UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1999
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OR
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission file number 0-27226
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SPINTEK GAMING TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 33-0134823
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1857 Helm Drive, Las Vegas, Nevada 89119
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(Address of principal executive offices) (Zip Code)
(702) 263-3660
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the issuer (1) filed all reports to be
filed by Section 13 or 15(d) of the Exchange Act of 1934 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
142,147,549 shares of Common Stock, $0.002 par value as of May 6, 1999
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SPINTEK GAMING TECHNOLOGIES, INC.
FORM 10-QSB
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1999 and June 30, 1998 3
Consolidated Statements of Operations for the Three Months and Nine
Months Ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows for the Nine Months Ended
March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE PAGE 14
EXHIBIT INDEX 15
2
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SPINTEK GAMING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
March 31, June 30,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash ........................................................ $ 1,059 $ 500
Accounts receivable, net .................................... 891 229
Prepaid and other current assets ............................ 717 46
Inventories, net ............................................ 1,785 679
-------- --------
Total current assets ...................................... 4,452 1,454
Furniture, fixtures and equipment, net ........................ 265 144
Licenses and patents .......................................... 975 1,019
Other assets .................................................. 100 126
-------- --------
Total assets .................................................. $ 5,792 $ 2,743
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable ............................................ $ 1,220 $ 852
Demand notes payable to stockholder and affiliates .......... 850 190
Accrued liabilities ......................................... 1,352 640
Accrued interest ............................................ 163 53
Customer deposits ........................................... 1,404 247
Accrued conversion preference ............................... 732 485
-------- --------
Total current liabilities ................................. 5,721 2,467
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Long-term debt ................................................ 5,000 2,350
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Stockholders' deficit:
Convertible preferred stock, no par value, 100,000 shares
authorized, 8,241 shares issued and outstanding ........... 5,355 5,355
Common stock, $.002 par value, 100,000,000 shares authorized,
20,111,322 and 19,990,384 shares issued and outstanding ... 40 40
Additional paid-in capital .................................. 5,635 5,855
Accumulated deficit ......................................... (15,930) (13,295)
Treasury stock, 1,317,329 shares, at cost ................... (29) (29)
-------- --------
Total stockholders' deficit ............................... (4,929) (2,074)
-------- --------
Total liabilities and stockholders' deficit ................... $ 5,792 $ 2,743
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
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SPINTEK GAMING TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales .............................................. $ 1,041 $ 180 $ 3,050 $ 180
Cost of sales ...................................... 572 103 1,693 103
-------- -------- -------- --------
Gross profit ..................................... 469 77 1,357 77
Selling, general and administrative expenses ....... 1,477 968 3,512 2,601
Research and development expense ................... 40 257 204 697
-------- -------- -------- --------
Operating loss ................................... (1,048) (1,148) (2,359) (3,221)
Other income (expense):
Interest income .................................. 9 4 43 9
Depreciation and amortization .................... (52) (14) (90) (34)
Interest expense ................................. (94) (15) (229) (36)
-------- -------- -------- --------
Net loss ........................................... (1,185) (1,173) (2,635) (3,282)
Conversion preference of convertible preferred stock (81) (86) (247) (245)
-------- -------- -------- --------
Net loss applicable to common shares ............... $ (1,266) $ (1,259) $ (2,882) $ (3,527)
======== ======== ======== ========
Loss per common share information:
Weighted average common shares:
Basic .......................................... 18,795 17,365 18,753 16,765
======== ======== ======== ========
Diluted ........................................ 18,795 17,365 18,753 16,765
======== ======== ======== ========
Net loss per common share:
Basic .......................................... $ (0.07) $ (0.07) $ (0.15) $ (0.21)
======== ======== ======== ========
Diluted ........................................ $ (0.07) $ (0.07) $ (0.15) $ (0.21)
======== ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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SPINTEK GAMING TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
March 31,
-------------------
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................... $(2,635) $(3,282)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ........................ 90 33
Non-cash interest expense ............................ -- --
Change in allowance for inventory obsolescence, net .. 70 64
Provision for bad debts .............................. -- 39
Non-cash operating expenses for common stock ......... -- 27
Royalty expense used to reduce note receivable
from related company ................................ -- 76
(Increase) decrease in assets:
Accounts receivable .................................. (662) --
Inventory ............................................ (1,176) (119)
Prepaid expenses and other ........................... (646) 19
Increase (decrease) in liabilities:
