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 March 31, 1998
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 of incorporation or organization) (IRS Employer Identification No.)
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 May 1,
1998 was 17,672,365.
<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 Sheets at March 31, 1998
and June 30, 1997 3
Consolidated Statements of Operations -
Three Months Ended March 31, 1998,
Nine Months Ended March 31, 1998 and
From Inception to March 31, 1998 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998
Nine Months Ended March 31, 1998 and
From Inception to March 31, 1998 5
Notes to Financial Statements 7
Item 2. Plan of Operation 8
PART II. OTHER INFORMATION 13
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 14
Item 3. Defaults on Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signature Page 16
<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)
MARCH 31, JUNE 30,
1998 1997
(unaudited)
ASSETS
Current assets:
Cash $ 306 $ 404
Prepaid and other 246 190
Inventories, net 539 484
Total current assets 1,091 1,078
Furniture, fixtures and equipment - net 165 131
Licenses and patents 1,019 1,019
Note receivable from related company 12 88
Other assets 27 141
Total assets $ 2,314 $ 2,457
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Demand notes payable $ 162
Demand notes payable to stockholders
and affiliated parties 170 $ 334
Accounts payable 607 426
Accrued liabilities 571 129
Interest and dividends payable 453 193
Total current Liabilities 1,963 1,082
Long term debt less current maturities 1,000
Commitments
Stockholders' equity (deficit):
Preferred stock, no par value, 100,000 shares
authorized, 8,741 and7,313 shares issued
and outstanding at March 31, 1998 and
June 30, 1997, respectively 5,690 4,825
Common stock, $.002 par value, 100,000,000
shares authorized, 18,704,652 and
17,103,772 shares issued at March 31, 1997
and June 30, 1997, respectively 37 34
Additional paid in capital 5,443 5,053
Deficit accumulated during development stage (11,790) (8,508)
Treasury stock - 1,317,329 shares at cost
March 31, 1998 and June 30, 1997 ( 29) ( 29)
Total stockholders' equity (deficit) ( 649) 1,375
Total liabilities and stockholders' equity (deficit) $ 2,314 $ 2,457
<PAGE>
<TABLE>
SPINTEK GAMING TECHNOLOGIES, INC.
(a development stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<CAPTION> Cumulative
Three Months Ended Nine Months Ended March 31, 1995
March 31, March 31, (Inception) to
1997 1998 1997 1998 March 31, 1998
<S> <C> <C> <C> <C> <C>
Revenues:
Sales $ 0 $ 180 $ 0 $ 180 $ 180
Cost of sales 0 ( 103) 0 ( 103) ( 103)
Gross profit 0 77 0 77 77
Operating expenses:
Selling, general & administrative 565 968 1,758 2,601 8,523
Research and development 187 257 614 697 2,584
Total expenses 752 1,225 2,372 3,298 11,108
Operating Loss ( 752) (1,148) (2,372) (3,221) (11,031)
Other income (expense):
Interest and other income 6 4 133 9 171
Depreciation & amortization ( 7) ( 14) ( 20) ( 34) ( 72)
Unrealized loss on marketable securities 0 0 0 0 ( 83)
Loss on sale of securities 0 0 0 0 ( 96)
Interest expense ( 11) ( 15) ( 523) ( 36) ( 679)
Net loss $ ( 764) $ (1,173) $ (2,782) $ (3,282) $ (11,790)
Net loss per share common stock $ ( 0.08) $ ( 0.07) $ ( 0.27) $ ( 0.21) $ ( 1.02)
Weighted Average Common
Shares Outstanding 10,866,785 17,365,101 10,989,494 16,765,123 12,026,348
</TABLE>
<PAGE>
<TABLE>
SPINTEK GAMING TECHNOLOGIES, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION> Cumulative
Nine Months Nine Months March 31, 1995
Ended Ended (Inception) to
March 31, 1997 March 31, 1998 March 31, 1998
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,782) $ (3,282) $ (11,790)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 19 33 71
Non-cash interest expense 476 395
Allowance for inventory obsolescence 155 64 304
Provision for bad debts 81 39 99
Loss on sale of securities 96
Unrealized loss on marketable securities 83
Non-cash operating expenses for common stock 21 27 624
Royalty expenses used to reduce note
receivable from related parties ( 17) 76 152
Changes in operating
assets and liabilities:
Decrease (increase) in assets:
Inventories ( 229) (119) (842)
Prepaid and other ( 447) 19 (373)
