the date hereof, and on or
before December 31, 2001, but not thereafter, One Hundred and Fifty Thousand
(150,000) Shares of Common Stock, $.002 par value per share, of SPINTEK GAMING
TECHNOLOGIES, INC. 901 Grier Drive, Suite B, Las Vegas, NV. (hereinafter called
the "Corporation") [said shares hereinafter referred to as "Option Shares"],
such number of shares being subject to adjustment upon the occurrence of the
contingencies set forth in this Option. The purchase price payable upon the
exercise of this Option shall be $1.20 per share, said amount being hereinafter
referred to as the "Option Price" and being subject to adjustments upon the
occurrence of the contingencies set forth in this Option.
Upon delivery of this Option with the subscription form annexed hereto,
duly exercised, together with payment of the Option Price of the shares of
Common Stock thereby purchased, at the office of Corporation 901 Grier Drive,
Suite B, Las Vegas, NV. 89119 Attention: Chairman, or at such other address as
the Corporation may designate by notice in writing to the registered holder
hereof, the registered holder of this Option shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased. All
shares of Common Stock which may be issued upon the exercise of this Option
will, upon issuance, be fully paid and non assessable and free from all taxes,
liens, and charges with respect thereto.
This Option is subject to the following terms and conditions:
1. Vesting. The Option Shares shall vest upon the
following terms and conditions:
One Hundred and Fifty Thousand (150,000) shares on
the date of this Agreement.
2. Exercise of Option. This Option may be exercised on or
after the date hereof, and on or prior to December 31, 2001, in whole at any
time or in part from time to time, but not as to a fractional share of Common
Stock. In case of any partial exercise of this Option, the Corporation shall
execute and deliver a new Option of like tenure and date for the balance of the
shares of Common Stock purchasable hereunder.
3. Condition to Transfer or Exercise of Option. It shall
be a condition to any transfer or exercise of this Option, in whole or in part,
that the Corporation shall have received, at the time of such transfer or
exercise, a representation in writing that this Option (or portion hereof
transferred) or the shares of Common Stock being issued upon such exercise, as
the case may be, are being acquired for investment and not with a view to any
<PAGE>
sale or distribution thereof, or a statement of the pertinent facts covering any
proposed distribution thereof. It shall be a further condition to any transfer
of this Option, in whole or in part, or of any or all of the shares of Common
Stock issued upon exercise of this Option, other than a transfer registered
under the Securities Act of 1933, as amended (hereinafter called the "Act"),
that the Corporation shall have received a legal opinion, in form and substance
satisfactory to the Corporation and its counsel, reciting the pertinent
circumstances surrounding the proposed transfer and stating that the transfer is
exempt from the prospectus and registration requirements of the Act. Each
certificate evidencing the shares of Common Stock issued upon exercise of this
Option or upon any transfer of such shares (other than a transfer registered
under the Act or any subsequent transfer of shares so registered) shall, at the
option of the Corporation, contain a legend, in form and substance satisfactory
to the Corporation and its counsel, restricting the transfer of such shares to
sales or other dispositions exempt from the requirements of the Act.
It shall be a further condition to each transfer that the transferor
(if any portion of this Option is retained by it) and the transferee shall
receive and accept new Options, of like tenure and date, executed by the
Corporation, for the portion so transferred and for the portion retained.
4. Adjustment of Option Price and Number of Shares
Purchasable Hereunder. The Option Price and the number of shares purchasable
hereunder shall be subject to adjustment from time to time in accordance with
the following provisions:
(a) In the event of the issuance of additional
shares of Common Stock of the Corporation as a dividend, from and after the date
which is the record date for the determination of stockholders entitled to such
dividend, the registered holder of this Option shall (until another adjustment)
be entitled to purchase the number of shares of Common Stock, calculated to the
nearest full share, obtained by multiplying the number of shares of Common Stock
purchasable hereunder immediately prior to said record date by the percentage
which the number of additional shares constituting any such dividend is of the
total number of shares of Common Stock outstanding immediately prior to said
record date and adding the result so obtained to the number of shares of Common
Stock purchasable hereunder immediately prior to said record date.
Upon each adjustment pursuant to this
subdivision (a), the Option Price in effect immediately prior to such adjustment
shall be reduced to an amount determined by dividing the product obtained by
multiplying such Option Price by the number of shares of Common Stock
purchasable hereunder immediately prior to such adjustment by the number of
shares of Common Stock purchasable hereunder immediately following such
adjustment.