Accounts payable ..................................... 369 182
Accrued liabilities .................................. 711 442
Accrued interest ..................................... 116 14
Customer deposits .................................... 1,157 --
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Net cash used in operating activities .................... (2,606) (2,505)
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Net cash used in investing activities:
Purchase of furniture, fixtures and equipment .......... (165) (67)
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Cash flows from financing activities:
Proceeds from issuance of convertible debentures ....... 2,650 1,000
Proceeds from demand notes payable to affiliates
stockholders ......................................... 850 499
Repayments of notes payable to affiliates and
stockholders ......................................... (170) --
Proceeds from issuance of preferred stock .............. -- 975
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Net cash provided by financing activities ................ 3,330 2,474
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Net increase (decrease) in cash and cash equivalents ..... 559 (98)
Cash and cash equivalents, beginning of period ........... 500 404
------- -------
Cash and cash equivalents, end of period ................. $ 1,059 $ 306
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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SPINTEK GAMING TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
March 31,
-----------------
1999 1998
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<S> <C> <C>
Supplemental schedule of non-cash investing and
financing activities:
Conversion preference of preferred stock .............. $ (247) $(245)
======= =====
Issuance of common stock for debt ..................... $ 26 $ 500
======= =====
Issuance of common stock in lieu of cash for fees
related to preferred stock transaction .............. $ -- $ 110
======= =====
Supplemental disclosure of cash flow information:
Cash paid for interest ................................ $ 113 $ 22
======= =====
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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SPINTEK GAMING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Spintek Gaming
Technologies, Inc. ("SGT") and its wholly owned subsidiary Spintek Gaming, Inc.
("Gaming"), and Gaming's wholly owned subsidiary, Spinteknology, Inc.
("Spinteknology") (SGT, Gaming and Spinteknology collectively referred to as the
"Company"). All significant intercompany transactions have been eliminated.
The consolidated balance sheet as of March 31, 1999 and the related consolidated
statements of operations for the three months and nine months ended March 31,
1999 and 1998 and consolidated statements of cash flows for the nine months
ended March 31, 1999 and 1998 are unaudited but, in the opinion of management,
reflect all adjustments necessary for a fair presentation of results for those
periods. The results of operations for an interim period are not necessarily
indicative of the results for the full year. The consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto contained in the Company's annual report on Form
10-KSB for the year ended June 30, 1998.
From inception in March 1995 through the third quarter of the Company's fiscal
year ended June 30, 1998, the Company and its subsidiaries reported operating
activities as a development stage enterprise. During the third and fourth
quarters of fiscal 1998, the Company began to actively market and sell products
to the casino industry utilizing this proprietary technology. Therefore,
commencing with the Form 10-KSB for the year ended June 30, 1998, management
determined that the Company should no longer be a development stage enterprise
for financial reporting purposes. Hence, cumulative from inception financial
information has been eliminated from the Consolidated Statements of Operations
and Consolidated Statements of Cash Flows.
The accompanying financial statements for the prior periods reflect certain
reclassifications, which have no effect on net losses or cash flows in those
periods, to conform to classifications in the current period.
NOTE 2 - SUBSEQUENT EVENT
On April 26, 1999, the Company received from RBB Bank Aktiengesellschaft
("RBB"), the holder of SGT's 4% Convertible Preferred Stock (the "Preferred
Stock") notices of conversion of all 8,241 outstanding shares of Preferred Stock
into SGT's common stock. The conversion price, based on the average closing bid
price of the common stock for the five trading days ended Friday, April 23,
1999, was $0.1735. As a result of the conversions, SGT issued approximately 51.8
million shares of its common stock to RBB. Due to an insufficient number of
shares of authorized common stock, the shares were delivered to RBB in two
issues, the first occurring on April 29, 1999 for approximately 25.9 million
shares. Subsequent to the amendment to SGT's Articles of Incorporation
increasing the number of shares of authorized common stock, SGT issued to RBB on
May 6, 1999 the remaining 25.9 million shares.
Also on April 26, 1999, SGT received from the holders of the 6% Secured
Convertible Notes (the "Notes") their notices of conversion effective April 29,
1999 of the $5,000,000 principal amount of the Notes into common stock. The
$5,000,000 of Notes which were converted constituted all of the Notes
outstanding. The conversion rate was 0.4% of the common shares outstanding,
including the shares issued to RBB in the conversion noted above and vested
options, a majority of which were subject to anti-dilution provisions, for each
$50,000 in principal amount of the Notes. As a result of the conversions, the
Company issued approximately 71.5 million shares of its common stock to the
holders of the Notes. Due to an insufficient number of shares of authorized
common stock , the shares were
7
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delivered to the holders of the Notes in two issues, the first occurring on
April 29, 1999 for approximately 35.75 million shares. Subsequent to the
amendment to SGT's Articles of Incorporation increasing the number of shares of
authorized common stock, SGT issued to the Note holders on May 6, 1999 the
remaining 35.75 million shares.