Increase (decrease) in liabilities:
Accounts payable 1 182 596
Accrued liabilities ( 87) 442 571
Interest payable 67 14 19
Net cash used by operating activities ( 2,742) (2,505) (9,995)
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment ( 55) (67) (214)
Acquisition of licenses and patents (158)
Proceeds from sale of securities 186
Note receivable from related company ( 4) (186)
Net cash used by investing activities ( 59) (67) (372)
Cash flows from financing activities:
Proceeds from (repayment of) demand notes
payable to related parties ( 1,085) 499 832
Proceeds-advances from stockholders ( 967) 1,000
Proceeds from issuance ofconvertible debentures 4,247 1,000 5,503
Proceeds from issuance of common and treasury stock 653 1,483
Proceeds from issuance of preferred stock 975 1,855
Net cash provided by financing activities 2,848 2,474 10,673
Net increase (decrease) in cash 47 ( 98) 306
Cash, beginning of period 121 404 0
Cash, end of period $ 168 $ 306 $ 306
</TABLE>
<PAGE>
<TABLE>
SPINTEK GAMING TECHNOLOGIES, INC.
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<CAPTION> Cumulative
Nine Months Nine Months March 31, 1995
Ended Ended (Inception) to
March 31, 1997 March 31, 1998 March 31, 1998
<S> <C> <C> <C>
Supplemental schedule of non-cash investing
and financing activities:
Issuance of common stock for marketable securities $ 365
Issuance of common stock for employment contracts
and prepaid services 75
Issuance of common stock exchanged for debt $ 440 $ 500 1,092
Issuance of common stock and treasury stock for
advances from stockholders 1,000
Issuance of common stock and treasury stock for
services related to acquisition of public entity 1,014
Issuance of common stock in lieu of cash for fees
related to preferred stock transaction 110 110
Issuance of preferred stock in exchange for convertible
debenture, net of unamortized debt issuance costs 4,829 4,829
Issuance of common stock exchanged for preferred stock 243 912
Purchase of furniture, fixtures and eqipment through
reduction in receivable from related parties 22
Notes and interest payable to stockholders forgiven by
stockholders, treated as additional paidin capital 335 335
License and patent cost acquired through accounts payable 12
License and patent cost acquired by issuance of notes
payable 850
Dividends payable preferred stock ( 138) ( 245) ( 433)
Supplemental disclosure of cash flow information:
Cash paid for interest $ 110 $ 22 $ 175
</TABLE>
<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 Spintek Gaming Technologies, Inc. ("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 amended and filed
with the Securities and Exchange Commission, for the year ended June 30,
1997.
2. Patents, Licenses and Royalty Agreements
In addition to its patent filings for the basic hopper weighing technology,
Spinteknology has filed and/or is in the process of filing additional
continuances, addendums and associated patents both in the United States as
well as internationally. Spinteknology has been advised that its patent
applications pending in Europe for its hopper weighing technology may
conflict in five European countries with patent applications filed by Azkoyen,
a Spanish company. Management has had discussions with Azkoyen in an
attempt to resolve this matter to the mutual benefit of both parties. Although
Management believes the Company's claims are valid and intends to
vigorously assert its rights, it is unable to estimate the outcome of any
potential proceedings regarding this matter nor the ultimate financial effect
it might have on the Company.
<PAGE>
PLAN OF OPERATION
The Company's business plan specifies that the Company develop proprietary
technology, patent such technology and obtain all necessary approvals and/or
licenses for same. Due to the Company's current capital position,
Management has chosen to focus the Company's immediate efforts on
products specifically related to the gaming industry. Until sales of the slot
machine hopper weighing technology ("AccuSystem" or "AccuHopper")
begin to generate positive cash flow from sales, Management does not intend
to commit significant financial resources to the non-gaming products it
currently has under development.