(b) In case the Corporation shall at any time
subdivide the outstanding shares of its Common Stock, the Option Price in effect
immediately prior to such subdivision shall be proportionately decreased, and
in case the Corporation shall at any time combine the outstanding shares of its
Common Stock, the Option Price in effect immediately prior to such combination
shall be proportionately increased, effective at the close of business on the
date of such subdivision or combination, as the case may be.
<PAGE>
Upon each adjustment pursuant to this
subdivision (b), the registered holder of this Option shall thereafter (until
another such adjustment) be entitled to purchase, at the adjusted Option Price,
the number of shares of Common Stock, calculated to the nearest full share,
obtained by multiplying the number of shares of Common Stock purchasable
hereunder immediately prior to such adjustment by the Option Price in effect
prior to such adjustment and dividing the product so obtained by the adjusted
Option Price.
5. Reorganization, Reclassification, Consolidation, or
Merger. If at any time while this Option is outstanding there shall be any
reorganization or reclassification of the Common Stock of the Corporation (other
than a subdivision or combination of shares provided for in Paragraph 3 above,
or any consolidation or merger of the Corporation with another corporation, the
holder of this Option shall thereafter be entitled to receive, during the term
hereof and upon payment of the Option Price, the number of shares of stock or
other securities or property of the Corporation or of the successor corporation
resulting from such consolidation or merger, as the case may be, to which a
holder of the Common Stock of the Corporation, deliverable upon the exercise of
this Option, would have been entitled upon such reorganization,
reclassification, consolidation, or merger if this Option had been exercised
immediately prior to such reorganization, reclassification, consolidation, or
merger; and, in any such case, appropriate adjustment (as determined in good
faith by the Board of Directors of the Corporation) shall be made in the
application of the provisions herein set forth with respect to the rights and
interests thereafter of the holder of this Option to the end that the provisions
set forth herein (including the adjustment of the Option Price and the number of
shares issuable upon the exercise of this Option) shall thereafter be applicable
as near as reasonably may be, in relation to any shares or other property
thereafter deliverable upon the exercise thereof.
6. Notice of Adjustments. Upon any adjustment of the
Option Price and any increase or decrease in the number of shares of Common
Stock purchasable upon the exercise of this Option, then, and in each such case,
the Corporation, within thirty (30) days thereafter, shall give written notice
thereof to each registered holder of this Option at the address of the holder as
shown on the books of the Corporation, which notice shall state the Option Price
as adjusted and the increased or decreased number of shares purchasable upon the
exercise of this Option, setting forth in reasonable detail the method of
calculation of each.
7. Charges, Taxes, and Expenses. The issuance of
certificates for shares of Common Stock upon any exercise of this Option shall
be made without charge to the holder hereof for any tax or other expense with
respect to the issuance of such certificates, all of which taxes and expenses
shall be paid by the Corporation, and such certificates shall be issued in the
name of, or in such name or names as may be directed by, the holder of this
Option; provided, however, that in the event that certificates for shares of
Common Stock are to be issued in a name other than the name of the holder of
this Option, this Option when surrendered for exercise shall be accompanied by
an instrument of transfer in form satisfactory to the Corporation, duly
executed by the holder hereof in person or by an attorney duly authorized in
writing.
<PAGE>
8. Registration of Option or Common Stock Under Securities
Act of 1933. The Corporation agrees to use its best efforts to register under
the Act any offering of this Option or any portion hereof or any of the Common
Stock issued or issuable upon the exercise hereof, which is not exempt from the
registration requirements of the Act. Such obligation to register is
conditioned upon receipt by the Corporation of a written request for
registration by persons owning of record an aggregate of more than fifty (50)
percent of the Common Stock issued or issuable upon the exercise of this Option
and any Options of like tenure (and, for this purpose, any shares issuable upon
exercise of such Option or Options shall be considered to be held of record by
the registered holder of such Option or Options). The Corporation's obligation
to register under this paragraph is limited to registering one offering at the
request of such holder or holders. All necessary proceedings will be taken and
all necessary filings will be made, and all other necessary action will be taken
in order that all requirements of the Act, the instructions, rules, and
regulations of the Securities and Exchange Commission, and any requirements of
state securities laws then applicable to any such offering, will be fully
complied with within six months from the Corporation's receipt of such written
request. Such offering will be completed within sixty (60) days after the
effective date of such compliance, after which the Corporation shall have the
right to deregister any unsold portion of such Option or Common Stock. The
persons making such offering jointly and severally agree to pay all costs and
expenses of such offering, proceedings, filings, and actions to the extent that
the Corporation at the time would not otherwise be incurring such costs or
expenses. Such costs and expenses shall include the fees and expenses of
counsel and accountants, the costs and expenses incident to the preparation,
printing, and filing under the Act of the registration statement (including all
exhibits thereto), preliminary prospectuses, prospectuses, and all amendments
and supplements thereto, and all expenses, including fees and disbursements of
counsel, incurred in connection with the qualification of the Option or shares
of Common Stock under applicable state securities laws.