On April 28, 1999, the holders of a majority of SGT's common stock approved by
written consent an amendment to SGT's Articles of Incorporation increasing the
number of authorized shares of common stock from 100,000,000 shares to
500,000,000 shares. The amendment was effective on May 3, 1999.
In addition, in May 1999, the Board of Directors of SGT, with written consent of
the holders of a majority of the outstanding common stock of SGT, authorized an
increase in the number of shares of common stock under the 1996 Stock Option
Plan from 4,000,000 to 60,000,000.
The following is a pro forma comparison of the balance sheet pre and post
conversion.
The following is a pro forma comparison of the balance sheet pre and post
conversion.
<TABLE>
<CAPTION>
(In Thousands)
Pre-Conversion Post Conversion
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<S> <C> <C>
Current assets .................... $ 4,452 $ 4,452
Other assets ...................... 1,340 1,340
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Total assets ...................... $ 5,792 $ 5,792
======== ========
Current liabilities ............... $ 5,721 $ 4,989
Noncurrent liabilites ............. 5,000 --
-------- --------
Total liabilities ................. 10,721 4,989
Stockholders' equity (deficit) .... (4,929) 803
-------- --------
$ 5,792 $ 5,792
======== ========
</TABLE>
NOTE 3 - ORDER BACKLOG
As of March 31, 1999, the Company had an order backlog of approximately $4.0
million accompanied by deposits from customers of $1.4 million.
NOTE 4 - LICENSES AND PATENTS
In October 1998, the Company was awarded a patent by the U.S. Patent and
Trademark Office ("USPTO"). This patent encompasses hopper weighing technology
used by the Company to thwart technician fraud as well as providing for drop box
counting and weighing of coins. It also enumerates other possible uses of the
weighing technology and allows for the expansion of claims in further filings
with USPTO. Similar patents have previously been awarded to the Company by the
Department of Trade and Industry, Republic of South Africa in July 1997, and the
European Patent Organization ("E.P.O.") in 1998. Patents issued by the E.P.O.
are applicable for eighteen contracting European countries and four designated
extension European countries. The E.P.O. patent is applicable for the five
European countries in which Azkoyen, a Spanish company, has pending patent
applications that may be deemed similar to the Company's E.P.O. patents. Though
the granting of a patent to the Company in the E.P.O. countries is considered a
mandate of intellectual property rights, and management believes the Company's
claims are valid and intends to vigorously assert its rights, it is unable to
estimate the possible outcome or the ultimate financial effect of any potential
proceedings regarding this matter.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain information included herein contains statements that may be considered
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, such as
terms expressing future expectations, enthusiasm about future potential, and
anticipated growth in sales, revenues and earnings. All forward-looking
statements, although made in good faith, are subject to important risks and
uncertainties that could significantly affect anticipated results in the future
and, accordingly, results may differ from those expressed in any forward-looking
statements made herein. Such statements are necessarily speculative and factors
including, but not limited to, unusual production or supply problems, unusual
risks attending foreign transactions, year 2000 problems, competitive pressures,
unanticipated problems in obtaining approvals and/or licenses from governmental
authorities as to products or the ability to sell products in any jurisdiction,
a general deterioration in domestic or global economic conditions, and changes
in federal or state tax laws or laws permitting legalized gaming in any
jurisdiction within which gaming is currently conducted or the administration of
such laws, could cause results to differ materially from those projected.
Year 2000 Considerations
The Company's hopper weighing technology is date sensitive and both the hardware
and software are Year 2000 compliant. The Company's primary customers are
casinos with slot machines into which the Company's product is installed. In
addition, many casinos utilize slot machine accounting systems to which the
Company's product must interface. Although the Company has not received
assurances from the primary slot machine manufacturers or the slot machine
accounting system manufacturers as to the Year 2000 issue, the Company expects
that at least a majority of the machines and accounting systems will be Year
2000 compliant.
The Company has initiated a program of contacting its primary suppliers of key
components of its hopper weighing system to receive assurance that the Year 2000
issue will not directly impact their ability to supply the Company with product.
In addition, the Company has located alternative sources for all such key
components.
The Company has recently installed a manufacturing, inventory control and
accounting software system that has been represented by the developer to be Year
2000 compliant.
Maintenance or modification costs associated with the Year 2000 issue will be
expensed as incurred, while the costs of any new software will be capitalized
and amortized over the software's useful life. The Company does not expect to
incur costs in connection with the Year 2000 issue that would have a material
impact on operations.