During the past several months the Company has perfected its AccuSystem
products through a series of field tests at numerous casinos throughout the
country. The Company has also obtained approval for AccuSystem from
several of the major gaming jurisdictions in the United States. As of April
30, 1998 the Company had received AccuSystem approval from Gaming
Laboratories International and from the states of Nevada, Mississippi, New
Jersey and from Native American tribal gaming authorities in the states of
Connecticut and Minnesota.
Although the AccuHopper is capable of operating on a stand alone basis,
either by means of hard wire or radio frequency transmission of data, many of
the casinos participating in the field tests of the system have indicated that
they would prefer to have it interface with their existing slot accounting
systems. Bally SDS, a major slot accounting software manufacturer, has
agreed to complete an interface to allow the data received from the
AccuHopper to be incorporated into their accounting reports. Bally SDS
completed the interface before the end of April 1998 and an "alpha test" of the
product should commence in July 1998. Management is also currently in
discussions with other slot accounting software vendors who have expressed
an interest in completing an interface for their on-line accounting systems
with AccuHopper. Although Management is unable to control when, or if, the
completion of such interface projects will occur, it does believe that the
first companies to offer the interface will have a competitive advantage in
marketing their slot accounting systems.
The Company has license agreements with IGT and Bally Gaming, two major
slot machine manufacturing companies, that permits them to incorporate the
AccuHopper technology on their new machines. Any new machines sold by
them which incorporates the AccuHopper technology would require a license
fee payment to the Company. To date, however, neither company has
included AccuSystem or AccuHopper on any of their products. It is
Management's intent to create market demand for AccuHopper through the
field tests and low entry prices on the initial sales of the product. To date
three of the field tests have resulted in sales. Management believes that once
the Company has created a demand for its product, that IGT and Bally will
begin to receive orders from the various casinos who have purchased, or will
be purchasing AccuHopper.
Employees. The Company has recently hired additional service and
installation support staff personnel to assist with the ongoing field tests and
to undergo training to be ready for the sales that are anticipated to
consummated during the fourth quarter of fiscal 1998 and the first quarter of
fiscal 1999. The Company currently has 31 full time employees and, assuming
sales materialize as expected, anticipates that it will have thirty-five full
time employees by June 30, 1998.
Gross Margins on Initial Sales. Management has offered a discount from the
listed sales price for the AccuHopper to those casinos who have assisted the
Company in perfecting AccuHopper through field tests and to a few other
casinos who have indicated they may be willing to be one of the first to
purchase the Company's product. As a result of the aforementioned discounts
coupled with the higher initial cost of product due to the initial relatively
small quantities of inventory ordered, the Company will undoubtedly recognize a
smaller gross margin on its first few sales than can be expected on future
sales. As sales volume increases, Management expects that the cost of its
products will decrease as a result of anticipated volume discounts expected to
be received from the Company's suppliers.
Research and Development. Until significant sales of the AccuHopper begin
and are sustained, Management does not intend to commit significant
financial resources toward the research and development of the many non-
gaming products it currently has pending. During the past nine months the
Company has enhanced its engineering staff to continue to develop products
that enhance and/or augment the AccuHopper. The Company will continue
to file patent applications both domestically and worldwide as necessary to
protect any and all new products developed. Based on current engineering
operating forecasts Management anticipates that it will expend approximately
$350,000 and $750,000, respectively during the remaining three months of
fiscal 1998 and the first nine months of fiscal 1999 towards research and
development.
Results of Operation
From inception (March 31, 1995) to date, the Company has realized minimal
revenue from the sale of its products. It recorded its first sale during the
quarter ended March 31, 1998 and currently has received purchase orders
from two additional casinos for just over one thousand AccuHoppers. For the
nine months ended March 31, 1998, the Company incurred net losses of
approximately $3,282,000 and negative cash flows from operating activities
of nearly $2,505,000, as compared to net losses of approximately $2,782,000
and negative cash flow from operations of about $2,742,000 for the nine
months ended March 31, 1997. Cumulatively, for the thirty-six months from
inception to March 31, 1998 net losses and negative cash flows from
operating activities were approximately $11,031,000 and about $9,995,000,
respectively.