In connection with any registration statement covering this
Option and/or the Common Stock issuable upon the exercise hereof, the
Corporation agrees that it will indemnify and hold harmless the holder hereof
against any losses, claims, damages, or liabilities, joint or several, arising
out of or based upon (I) the failure of the Corporation to use its best efforts
to obtain any requisite order, approval, or authorization of any public body in
connection with the issuance of this Option and/or the Common Stock issuable
upon the exercise hereof, or (ii) any untrue statement or alleged untrue
statement of any material fact contained in such registration statement (or the
prospectus included therein or any amendment or supplement thereto) or arising
out of or based upon the omission or alleged omission (except, as to any
preliminary prospectus, for items permitted to be omitted by Rule 433 of the
rules and regulations of the Securities and Exchange Commission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Corporation further agrees to
reimburse the holder hereof for any legal or other expenses reasonably incurred
by such holder in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the Corporation
will not be liable in any such case to the extent that any such loss, claim,
damage, or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any thereof in
reliance upon and in conformity with written information furnished the
Corporation by such holder specifically for use in the preparation of any
thereof. Liability of the Corporation under this indemnity agreement shall be
in addition to any liability that the Corporation may otherwise have.
<PAGE>
In connection with any such registration statement covering this
Option and/or the shares issued upon the exercise of this Option, the holders
thereof jointly and severally agree to indemnify and hold harmless the
Corporation, its directors and officers, against any losses, claims, damages, or
liabilities to which the Corporation or any such director or officer may become
subject under the Act, or otherwise, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any such registration statement (or the prospectus included therein or any
amendment or supplement thereto), or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, to the
extent that such untrue statement or alleged untrue statement or omission or
alleged omission was made in such registration statement (or the prospectus
included therein or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Corporation by any such
holder specifically for use in the preparation thereof; and will reimburse the
Corporation, or any such director or officers, for any legal or other expenses
reasonably incurred by the Corporation, or any such director or officers, in
connection with investigating or defending any such loss, claim, damage,
liability, or action. This indemnity will be in addition to any liability that
such holder may otherwise have.
9. Certain Obligations of the Corporation. The Corporation
will not, by amendment of its Certificate of Incorporation or through
reorganization, consolidation, merger, dissolution, or sale of assets, or by any
other voluntary act or deed, avoid or seek to avoid the performance or
observance of any of the covenants, stipulations, or conditions to be performed
or observed by the Corporation, but will at all times in good faith assist,
insofar as it is able, in the carrying out of all provisions of this Option and
in the taking of all other action which may be necessary in order to protect the
rights of the holder of this Option against dilution. Without limiting the
generality of the foregoing, the Corporation agrees that it will not establish
or increase the par value, if any, of the shares of any Common Stock which are
at the time issuable upon exercise of this Option above the then prevailing
Option Price hereunder and that, before taking any action which would cause an
adjustment reducing the Option Price hereunder below the then par value, if any,
of the shares of any Common Stock issuable upon exercise hereof, the Corporation
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue fully-paid
and non-assessable shares of such Common Stock at the Option Price as so
adjusted.
10. Miscellaneous.
(a) The Corporation covenants that it will
at all times reserve and keep available, solely for the purpose of issue upon
the exercise hereof, a sufficient number of shares of Common Stock to permit the
exercise hereof in full.
(b) The terms of this Option shall be
binding upon and shall inure to the benefit of any successors or assigns of the
Corporation and of the holder or holders hereof and of the Common Stock issued
or issuable upon the exercise hereof.
