UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
TRANSITION REPORT UNDER 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 (IRS Employer Identification No.)
of incorporation or organization)
901-B Grier Drive, Las Vegas, Nevada 89119 ( 702 ) 263 - 3660
(Address of principal executive offices) (Issuer's telephone number)
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
The number of shares of Common Stock, $0.002 par value, outstanding on
December 31, 1996 was 10,866,885.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
(a development stage company)
FORM 10-QSB
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet at December 31, 1996 3
Consolidated Statements of Operations - From Inception
to June 30, 1996, Three Months Ended December 31, 1996,
Six Months Ended December 31, 1996 and From Inception
to December 31, 1996 4
Consolidated Statements of Cash Flows - From Inception to
June 30, 1996, Three Months Ended December 31, 1996
Six Months Ended December 31, 1996 and From Inception
to December 31, 1996 5
Notes to Financial Statements 7
Item 2. Plan of Operation 10
PART II. OTHER INFORMATION 13
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults on Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 16
Signature Page 17
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
SPINTEK GAMING TECHNOLOGIES, INC.
(a development stage company)
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
DECEMBER 31, JUNE 30,
1996 1996
(unaudited)
ASSETS
Current assets:
Cash $ 824 $ 121
Inventories, net 532 452
Prepaid and other 370 25
Total current assets 1,726 598
Furniture, fixtures and equipment - net 114 76
Licenses and patents 1,019 1,019
Note receivable from related company 130 160
Other assets 114 11
Total assets $ 3,103 1,864
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Demand notes payable to affiliated parties $ 0 $ 1,085
Demand notes payable to stockholders 435 1,408
Accounts payable 307 413
Accrued liabilities 120 233
Interest and dividends payable 77 76
Total current Liabilities 939 3,215
Commitments
Stockholders' equity (deficit):
Preferred stock, no par value, 100,000 shares
authorized, 6,842 and 0 shares issued and
outstanding at December 31, 1996 and
June 30, 1996, respectively 4,587
Common stock, $.002 par value, 100,000,000
shares authorized, 12,184,114 and
10,669,091 shares issued and outstanding
at December 31, 1996 and June 30, 1996,
respectively 24 21
Additional paid in capital 4,610 3,592
Deficit accumulated during development stage (6,956) (4,938)
Dividends: Preferred Stock (73) 0
Treasury stock - 1,317,329 shares at cost (28) (26)
Total stockholders' equity (deficit) 2,164 (1,351)
Total liabilities and stockholders' equity (deficit)$ 3,103 $ 1,864
The accompanying notes are an integral part of the financial statements.
<TABLE>
SPINTEK GAMING TECHNOLOGIES, INC.
(a development stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<CAPTION>
Cumulative
March 31, 1995 Three Months Six Months March 31,1995
(Inception) To Ended Ended (Inception)To
June 30, 1996 December 31, 1996 December 31, 1996 December 31, 1996
(1) (Unaudited) (Unaudited) (Unaudited)
<S>
Revenues: <C> <C> <C> <C>
Sales $ 0 $ 0 $ 0 $ 0
Cost of sales 0 0 0 0
Gross profit 0 0 0 0
Operating expenses:
Selling, general &
administrative 3,168 655 1,192 4,360
Research and development 1,492 209 428 1,920
Total expenses 4,660 864 1,620 6,280
Operating Loss (4,660) (864) (1,620) (6,280)
Other income (expense):
Interest and other income 21 96 126 147
Depreciation & amortization (11) (7) (406) (417)
Unrealized loss on marketable securities (83) 0 0 (83)
Loss on sale of securities (96) 0 0 (96)
Interest expense (109) (218) (118) (227)
Net loss $ (4,938) $ (993) $ (2,018) $ (6,956)
Primary Loss Per Share Of
Common Stock Outstanding ($0.50) ($0.09) ($0.18) ($0.69)
Fully Diluted Loss Per Share Of
Common And Common Equivalent
Stock Outstanding ($0.50) ($0.09) ($0.18) ($0.69)
Weighted Average Common
Shares Outstanding 9,778,357 11,399,306 11,027,714 10,136,853
Weighted Average Common
Shares Outstanding
Assuming Full Dilution 9,778,357 24,749,550 17,702,836 13,645,422
<FN>
<F1>
(1) Weighted Average Common Shares Outstanding Restated To Reflect Effect
Of Acquisition Which Was Effective For Accounting Purposes As Of July 1,
1995.
</FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
SPINTEK GAMING TECHNOLOGIES, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Cumulative
March 31, 1995 Six Months March 31, 1995
(Inception) To Ended (Inception) To
June 30, 1996 December 31, 1996 December 31, 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (4,938) $ (2,018) $ (6,956)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and Amortization 11 12 23
Amortization of debt issuance costs 0 395 395
Allowance for inventory obsolescence 28 89 117
Provision for bad debts 0 81 81
Loss on sale of securities 96 0 96
Unrealized loss on marketable securities 83 0 83
Noncash operating expenses for
common stock 597 0 597
Other non-cash adjustments 0 31 31
Changes in operating
assets and liabilities:
Decrease (increase) in assets:
Inventories (480) (169) (649)
Prepaid and other (34) (448) (482)
Increase (decrease) in liabilities:
Accounts payable 401 (105) 296
Accrued liabilities 233 (113) 120
Interest and preferred dividends payable 76 1 77
Net cash used by operating activities (3,927) (2,244) (6,171)
Cash flows from investing activities:
Purchase of furniture, fixture
and equipment (65) (49) (114)
Acquisition of licenses and patents (157) 0 (157)
Proceeds from sale of securities 186 0 186
Note receivable from related company (182) (4) (186)
Other (1) 0 (1)
Net cash used by investing activities (219) (53) (272)
Cash flows from financing activities:
Payments-demand notes payable(net) 466 (1,085) (619)
Payments-demand notes payable
to stockholders (net) 1,318 (973) 345
Proceeds-advances from stockholders 1,000 0 1,000
Proceeds-Convertible debentures 0 7,143 7,143
Debt Issuance Costs 0 (2,768) (2,768)
Conversion of debenture net of
unamortized discount 0 (4,829) (4,829)
Issuance of common and treasury stock 1,483 683 2,166
Issuance of preferred stock 0 4,829 4,829
Net cash provided by financing activities 4,267 3,000 7,267
Net increase in cash 121 703 824
Cash, beginning of period 0 121 0
Cash, end of period $ 121 $ 824 $ 824
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
SPINTEK GAMING TECHNOLOGIES, INC.
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<CAPTION>
Cumulative
March 31, 1995 Six Months March 31, 1995
(Inception) To Ended (Inception)To
June 30, 1996 December 31, 1996 December 31, 1996
(Unaudited) (Unaudited)
<S> <C> <C>
Supplemental schedule of noncash investing
and financing activities:
Issuance of common stock for securities $ 368 $ - $ 368
Issuance of common stock for employment
contracts and prepaid services $ 75 $ - $ 75
Issuance of common stock exchanged
for debt $ 152 $ 440 $ 592
Issuance of common stock and treasury stock
for advances from stockholders $ 1,000 $ - $ 1,000
Issuance of common and treasury stock
for services related to acquisition
of public entity $ 1,014 $ - $ 1,014
Issuance of preferred stock in exchange for
convertible debenture, net of
unamortized debt issuance costs $ - $ 4,829 $ 4,829
Issuance of common stock in exchange for
preferred stock $ - $ 243 $ 243
Purchase of furniture, fixtures and
equipment through reduction in
receivable from related parties $ 22 $ - $ 22
Notes and interest payable to stockholders
forgiven by stockholders, treated as
additional paid-in capital $ - $ 335 $ 335
License and patent cost included in
accounts payable $ 12 $ - $ 12
License and patent cost acquired by issue
of notes payable $ 850 $ - $ 850
Royalty expense used to reduce note and
interest receivable from related parties$ - $ 55 $ 55
Reduction of net proceeds of convertible
debenture for debt discount and
issuance costs $ - $ 2,768 $ 2,768
Additional paid-in capital recognized
through reduction in notes and interest
payable to related parties $ - $ 335 $ 335
Supplemental disclosure of cash
flow information:
Cash paid for interest $ 33 $ 100 $ 133
</TABLE>
The accompanying note are an integral part of the financial statements.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The interim financial data is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting only of normal
recurring adjustments necessary for a fair statement of the results for the
interim periods. The financial statements included herein have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and note disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures included herein
are adequate to make the information presented not misleading. These statements
should be read in conjunction with the Company's Form 10-KSB, as filed with the
Securities and Exchange Commission, for the year ended June 30, 1996.