For the nine months ended March 31, 1998, operating expenses increased
approximately $926,000, or (39%) as compared to the same period for the
prior year. Additional expenses incurred for General and Administrative ("S
G & A") accounted for majority of approximately 91% of the increase with
Research and Development accounting for the remaining 9%.
The increase in S G & A expenses was due to several factors, primary among
them was payroll and related expenses which increased approximately
$233,000, or 62.1% for the comparative periods. Such increase was due
primarily to added staff to support the Company's ongoing field tests and
additional administrative support personnel The next largest increase in S G
& A was attributable to legal and professional fees which increased
approximately $205,000, or 41.5% over the same period from the prior year
due to additional legal expenses that were incurred in conjunction with the
Company's various financing transactions; legal expenses incurred as a result
of the Company's Joint Venture with an Australian company; and, finally
additional expenses incurred for various litigation. The Company's bonus
plan, which was implemented in June 1997 and accounted for the next largest
S G & A increase over the prior period, was attributable for approximately
$189,000 of the increase as a result of accrued expenses that were based on
the increase in the market cap of the Company's common stock from July 1,
1997 through March 31, 1998. Increases in travel, trade show and advertising
expense made up most of the remainder of the increase in S G & A expenses
for the comparative periods.
The increase in Research and Development expenses was primarily
attributable to an increase in payroll and related expenses of approximately
$237,000, or 96.7% for the comparative periods due primarily to added
engineering staff to develop the Company's gaming related products. The
added payroll expense was partially offset by decreased expenses for
development of new products for the comparative periods as well as a
decrease of approximately $85,000 for inventory obsolescence for the nine
months ended March 1998 as compared to the nine months ended March
1997. The reduction other research and development expenses as well as in
inventory obsolescence was primarily attributable to Management's efforts to
perfect a single product, its hopper weighing technology, in fiscal 1998;
whereas, in fiscal 1997 the Company was pursuing the development of several
different products, many of which were ultimately not practical to commit the
financial resources to complete.
Interest expense decreased by approximately $487,000 for the nine months
ended March 31, 1998 when compared to the nine months ended March 31,
1997. Such decrease was primarily the result of the elimination of
amortization of debt discount and issuance costs as a result of the debenture
issued by the Company on July 16, 1996 having been converted to preferred
stock on October 1, 1996. The Company incurred approximately $395,000
in interest expense as a result of debt discount and issuance costs during the
nine months ended March 31, 1997
Liquidity and Working Capital
The Company had a negative working capital position of approximately
$872,000 as of March 31, 1998, and to date, absent significant revenue from
operations, has funded itself primarily through equity and debt transactions.
On August 14, 1997, the Malcolm C. Davenport V Family Trust ("the Trust")
agreed to loan an additional $500,000 to Spinteknology, to be drawn as
needed pursuant to an understanding with the trustees. The loan was secured
by a pledge of the Company's weighing technology and as of September 30,
1997, the Company had drawn down the entire $500,000. On October 1,
1997, the Trust elected to convert the note, plus accrued interest of
approximately $4,000 thereon, into 1,400,880 shares of the Company's
$0.002 par value common stock. The conversion price of $0.36 per share
reflects a 32% discount from the closing price of $0.53 per share on October
1, 1997. The shares issued as a result of this conversion were issued at a
discount because they are not registered, were issued with a restrictive
legend and the Trust can not currently sell these shares in the market.
On October 22, 1997, the Company completed a Regulation S Securities
Subscription Agreement ("Agreement") for 1,428 shares of its 4% Series A
Preferred Stock ("Preferred") in the aggregate amount of $1,428,000 with
RBB Bank Aktiengesellschaft ("RBB"), an offshore bank representing
investors pursuant to Regulation S promulgated under the Act. The Preferred
was issued at a discount of 30%, the net proceeds of which, after discount
and before expenses, was $1,000,000 to the Company.