(c) No holder of this Option, as such, shall be
entitled to vote or receive dividends or be deemed to be a shareholder of the
Corporation for any purpose, nor shall anything contained in this Option be
construed to confer upon the holder of this Option, as such, any rights of a
shareholder of the Corporation or any right to vote, give, or withhold consent
to any corporate action, receive notice of meetings, receive dividends or
subscription rights, or otherwise.
(d) Receipt of this Option by the holder hereof
shall constitute acceptance of and agreement to the foregoing terms and
conditions.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Option to be
signed by its duly authorized officers and its corporate seal to be affixed
hereto.
SPINTEK GAMING TECHNOLOGIES, INC.
By: /s/ LANIER M. DAVENPORT
Lanier M. Davenport
Its Chairman
ATTEST:
By: /s/ GARY L. COULTER
Gary L. Coulter
Its Assistant Secretary
(CORPORATE SEAL)
Accepted:
/s/ STEVEN J. BLAD
Steven J. Blad, Optionee
EXHIBIT 10.16
OPTION TO PURCHASE COMMON STOCK
OF
SPINTEK GAMING TECHNOLOGIES, INC.
Dated: May 2, 1996
Void after December 31, 2001
This certifies that, for value received, GREGORY A. BORIS, 901 Grier
Drive, Suite B, Las Vegas, NV. 89119, his successors and/or assigns,
individually and/or jointly are/is entitled to purchase, on or after the date
hereof, and on or before December 31, 2001, but not thereafter, ONE HUNDRED AND
FIFTY THOUSAND (150,000) Shares of Common Stock, $.002 par value per share, of
SPINTEK GAMING TECHNOLOGIES, INC. 901 Grier Drive, Suite B, Las Vegas, NV.
(hereinafter called the "Corporation") [said shares hereinafter referred to as
"Option Shares"], such number of shares being subject to adjustment upon the
occurrence of the contingencies set forth in this Option. The purchase price
payable upon the exercise of this Option shall be $1.20 per share, said amount
being hereinafter referred to as the "Option Price" and being subject to
adjustments upon the occurrence of the contingencies set forth in this Option.
Upon delivery of this Option with the subscription form annexed hereto,
duly exercised, together with payment of the Option Price of the shares of
Common Stock thereby purchased, at the office of Corporation 901 Grier Drive,
Suite B, Las Vegas, NV. 89119 Attention: Chairman, or at such other address as
the Corporation may designate by notice in writing to the registered holder
hereof, the registered holder of this Option shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased. All
shares of Common Stock which may be issued upon the exercise of this Option
will, upon issuance, be fully paid and non assessable and free from all taxes,
liens, and charges with respect thereto.
This Option is subject to the following terms and conditions:
1. Vesting. The Option Shares shall vest upon the
following terms and conditions:
(a) Fifty Thousand (50,000) shares on the date of this Agreement;
(b) Fifty Thousand (50,000) shares exactly one year from the
date of the is Agreement;
(c) Fifty Thousand (50,000) shares exactly two years from the
date of the Agreement.
Options awarded under (a) above shall vest immediately upon
execution hereof. Awards made under (b) & (c) above shall require that employee
be employed in a full time capacity by the company at the designated date of the
"vesting" or such award shall not vest, and shall lapse.
2. Exercise of Option. This Option may be exercised on or
after the date hereof, and on or prior to December 31, 2001, in whole at any
time or in part from time to time, but not as to a fractional share of Common
Stock. In case of any partial exercise of this Option, the Corporation shall
execute and deliver a new Option of like tenure and date for the balance of the
shares of Common Stock purchasable hereunder.