2. Litigation
On October 7, 1996, Spinteknology, Inc., a wholly owned subsidiary of Spintek
Gaming, Inc., a Georgia corporation which is a wholly owned subsidiary of
Spintek Gaming Technologies, Inc., filed with the United States Patent and
Trademark Office in Washington, D.C., a Communication pursuant to 37 C.F.R.
1.607 to Request an Interference. In this proceeding, Spinteknology is asking
the Patent Office to declare that a conflict exists between its patent
application and a patent issued on July 2, 1996 to the other party to the
proceeding, Bally Gaming International, Inc., and that Spinteknology's patent
rights are superior to those of Bally.
On October 10, 1996, Richard M. Mathis of Reno, Nevada filed a complaint in the
Washoe County, Nevada Second Judicial District Court. Named as defendants are
Spintek Gaming Technologies, Inc. ("Gaming"); Spintek International, Inc.; and
Lanier M. Davenport, who, until October 18, 1996, was Chairman and Chief
Executive Officer of Gaming. In his suit, Mr. Mathis contends that he was
forced by Gaming and Davenport to transfer to Davenport his ownership and
control of Gaming, and that, with Gaming's assistance, Davenport defrauded him,
breached a fiduciary duty to him, and converted assets. Mr. Mathis seeks an
accounting of Gaming's financial affairs and demands actual damages in excess of
$500,000 and punitive damages in excess of $500,000.On January 6, 1997, Gaming
and Spintek International, Inc. filed an answer denying any liability to Mr.
Mathis. The parties will now engage in discovery.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
2. Litigation (continued)
On October 24, 1996, Spintek Gaming Technologies was served with a lawsuit filed
September 25, 1996, in the Clark County, Nevada Judicial District Court by
Unique Entertainment. Unique Entertainment contends that it contracted with
Spintek to provide services of two entertainers, but that Spintek failed to
pay for those services. The amount which Unique Entertainment claims is owed
is $72,750. Spintek timely filed an answer on November 27, 1996, denying
liability. The parties will now engage in discovery.
3. Conversion of Debt to Preferred Shares
On July 16, 1996, the Company issued a $7,143,000, 4% Convertible Debenture
("Debenture") due December 31, 1997. The Debenture, plus any accrued interest,
is convertible into preferred shares of the Company, at the option of the
Company at any time prior to the due date. On August 6, 1996 the Board of
Directors was granted authority by consent of a majority of the stockholders of
the Company to issue up to 100,000 shares of preferred stock. On October 1,
1996, the Company issued 7,202 preferred shares to the Debenture holder in
satisfaction of the $7,143,000 debt as well as approximately $59,000 in accrued
interest on the debt. These preferred shares, 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.
4. Conversion of Preferred Shares to Common Shares
The above referenced preferred shares were to have been converted to common
stock at a price ranging from a minimum of $1 to a maximum of $3 per share.
However, because the Company failed to become listed on the NASDAQ National
Market by November 13, 1996 the conversion price was allowed to fall below the
$1 minimum pursuant to the terms of the Debenture that promulgated the issuance
of the preferred shares. On November 21, 1996 the Company received notice to
convert 360 of the 7,202 preferred shares to 1,113,883 shares of common stock
at an average price $0.325 per share. The conversion price per share was based
on the closing bid price of the common stock for the five days ended November
20, 1996.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
5. Potential Dilution
The remaining 6,842 shares of preferred stock would convert into approximately
13,350,000 shares of common stock of the Company based on the average closing
bid price of the shares of the Company's common stock for the last days of
December, 1996. Had such a conversion occurred, the holder of the preferred
shares would have owned approximately 14,464,000 shares of common stock of the
Company, or just over 57% of the shares that would have been issued and
outstanding based on the actual shares outstanding at December 31, 1996.