Expenses incurred in conjunction with the placement of the Preferred totaled
$134,000, which consisted solely of commissions of $110,000 and escrow
fees of $24,000. The Company elected to pay the commissions by issuing
200,000 shares of its $0.002 par value common stock which bears a restrictive
legend.
At March 31, 1998, there were 8,741 issued and outstanding shares of
Preferred, all of which were in held by RBB. All Preferred plus any accrued
and unpaid dividends thereon can be converted to common stock at any time
at the discretion of RBB and any Preferred not converted prior to December
31, 1999 will automatically be converted on that date. The conversion to
common stock will be based on an average of the closing bid prices of the
common stock for the five days ended immediately prior to the date of
conversion, but not to exceed $3 per share. All common stock issued upon
conversion of the Preferred is subject to Registration Rights Agreements.
On May 1, 1998 the Company received a Notice of Conversion
("Conversion") to convert 500 shares of the Preferred from RBB. Such
Conversion will result in RBB receiving 1,000,690 new shares of the
Company's common stock, par value $0.002 per share and will increase the
total shares of Common outstanding to 18,673,055 shares. The Conversion
price is based on the five day average closing bid price of the common stock
for the five days ended April 30, 1998. Upon the issuance of the new shares
of common stock to RBB, it will be the holder of approximately 1,154,000
shares of Common, or approximately 6.2% of the total outstanding shares.
As of May 11, 1998, RBB held 8,241 shares of Preferred. The Preferred plus
accrued and unpaid dividends of approximately $440,000 at that date would
have converted into approximately 15,841,000 additional 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 five trading days ended May 8, 1998.
Had such a conversion occurred, RBB would have held approximately
16,095,000 shares of common stock of the Company, or approximately 46.6%
of the common shares that would have been issued and outstanding had such
a conversion occurred.
RBB, the holder of the Preferred, has the right to cause the Company to effect
a reverse split of the common stock outstanding of the Company since the
five-day average bid price of such stock did not attain a value of at least
$3.00 per share by October 13, 1996 pursuant to the terms and conditions of
Subscription Agreement entered into by it and the Company on July 16,
1996. As of the date of this document, the holder has not caused the
Company to reverse split its common stock.
On February 27, 1998, the Company initiated the private placement of certain
6% Secured Convertible Notes due February 28, 2008 (the "Notes") in the
aggregate principal amount of a maximum of $5 million to a limited number
of investors. The Notes are due February 28, 2008, with interest payable
annually beginning February 28, 1999. The Notes are being sold in
denominations of $100,000 (a "Unit"), with consideration payable at the time
of the subscription. The Notes are convertible by the Holders at any time
through February 28, 2001, into shares of the Company's $.002 par value
common stock in a number equal to .8% per Unit of the then outstanding
shares of common stock. In addition, the Company may require conversion
at certain times through February 28, 2001 under certain circumstances. As
of March 31, 1998, the Company had received subscriptions for the Notes
totaling $1 million from the Malcolm C. Davenport V, Family Trust. Malcolm C.
Davenport, a director of the Company, is a co-trustee and has certain
beneficial control of the Trust, though no economic interest. As of May 11,
1998 the total subscriptions for the Notes totaled $2 million with the Trust
having subscribed for $1.9 million of that total. The remaining investor is
unrelated to the Company.