<PAGE>
3. Condition to Transfer or Exercise of Option. It shall
be a condition to any transfer or exercise of this Option, in whole or in part,
that the Corporation shall have received, at the time of such transfer or
exercise, a representation in writing that this Option (or portion hereof
transferred) or the shares of Common Stock being issued upon such exercise, as
the case may be, are being acquired for investment and not with a view to any
sale or distribution thereof, or a statement of the pertinent facts covering any
proposed distribution thereof. It shall be a further condition to any transfer
of this Option, in whole or in part, or of any or all of the shares of Common
Stock issued upon exercise of this Option, other than a transfer registered
under the Securities Act of 1933, as amended (hereinafter called the "Act"),
that the Corporation shall have received a legal opinion, in form and substance
satisfactory to the Corporation and its counsel, reciting the pertinent
circumstances surrounding the proposed transfer and stating that the transfer is
exempt from the prospectus and registration requirements of the Act. Each
certificate evidencing the shares of Common Stock issued upon exercise of this
Option or upon any transfer of such shares (other than a transfer registered
under the Act or any subsequent transfer of shares so registered) shall, at the
option of the Corporation, contain a legend, in form and substance satisfactory
to the Corporation and its counsel, restricting the transfer of such shares to
sales or other dispositions exempt from the requirements of the Act.
It shall be a further condition to each transfer that the transferor
(if any portion of this Option is retained by it) and the transferee shall
receive and accept new Options, of like tenure and date, executed by the
Corporation, for the portion so transferred and for the portion retained.
4. Adjustment of Option Price and Number of Shares
Purchasable Hereunder. The Option Price and the number of shares purchasable
hereunder shall be subject to adjustment from time to time in accordance with
the following provisions:
(a) In the event of the issuance of additional
shares of Common Stock of the Corporation as a dividend, from and after the date
which is the record date for the determination of stockholders entitled to such
dividend, the registered holder of this Option shall (until another adjustment)
be entitled to purchase the number of shares of Common Stock, calculated to the
nearest full share, obtained by multiplying the number of shares of Common Stock
purchasable hereunder immediately prior to said record date by the percentage
which the number of additional shares constituting any such dividend is of the
total number of shares of Common Stock outstanding immediately prior to said
record date and adding the result so obtained to the number of shares of Common
Stock purchasable hereunder immediately prior to said record date.
Upon each adjustment pursuant to this
subdivision (a), the Option Price in effect immediately prior to such adjustment
shall be reduced to an amount determined by dividing the product obtained by
multiplying such Option Price by the number of shares of Common Stock
purchasable hereunder immediately prior to such adjustment by the number of
shares of Common Stock purchasable hereunder immediately following such
adjustment.
<PAGE>
(b) In case the Corporation shall at any time
subdivide the outstanding shares of its Common Stock, the Option Price in effect
immediately prior to such subdivision shall be proportionately decreased, and
in case the Corporation shall at any time combine the outstanding shares of its
Common Stock, the Option Price in effect immediately prior to such combination
shall be proportionately increased, effective at the close of business on the
date of such subdivision or combination, as the case may be.
Upon each adjustment pursuant to this
subdivision (b), the registered holder of this Option shall thereafter (until
another such adjustment) be entitled to purchase, at the adjusted Option Price,
the number of shares of Common Stock, calculated to the nearest full share,
obtained by multiplying the number of shares of Common Stock purchasable
hereunder immediately prior to such adjustment by the Option Price in effect
prior to such adjustment and dividing the product so obtained by the adjusted
Option Price.
5. Reorganization, Reclassification, Consolidation, or
Merger. If at any time while this Option is outstanding there shall be any
reorganization or reclassification of the Common Stock of the Corporation (other
than a subdivision or combination of shares provided for in Paragraph 3 above,
or any consolidation or merger of the Corporation with another corporation, the
holder of this Option shall thereafter be entitled to receive, during the term
hereof and upon payment of the Option Price, the number of shares of stock or
other securities or property of the Corporation or of the successor corporation
resulting from such consolidation or merger, as the case may be, to which a
holder of the Common Stock of the Corporation, deliverable upon the exercise of
this Option, would have been entitled upon such reorganization,
reclassification, consolidation, or merger if this Option had been exercised
immediately prior to such reorganization, reclassification, consolidation, or
merger; and, in any such case, appropriate adjustment (as determined in good
faith by the Board of Directors of the Corporation) shall be made in the
application of the provisions herein set forth with respect to the rights and
interests thereafter of the holder of this Option to the end that the provisions
set forth herein (including the adjustment of the Option Price and the number of
shares issuable upon the exercise of this Option) shall thereafter be applicable
as near as reasonably may be, in relation to any shares or other property
thereafter deliverable upon the exercise thereof.