6. Potential Stock Split
Pursuant to the terms of the Debenture, because the five-day average bid price
of the common shares of the Company did not attain a value of at least $3.00 per
share by October 13, 1996, the holder of the preferred shares has the right to
cause the Company to effect a reverse split the common shares outstanding of the
Company to attain such a value. As of the date of this document, the Debenture
holder has not caused the Company to reverse split its common stock.
7. Contribution of Shares
On October 18, 1996, Mr. Lanier M. Davenport, Sr. resigned as Chairman of the
Board of Directors and as Chief Executive Officer of the Company. Mr. Davenport
in conjunction with his resignation, contributed 1,300,000 of the shares of
common stock he owned in the Company back to the Company in an effort to enhance
shareholder value. Such contribution of shares has been recorded on the books
of the Company as Treasury Stock at December 31, 1996 with a basis at par value,
or $2,600.
8. Forgiveness of Debt
On December 31, 1996, Malcolm C. Davenport, Jr., a stockholder of the Company
and father of Malcolm C. Davenport V, Director of the Company, and Lanier M.
Davenport, forgave $303,000 of debt in the form of demand notes plus
approximately $7,000 of interest owed to him by the Company, for the benefit
of the Company. Such debt has been reclassified as Additional Paid-In
Capital for book purposes at December 31, 1996.
<PAGE>
ITEM 2. 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 financial statements which include the Company's wholly-owned
subsidiary, Spintek Gaming, Inc. and its wholly-owned subsidiary Spinteknology,
Inc. This plan should be viewed in conjunction with the accompanying financial
statements, including the notes thereto, and the Company's Form 10-KSB, as filed
with the Securities and Exchange Commission, for the year ended June 30, 1996.
Results of Operation
For the six months ended December 31, 1996, the Company incurred net losses of
approximately $2,018,000 and negative cash flows from operating activities of
nearly $2,244,000. Cumulatively, for the twenty-one months from inception
(March 31, 1995) to December 31, 1996, net losses and negative cash flows from
operating activities were approximately $6,956,000 and about $6,171,000,
respectively.
The losses for the six months ended December 31, 1996 reflect expenses related
to continuing product development, the expansion of the Company's shareholder
relations program, and attorneys fees incurred primarily as a result of efforts
related to its patent application. The loss also includes amortization of
approximately $395,000 related to the debt issuance costs of a convertible
debenture issued by the Company, approximately $88,000 for estimated inventory
obsolescence, and nearly $54,000 to extinguish a consulting contract.
Management does not foresee the amortization of debt issuance of a convertible
debenture, nor the extinguishment of consulting contracts through distributions
of lump sums, to be recurring. Therefore, the operating results for the six
months ended December 31, 1996 are not necessarily indicative of the results
that may be expected for the year ending June 30, 1997.
The losses for the twenty-one months ended December 31, 1996 also include
expenses related to the expansion of the Company's marketing program, the
writedown of inventory of approximately $280,000 due to a change in strategic
direction for the Company, and $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.
<PAGE>
Liquidity and Working Capital and Plan of Operation
To date, absent revenue from operations, the Company has funded itself
primarily through equity and debt transactions. On July 16, 1996, the Company
issued a $7,143,000, 4% Convertible Debenture ("Debenture") due December 31,
1997. On October 1, 1996, the Company issued 7,202 preferred shares to the
Debenture holder in satisfaction of the $7,202,000 debt and accrued interest on
the debt. These preferred shares, plus any accrued and unpaid dividends thereon
are convertible into common stock of the Company on or before December 31, 1997.