Even with the receipt of the funds from the debt and equity financing
described above, the projected cost to finish production of its weighing
technology, combined with the lead time before cash flow will begin to be
received from anticipated sales, dictates that the Company secure the
availability of additional debt or equity financing. Management is negotiating
with other sources to secure additional funding through additional
subscriptions to the Notes, however there can be no assurances that additional
financing can be located. If such financing is obtained it could involve the
issuance of additional stock in the Company, or the rights to purchase
additional stock in the Company. The percentage ownership in the Company
such stock would represent is unknown at this time. 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. In addition, should extensive litigation be required for any of
the current pending matters (see Part II, Item 1 Legal Proceedings), or should
any of these proceedings 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 September 25, 1996, Unique Entertainment, a Nevada Corporation, filed
a complaint in the Clark County (Las Vegas), Nevada District Court against
Spintek for breach of contract and related claims. The plaintiff is an
entertainment agency. It alleges that on November 22, 1995, Spintek entered
into a written contract with Unique Entertainment whereby the agency agreed
to provide two magicians to perform on Spintek's behalf at various gaming
shows for a total of $80,000. The magicians never in fact performed. Spintek
has filed an answer denying liability, specifically asserting that no Spintek
agent or employee signed the contract and no such signature was or would
even have been authorized by the Company. Spintek further contends that
because the magicians never in fact performed, its liability, if any, would be
extremely limited, and not the full contract price which the plaintiff seeks.
To date, the plaintiff has conducted virtually no discovery and has done little
to pursue the case. It is anticipated that the case will be tried within the
next six months.
On October 10, 1996, Richard M. Mathis of Reno, Nevada filed a complaint
in the Washoe County (Reno), Nevada District Court against Spintek; Spintek
International, Inc. ("International"); and Lanier M. Davenport, who, until
October 18, 1996, was Chairman and Chief Executive Officer of the Company
and is still the beneficial owner of more than 5% of the Company's common
stock. In his suit, Mr. Mathis contends that he was forced by the Company
and Davenport to transfer to Davenport his ownership and control of the
Company, and that, with the Company's assistance, Davenport defrauded him,
breached fiduciary affairs and demands actual damages in excess of $500,000
and punitive damages in excess of $500,000. On January 6, 1997, the
Company and International filed an answer denying any liability to Mr.
Mathis. On August 26, 1997, the Company and International filed a motion
to dismiss, which is currently pending before the Court. A ruling on the
motion is expected within three months. If the motion is denied, the Company
intends to file a motion for summary judgement.
On February 14, 1997, the Company filed a complaint in the Clark County
(Las Vegas), Nevada, Eighth Judicial District Court, against Michael D. Fort,
a former officer and director of the Company, who resigned on February 7,
1997. The complaint claims that Mr. Fort must return $240,000 to Spintek
that was paid to him in anticipation of a change of control in the Company
that did not actually occur. Mr. Fort filed an answer denying liability. Mr.
Fort also has filed counterclaims that he be entitled to keep the $240,000 at
issue. The parties are presently engaged in discovery. The Court has made a
preliminary trial setting for September 1998.
The Company has filed suit against Sailfin Investments, Ltd. ("Sailfin"), a
corporation organized under the laws of the Channel Islands, seeking a
declaratory judgement that the Company has already paid Sailfin in full for
services rendered in accordance with the terms of a consulting services
agreement. The Company also seeks to force Sailfin to return certain shares
of the Company's common stock that were paid to Sailfin in accordance with
the terms of the agreement on the grounds that the services performed were
so inadequate, that a failure of consideration occurred entitling the Company
to a return of the stock. In the alternative, the Company alleges that
Sailfin's inadequate and substandard performance of its obligations under the
agreement constitute a breach of contract and entitle the Company to recover
the damages it suffered as a result of said breach. Sailfin has answered the
Complaint and denied liability. Sailfin has also filed a counterclaim seeking
to force the Company, and its transfer agent, to remove the restrictive legend
from its shares of the Company's common stock, or seeking damages in the
alternative. The Company has added Mr. Fort and Mr. James Hennen, a
former officer of the Company, as additional defendants, because they issued
the Company stock pursuant to certain alleged agreements cancelled on the
grounds, among other things, that there was no proper corporate authority for
the issuance of such stock as well as no consideration therefor. The parties
are engaged in discovery in this case.
In a related matter, Sailfin has demanded arbitration with the Company and
Spinteknology, Inc. alleging that the Company and Spinteknology, Inc. have
breached a Technology Assignment Agreement by failing to pay royalties for
sales of input/output board technology and seeking unspecified damages. The
Company and Spinteknology has denied that the input/output board
technology was ever developed or that the input/output board technology was
marketable. They have also denied making any sales of the technology.