6. Notice of Adjustments. Upon any adjustment of the
Option Price and any increase or decrease in the number of shares of Common
Stock purchasable upon the exercise of this Option, then, and in each such case,
the Corporation, within thirty (30) days thereafter, shall give written notice
thereof to each registered holder of this Option at the address of the holder as
shown on the books of the Corporation, which notice shall state the Option Price
as adjusted and the increased or decreased number of shares purchasable upon the
exercise of this Option, setting forth in reasonable detail the method of
calculation of each.
<PAGE>
7. Charges, Taxes, and Expenses. The issuance of
certificates for shares of Common Stock upon any exercise of this Option shall
be made without charge to the holder hereof for any tax or other expense with
respect to the issuance of such certificates, all of which taxes and expenses
shall be paid by the Corporation, and such certificates shall be issued in the
name of, or in such name or names as may be directed by, the holder of this
Option; provided, however, that in the event that certificates for shares of
Common Stock are to be issued in a name other than the name of the holder of
this Option, this Option when surrendered for exercise shall be accompanied by
an instrument of transfer in form satisfactory to the Corporation, duly
executed by the holder hereof in person or by an attorney duly authorized in
writing.
8. Registration of Option or Common Stock Under Securities
Act of 1933. The Corporation agrees to use its best efforts to register under
the Act any offering of this Option or any portion hereof or any of the Common
Stock issued or issuable upon the exercise hereof, which is not exempt from the
registration requirements of the Act. Such obligation to register is
conditioned upon receipt by the Corporation of a written request for
registration by persons owning of record an aggregate of more than fifty (50)
percent of the Common Stock issued or issuable upon the exercise of this Option
and any Options of like tenure (and, for this purpose, any shares issuable upon
exercise of such Option or Options shall be considered to be held of record by
the registered holder of such Option or Options). The Corporation's obligation
to register under this paragraph is limited to registering one offering at the
request of such holder or holders. All necessary proceedings will be taken and
all necessary filings will be made, and all other necessary action will be taken
in order that all requirements of the Act, the instructions, rules, and
regulations of the Securities and Exchange Commission, and any requirements of
state securities laws then applicable to any such offering, will be fully
complied with within six months from the Corporation's receipt of such written
request. Such offering will be completed within sixty (60) days after the
effective date of such compliance, after which the Corporation shall have the
right to deregister any unsold portion of such Option or Common Stock. The
persons making such offering jointly and severally agree to pay all costs and
expenses of such offering, proceedings, filings, and actions to the extent that
the Corporation at the time would not otherwise be incurring such costs or
expenses. Such costs and expenses shall include the fees and expenses of
counsel and accountants, the costs and expenses incident to the preparation,
printing, and filing under the Act of the registration statement (including all
exhibits thereto), preliminary prospectuses, prospectuses, and all amendments
and supplements thereto, and all expenses, including fees and disbursements of
counsel, incurred in connection with the qualification of the Option or shares
of Common Stock under applicable state securities laws.
In connection with any registration statement covering this
Option and/or the Common Stock issuable upon the exercise hereof, the
Corporation agrees that it will indemnify and hold harmless the holder hereof
against any losses, claims, damages, or liabilities, joint or several, arising
out of or based upon (I) the failure of the Corporation to use its best efforts
to obtain any requisite order, approval, or authorization of any public body in
connection with the issuance of this Option and/or the Common Stock issuable
upon the exercise hereof, or (ii) any untrue statement or alleged untrue
statement of any material fact contained in such registration statement (or the
prospectus included therein or any amendment or supplement thereto) or arising
out of or based upon the omission or alleged omission (except, as to any
preliminary prospectus, for items permitted to be omitted by Rule 433 of the
rules and regulations of the Securities and Exchange Commission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Corporation further agrees to
reimburse the holder hereof for any legal or other expenses reasonably incurred
by such holder in connection with investigating or defending any such loss,
<PAGE>
claim, damage, liability, or action; provided, however, that the Corporation
will not be liable in any such case to the extent that any such loss, claim,
damage, or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any thereof in
reliance upon and in conformity with written information furnished the
Corporation by such holder specifically for use in the preparation of any
thereof. Liability of the Corporation under this indemnity agreement shall be
in addition to any liability that the Corporation may otherwise have.