Such preferred shares were to have been converted to common stock at a price
ranging from a minimum of $1 to a maximum of $3 per share. However, because the
Company failed to become listed on the NASDAQ National Market by November 13,
1996 the conversion price was allowed to fall below the $1 minimum pursuant to
the terms of the Debenture that promulgated the issuance of the preferred
shares. On November 21, 1996 the Company received notice to convert 360 of the
7,202 preferred shares to 1,113,883 shares of common stock at an average price
$0.325 per share. The conversion price per share was based on the closing bid
price of the common stock for the five days ended November 20, 1996.
The remaining 6,842 shares of preferred stock would convert into approximately
13,350,000 shares of common stock of the Company based on the average closing
bid price of the shares of the Company's common stock for the last days of
December, 1996. Had such a conversion occurred, the holder of the preferred
shares would have owned approximately 14,464,000 shares of common stock of the
Company, or just over 57% of the shares that would have been issued and
outstanding based on the actual shares outstanding at December 31, 1996.
Also, pursuant to the terms of the Debenture, because the five-day average bid
price of the common shares of the Company did not attain a value of at least
$3.00 per share by October 13, 1996, the holder of the preferred shares has the
right to cause the Company to effect a reverse split the common shares
outstanding of the Company to attain such a value. As of the date of this
document, the Debenture holder has not caused the Company to reverse split its
common stock.
On October 18, 1996, Mr. Lanier M. Davenport, Sr. resigned as Chairman of the
Board of Directors and as Chief Executive Officer of the Company. Mr. Gary L.
Coulter, Esquire, who has been the Chief Operating Officer and acting Vice
Chairman of the Board of Directors since April 1996, became the Chief Executive
Officer and acting Chairman effective October 18, 1996. Mr. Davenport in
conjunction with his resignation, contributed 1,300,000 of the shares of common
stock he owned in the Company back to the Company in an effort to enhance
shareholder value.
On December 31, 1996, Malcolm C. Davenport, Jr., a stockholder of the Company
and father of Malcolm C. Davenport V, Director of the Company, and Lanier M.
Davenport, forgave $303,000 of debt in the form of demand notes plus
approximately $7,000 of interest owed to him by the Company, for the benefit
of the Company.
<PAGE>
Management is attempting to forge strategic alliances with companies that are
already successful in the gaming industry who are presently looking to enhance
existing products and 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 International Game Technology, Inc. To date, no
sales have taken place to either of these companies, nor can there be any
assurance that the Company will recognize revenues as a result of these
agreements.
During the quarter ended December 31, 1996, the Company completed several
enhancements to its online accounting and auditing software for the ACCUSYSTEM.
In addition, the ACCUSYSTEM was modified to allow data transmission from remote
locations via a telephone modem. Management believes these technological
advancements to the ACCUSYSTEM will make it more appealing, not only in Nevada
but worldwide.
On July 22, 1996, the Company received an order for 600 ACCUSYSTEMS, along
with a substantial deposit, from Americas Gaming International, Inc. ("AGI"), an
international route operator. On October 1, 1996, the Company notified AGI that
the first 300 units of their order were ready to ship, and that the balance of
payment for those units was due and payable upon shipping. However, as of the
date of this document, no product has been shipped and due to the apparent
financial condition of AGI, there can be no assurance that any product will ever
be shipped. During the quarter ended December 31, 1996, the Company sent a
demand notice to AGI for the balance of their order and recognized the deposit
received from them (approximately $75,000) as "Other Income".
The Company currently has its ACCUSYSTEM on trial with a major slot route
operator in Las Vegas and has successfully completed a field trial of the
ACCUSYSTEM for two other route operators. Management believes that the
ongoing trial is proceeding well and that the Company will, more likely than
not, be able to recognize sales as a result of these trials by the end 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.
<PAGE>
The Company incurred approximately $428,000 in research and development
expenses during the six months ended December 31, 1996 and plans to incur
additional research and development expenses of approximately $400,000 over the
next twelve months on both current and new products. The Company expects to
purchase approximately $40,000 in operating equipment over the next twelve
months. The Company currently has 12 full-time employees and expects that it
will employ approximately 20 full-time employees by the end of the next twelve
months.