Spinteknology has asserted a counterclaim to the arbitration demand against
Sailfin for failing to produce a workable input/output board technology, and
seeks to recover presently unspecified damages. The parties will probably
begin discovery in June 1998.
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
Not applicable
ITEM 5. Other Information
On February 27, 1998, the Company initiated the private placement of certain 6%
Secured Convertible Notes due February 28, 2008 in the aggregate principal
amount of a maximum of $5 million to a limited number of investors. The Notes
are due February 28, 2008, with interest payable annually beginning February
28, 1999. The Notes are being sold in denominations of $100,000, with
consideration payable at the time of the subscription. The Notes are
convertible by the Holders at any time through February 28, 2001, into shares
of the Company's $.002 par value common stock in a number equal to .8% per Unit
of the then outstanding shares of common stock. In addition, the Company may
require conversion at certain times through February 28, 2001 under certain
circumstances.
As of April 30, 1998, the Company has received subscriptions for the Notes
totalling $2.0 million, $1.9 million of which is from the Malcolm C.
Davenport V, Family Trust. Malcolm C. Davenport, a director of the Company, is
a co-trustee and has certain beneficial control of the Trust, though no
economic interest. The remaining investor is unrelated to the Company.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Computation of earnings per share
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 1998.
<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: May 14, 1998 Gary L. Coulter
Chairman of the Board,
Chief Executive Officer
(Principal Executive Officer)
By: /s/ ROBERT E. HUGGINS
Date: May 14, 1998 Robert E. Huggins
Senior Vice President,
Chief Financial Officer
(Principal Financial
and Accounting Officer)
By: /s/ MALCOLM C. DAVENPORT, V
Date: May 14, 1998 Malcolm C. Davenport V
Director
By: /s/ PATRICK W. MCGRATH
Date: May 14, 1998 Patrick W. McGrath
Director
<PAGE>
<TABLE>
<CAPTION> Cumulative
Three Months Ended Nine Months Ended March 31,1995
March 31, March 31, (Inception)To
1997 1998 1997 1998 March 31, 1998
<S>
Computation of Loss Per Share <C> <C> <C> <C> <C>
Net loss $ ( 764) $ ( 1,173) $ ( 2,782) $ ( 3,282) $ ( 11,790)
Preferred Stock Dividends ( 67) ( 86) ( 138) ( 245) ( 433)
Net Loss with Preferred Stock
Dividends $ ( 831) $ ( 1,259) $ ( 2,920) $ ( 3,527) $ ( 12,223)
Loss Per Share $ (0.08) $ (0.07) $ (0.27) $ (0.21) $ (1.02)
Weighted Average Common
Shares Outstanding 10,866,785 17,365,101 10,989,494 16,765,123 12,026,348
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998
<PERIOD-END> MAR-31-1998 MAR-31-1998
<CASH> 306 306
<SECURITIES> 0 0
<RECEIVABLES> 73 73
<ALLOWANCES> 0 0
<INVENTORY> 539 539
<CURRENT-ASSETS> 1091 1091
<PP&E> 236 236
<DEPRECIATION> 71 71
<TOTAL-ASSETS> 2314 2314
<CURRENT-LIABILITIES> 1963 1963
<BONDS> 0 0
5690 5690
0 0
<COMMON> 37 37
<OTHER-SE> (6376) (6376)
<TOTAL-LIABILITY-AND-EQUITY> 2314 2314
<SALES> 180 180
<TOTAL-REVENUES> 180 180
<CGS> 103 103
<TOTAL-COSTS> 103 103
<OTHER-EXPENSES> 1225 3298
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 15 36
<INCOME-PRETAX> (1173) (3282)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1173) (3282)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1173) (1173)
<EPS-PRIMARY> (0.07) (0.21)
<EPS-DILUTED> (0.07) (0.21)
</TABLE>