In connection with any such registration statement covering this
Option and/or the shares issued upon the exercise of this Option, the holders
thereof jointly and severally agree to indemnify and hold harmless the
Corporation, its directors and officers, against any losses, claims, damages, or
liabilities to which the Corporation or any such director or officer may become
subject under the Act, or otherwise, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any such registration statement (or the prospectus included therein or any
amendment or supplement thereto), or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, to the
extent that such untrue statement or alleged untrue statement or omission or
alleged omission was made in such registration statement (or the prospectus
included therein or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Corporation by any such
holder specifically for use in the preparation thereof; and will reimburse the
Corporation, or any such director or officers, for any legal or other expenses
reasonably incurred by the Corporation, or any such director or officers, in
connection with investigating or defending any such loss, claim, damage,
liability, or action. This indemnity will be in addition to any liability that
such holder may otherwise have.
9. Certain Obligations of the Corporation. The Corporation
will not, by amendment of its Certificate of Incorporation or through
reorganization, consolidation, merger, dissolution, or sale of assets, or by any
other voluntary act or deed, avoid or seek to avoid the performance or
observance of any of the covenants, stipulations, or conditions to be performed
or observed by the Corporation, but will at all times in good faith assist,
insofar as it is able, in the carrying out of all provisions of this Option and
in the taking of all other action which may be necessary in order to protect the
rights of the holder of this Option against dilution. Without limiting the
generality of the foregoing, the Corporation agrees that it will not establish
or increase the par value, if any, of the shares of any Common Stock which are
at the time issuable upon exercise of this Option above the then prevailing
Option Price hereunder and that, before taking any action which would cause an
adjustment reducing the Option Price hereunder below the then par value, if any,
of the shares of any Common Stock issuable upon exercise hereof, the Corporation
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue fully-paid
and non-assessable shares of such Common Stock at the Option Price as so
adjusted.
<PAGE>
10. Miscellaneous.
(a) The Corporation covenants that it will
at all times reserve and keep available, solely for the purpose of issue upon
the exercise hereof, a sufficient number of shares of Common Stock to permit the
exercise hereof in full.
(b) The terms of this Option shall be
binding upon and shall inure to the benefit of any successors or assigns of the
Corporation and of the holder or holders hereof and of the Common Stock issued
or issuable upon the exercise hereof.
(c) No holder of this Option, as such, shall be
entitled to vote or receive dividends or be deemed to be a shareholder of the
Corporation for any purpose, nor shall anything contained in this Option be
construed to confer upon the holder of this Option, as such, any rights of a
shareholder of the Corporation or any right to vote, give, or withhold consent
to any corporate action, receive notice of meetings, receive dividends or
subscription rights, or otherwise.
(d) Receipt of this Option by the holder hereof
shall constitute acceptance of and agreement to the foregoing terms and
conditions.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Option to be
signed by its duly authorized officers and its corporate seal to be affixed
hereto.
SPINTEK GAMING TECHNOLOGIES, INC.
By: /s/ LANIER M. DAVENPORT
Lanier M. Davenport
Its Chairman
ATTEST:
By: /s/ GARY L. COULTER
Gary L. Coulter
Its Assistant Secretary
(CORPORATE SEAL)
Accepted:
/s/ GREGORY A. BORIS
Gregory A. Boris, Optionee
EXHIBIT 10.17
SEVERANCE AGREEMENT
THIS AGREEMENT (the "Agreement") is made by and between Spintek Gaming
Technologies, Inc., a California corporation, with principal offices located in
Las Vegas, Nevada (the "Company") and Jonathan P. Hoover, a resident of
Chattanooga, Tennessee (the "Employee").
WHEREAS, the Company is engaged in the business of research, development,
manufacture and marketing of associated electronic gaming equipment and other
technology and systems relating thereto; and
WHEREAS, the Company and the Employee entered into that certain Employment
Agreement, dated September 14, 1995 ("Employment Agreement"); and
WHEREAS, the Company desires to terminate the Agreement; and
WHEREAS, the Company desires to entice the Employee to terminate the
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein set forth, the parties agree as follows:
1. Pursuant to Paragraph 12 of the Agreement, the parties mutually agree
and acknowledge that the Agreement shall be terminated effective September 30,
1996 at 5:00 pm EST, and that the Agreement shall be of no further force or
effect thereafter.
2. The Company shall pay the Employee a sum, for the Employee's agreement
hereunder to terminate the Employment Agreement, at the rate of $2,000.00 per
month for a period of twelve (12) months (the "Term"), beginning October 1,
1996 and ending September 30, 1997, payable no less than monthly.