The Company had cash reserves of approximately $824,000 and a positive working
capital position of approximately $787,000 as of December 31, 1996. However,
based upon current operating projections, and the anticipated cost to produce
and market its products, the Company must secure additional financing before the
end of its fiscal year, June 30, 1997. Management is currently seeking
additional funding. However, there can be no assurances that such additional
financing can be located. Should the Company fail to secure additional
financing, or fail to begin to generate sufficient revenues to support
operations, the Company will be unable to continue as a going concern. While
the Company believes that it has viable prospects for sale and/or licensing of
its product, as of the date of the document, other than the order from AGI and
the license agreements with IGT and SUZO, the Company has no firm orders for its
products. In addition, should extensive litigation be required for either the
Mathis suit or Bally patent issue, or should any of this litigation result in an
unfavorable outcome to the Company, either of these matters could have a
material detrimental effect on the Company.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On October 7, 1996, Spinteknology, Inc., a wholly owned subsidiary of Spintek
Gaming, Inc., a Georgia corporation which is a wholly owned subsidiary of
Spintek Gaming Technologies, Inc., filed with the United States Patent and
Trademark Office in Washington, D.C., a Communication pursuant to 37 C.F.R.
1.607 to Request an Interference. In this proceeding, Spinteknology is asking
the Patent Office to declare that a conflict exists between its patent
application and a patent issued on July 2, 1996 to the other party to the
proceeding, Bally Gaming International, Inc., and that Spinteknology's patent
rights are superior to those of Bally.
<PAGE>
On October 10, 1996, Richard M. Mathis of Reno, Nevada filed a complaint in the
Washoe County, Nevada Second Judicial District Court. Named as defendants are
Spintek Gaming Technologies, Inc. ("Gaming"); Spintek International, Inc.; and
Lanier M. Davenport, who, until October 18, 1996, was Chairman and Chief
Executive Officer of Gaming. In his suit, Mr. Mathis contends that he was
forced by Gaming and Davenport to transfer to Davenport his ownership and
control of Gaming, and that, with Gaming's assistance, Davenport defrauded him,
breached a fiduciary duty to him, and converted assets. Mr. Mathis seeks an
accounting of Gaming's financial affairs and demands actual damages in excess
of $500,000 and punitive damages in excess of $500,000. On January 6, 1997,
Gaming and Spintek International, Inc. filed an answer denying any liability to
Mr. Mathis. The parties will now engage in discovery.
On October 24, 1996, Spintek Gaming Technologies was served with a lawsuit filed
September 25, 1996, in the Clark County, Nevada Judicial District Court by
Unique Entertainment. Unique Entertainment contends that it contracted with
Spintek to provide services of two entertainers, but that Spintek failed to
pay for those services. The amount which Unique Entertainment claims is owed
is $72,750. Spintek timely filed an answer on November 27, 1996, denying
liability. The parties will now engage in discovery.
ITEM 2. Changes in Securities
Not applicable
ITEM 3. Defaults upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on December 10, 1996,
the following individuals were elected to the Board of Directors:
Votes For Votes Withheld
Gary L. Coulter 7,753,991 288,223
Malcolm C. Davenport V 7,739,340 302,874
Michael D. Fort 7,753,951 288,223
<PAGE>
The following proposals were approved at the Company's Annual Meeting:
Votes For Against Abstain Not Voted
1. Ratify the Company's 1996
stock Option Plan and grant
of options to Gary L. Coulter
and Robert E. Huggins 6,215,933 425,789 20,689 1,379,803
2. Ratify the selection of Joseph
Decosimo & Company as the
independent public accountants
for the fiscal year ended
June 30, 1997. 7,922,365 106,849 13,000
ITEM 5. Other Information
On October 1, 1996, the Company issued 7,202 preferred shares to the Debenture
holder in satisfaction of the $7,202,000 debt and accrued interest on the debt.
These preferred shares, plus any accrued and unpaid dividends thereon are
convertible into common stock of the Company on or before December 31, 1997.
Such preferred shares were to have been converted to common stock at a price
ranging from a minimum of $1 to a maximum of $3 per share. However, because the
Company failed to become listed on the NASDAQ National Market by November 13,
1996 the conversion price was allowed to fall below the $1 minimum pursuant to
the terms of the Debenture that promulgated the issuance of the preferred
shares.
On November 21, 1996, the Company received notice that the holder of its
preferred shares (the "Holder") was exercising its right to convert 3,601 of
its 7,202 preferred shares in Spintek into common shares of the Company. Such
conversion would have resulted in a change of control in the Company, since it
would have resulted in the Holder owning in excess of 50% of the common shares
issued and outstanding. Pursuant to which, Messrs. Coulter, Chairman and Chief
Executive Officer, Huggins, Chief Financial Officer, and Fort, Director and an
officer of the Company, exercised the change-of-control provision in their
respective employment contracts, thereby terminating each of them and entitling
each to two year's salary ($240,000) as severance. However, prior to any
common shares being issued, the Holder rescinded its notice and sent a
subsequent notice, also dated November 21, 1996, exercising its right to
convert 360 of its 7,202 preferred shares (5%) into common shares. Such
conversion resulted in the issuance of 1,113,883 shares of the common stock of
the Company, or approximately 10.25% of the issued and outstanding common
shares. See Note 4 of the Notes to Consolidated Financial Statements.
<PAGE>
Since the Holder decided to rescind its original notice to convert before any
common shares had issued, Management determined that a change-in-control did not
occur. Messrs. Coulter and Huggins, therfor rescinded their resignations and
agreed to return the $240,000 advanced to them as severance pay. Mr. Fort did
not rescind his resignation in writing, but continued to serve as a Director and
an officer and ran for and was reelected, as a Director at the Company's annual
meeting on December 10, 1996. Nevertheless, he did not agree to, and has not
returned the $240,000 advanced to him. The Company has insisted on several
occasions that Mr. Fort agree to return the $240,000. The Company believes
that it is entitled to a return of the money and that Mr. Fort is obligated to
return it. The $240,000 has been classified as a current receivable at December
31, 1996 on the Company's balance sheet. Since Management believes that a
change of control did not take place, it is of the opinion that the Company is
entitled to the return of Mr. Fort's advance and intends to make every legal
effort to retrieve the money.
On February 7, 1997, Mr. Fort resigned from his position as an officer and
Director of the Company.
As described above, on November 21, 1996 the Company received notice to
convert 360 of the 7,202 preferred shares to 1,113,883 shares of common stock at
an average price $0.325 per share. The conversion price per share was based on
the closing bid price of the common stock for the five days ended November 20,
1996.
The remaining 6,842 shares of preferred stock would convert into approximately
13,350,000 shares of common stock of the Company based on the average closing
bid price of the shares of the Company's common stock for the last days of
December, 1996. Had such a conversion occurred, the holder of the preferred
shares would have owned approximately 14,464,000 shares of common stock of the
Company, or just over 57% of the shares that would have been issued and
outstanding based on the actual shares outstanding at December 31, 1996.
Also, pursuant to the terms of the Debenture, because the five-day average bid
price of the common shares of the Company did not attain a value of $3.00 per
share or above by October 13, 1996, the holder of the preferred shares has the
right to cause the Company to effect a reverse split the common shares
outstanding of the Company to attain such a value. As of the date of this
document, the Debenture holder has not caused the Company to reverse split its
common stock.
<PAGE>
On October 18, 1996, Mr. Lanier M. Davenport resigned as Chairman of the Board
of Directors and as Chief Executive Officer of the Company. Mr. Gary L.
Coulter, Esquire, who has been the Chief Operating Officer and acting Vice
Chairman of the Board of Directors since April 1996, became the Chief Executive
Officer and acting Chairman effective October 18, 1996.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December
31, 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/ GARY L. COULTER
Date: February 7, 1997 Gary L. Coulter
Chairman of the Board,
Chief Executive Officer
Principal Executive Officer)
By: /S/ ROBERT E. HUGGINS
Date: February 7, 1997 Robert E. Huggins
Chief Financial Officer
(Principal Financial
and Accounting Officer)
By: /S/ MALCOLM C. DAVENPORT V
Date: February 7, 1997 Malcolm C. Davenport
Director
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