3. In consideration of the above sum, the Employee shall make himself
available to provide consulting services to and on behalf of the Company,
during the Term, related to the filing of its quarterly and yearly financial
documents, including a proxy statement, with the Securities and Exchange
Commission, and also in the event of a reverse split, during a period of one
(1) week, contemplated to include between sixty (60) and seventy (70) hours of
services, at the request of any authorized executive officer of the Company,
between the fourteenth (14th) day and the forty-fifth (45th) day subsequent to
the end of the quarter for all quarterly filings, between the thirtieth (30th)
day and the sixtieth (60th) day subsequent to the fiscal year end for yearly
filings, and within thirty (30) days, if necessary, prior to the effective
date of a reverse split. The authorized executive officer shall give notice
to the Employee no less than three (3) weeks prior to the date the Employee's
services will be required. Employee shall be reimbursed for all properly
documented, reasonable expenses incurred by Employee, for which the Employee
has received prior written approval, during the performance of his duties
<PAGE>
hereunder. The Employee shall submit a detailed accounting within thirty (30)
days of all expenses incurred on behalf of the Company, and the Company shall
promptly reimburse the Employee for such expenses.
4. Rights Upon Breach. The Company shall have no right to terminate its
obligations under this Agreement unless the Company determines in the good
faith exercise of its business judgment that the Employee has not produced a
result that is satisfactory to the Company.
5. Term. Notwithstanding the above, this Agreement shall be
terminable upon the death of the Employee, or in the event that the Employee
should become incapable of performing the consulting services hereunder.
6. Notices. Any notice required or permitted to be given to the Employee
pursuant to this Agreement shall be sufficiently given if sent to the Employee
by registered or certified mail addressed to the Employee at the address set
forth below the Employee's name at the end of this Agreement, or at such other
address as he shall designate by notice to the Company; and any notice
required or permitted to be given to the Company shall be sufficiently given
if sent to the Company by registered or certified mail addressed to the
Company at the address set forth below the Company's name at the end of this
Agreement, or at such other address as it shall designate by notice to the
Employee.
7. Assignment. This Agreement is personal in nature to Jonathan P.
Hoover and the assignment by the Employee of this Agreement or any interest
herein, or of any money due or to become due by reason of the terms hereof,
without the prior written consent of the Company shall be void. However,
assignment to a corporation by the Employee in which the Employee has a
majority interest and is an executive officer shall not be unreasonably
withheld by the Company. This Agreement may be assigned by the Company to any
subsidiary or successor; provided, however, that in the event of any such
assignment, the Company shall obtain an instrument in writing from such
assignee assuming the obligations of the Company hereunder and shall deliver
an executed copy thereof to Employee.
8. Entire Agreement. This Agreement embodies the entire agreement of
the parties hereto relating to the subject matter hereof. No amendment or
modification of this Agreement shall be valid or binding upon the Company
unless made in writing and signed by a duly authorized officer of the Company,
or upon the Employee unless made in writing and signed by the Employee.
9. Applicable Law. This Agreement shall be construed and the legal
relations between the parties determined in accordance with the laws of the
State of Nevada.
10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
11. Waiver of Breach. The waiver by the Company of a breach of any
provision of this Agreement by the Employee shall not operate or be construed
as a waiver of any subsequent breach of the same or any other provision by the
Employee.
12. Headings. Paragraph headings or subparagraph headings herein are for
convenience only and shall in no case be considered in construing this
Agreement.
13. Severability Of Provisions. The covenants herein contained are
separate and independent, and in the event any paragraph or subparagraph
hereof shall be declared invalid by a court or governmental agency, such
invalidity shall not in any manner affect the validity or enforceability of
any other Section, paragraph or subparagraph.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 23rd day of August, 1996.
SPINTEK GAMING TECHNOLOGIES, INC.
By: /s/ LANIER M. DAVENPORT
Its: Chairman and CEO
Address: 901-B Grier Drive
Las Vegas, Nevada 89119
Attest:
/s/ GARY L. COULTER
/s/ JONATHAN P. HOOVER
Jonathan P. Hoover
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM SPINTEK GAMING
TECHNOLOGIES, INC. FANIANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
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<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
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0
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