Material Changes in Results of Operations
Background Information
From inception in March 1995 through the third quarter of the Company's fiscal
year ended June 30, 1998, the Company realized minimal revenues from the sale of
its products, with its first sale in the amount of $180,000 having occurred in
March 1998. As a result, the Company filed its quarterly and annual financial
reports as a development stage enterprise through the quarter ended March 31,
1998. With the commencement of active sales and marketing activity in the latter
stages of fiscal 1998, management determined that the Company should no longer
report as a development stage enterprise. Consequently, commencing with the
annual report on Form 10-KSB for the year ended June 30, 1998, the cumulative
from inception financial information was deleted from the Consolidated
Statements of Operations, Cash Flows and Changes in Stockholders' Equity
(Deficit).
9
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Since early 1996, the Company has devoted its efforts to the development of
proprietary technology for determining the contents of a slot machine hopper and
an on-line data collection system that allows a casino to utilize the financial
and security information ("AccuSystem"). In addition to the development of its
stand alone system, the Company is continuing to work with the predominant
vendors of slot accounting systems throughout the domestic gaming industry to
interface its system with theirs. Although management is confident that
AccuSystem will be successfully interfaced with these slot accounting systems,
no assurance can be given that such interfaces will ultimately be successful or,
if successful, will receive the necessary approvals from the gaming authorities
in the jurisdictions in which such slot accounting systems are utilized.
In December 1998, the Company received notification from the State of Nevada
Gaming Control Board ("NGCB") that AccuSystem had been authorized to be the
second verifier of a slot machine fill, thereby eliminating the need for a
second employee to observe each fill and sign the required fill documentation in
Nevada casinos. This authorization will be granted to casinos on a case by case
basis by the NGCB provided a casino's accounting and auditing procedures
adequately substitute for the lack of the second signature verification. In
management's opinion, this was a significant event for the Company in that a
casino utilizing AccuSystem will be able to reduce slot machine down time and
increase its customers satisfaction through better utilization of its slot floor
personnel. The Company is assisting certain casinos in other domestic gaming
jurisdictions in their requests to have AccuSystem authorized to be the second
verifier, and to be able to utilize certain other features of the AccuSystem
designed to enhance revenues and a casino's customers satisfaction. No assurance
can be given that these requests will ultimately be approved by the gaming
authorities in the jurisdictions wherein they are pending, or that a significant
number of Nevada casinos will satisfy the NGCB's internal control requirement
and thereby qualify for the single signature fill authorization.
Nine Months Ended March 31, 1999 and 1998
During the first nine months of fiscal 1999, the Company reported sales of
approximately $3,050,000 net of returns and allowances of $142,000. Sales in the
prior year nine month period totaled $180,000, all of which occurred in the
Company's third fiscal quarter. In the current year period, the gross margin was
approximately 45% and reflects discounts from the listed sales prices to
introduce product in the various domestic markets and to establish a customer
base. In addition, the gross margin for the nine months ended March 31, 1999 was
negatively impacted by greater than anticipated costs associated with the
adaptation of the AccuSystem product to the varied internal configurations of
slot machines into which the AccuSystem is installed.
Selling, general and administrative expenses increased $911,000, or
approximately 35%, to $3,512,000 for the nine months ended March 31, 1999 from
$2,601,000 for the nine months ended March 31, 1998. When comparing the two nine
month periods, an increase in payroll and payroll related expenses of $1,101,000
to $1,753,000 was partially offset by decreases of $120,000 in bad debt expense
and $373,000 in accrued expenses that are based on fiscal period changes in the
total market capitalization of the Company's common stock. The increase in
payroll and payroll related expenses were primarily related to additional
administrative, product development and support personnel necessitated by sales
activities, and approximately $269,000 in engineering labor costs that would
have been classified as research and development expense in the prior year
period when the Company reported as a development stage enterprise. The reserve
for inventory obsolescence was $140,000 for the nine month period ended March
31, 1999, primarily due to reserving for inventory items that have become
functionally obsolete through product development, compared to $70,000 in the
same period in the prior year. In addition, travel expenses increased 80%, or
$235,000, to $527,000 during the first nine months of the current year from
$292,000 in the prior year period. This increase was primarily due to sales and
marketing activities and an increase in administrative travel. When comparing
the two nine month periods, other general and administrative expenses in the
current year period are generally higher than the prior year period due to
increased staffing and sales activities.
10
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Research and development expenses decreased by $493,000, or 71%, to $204,000 in
the current nine month period from $697,000 in the nine month period ended March
31, 1998. Whereas all engineering and product development expenses in the prior
year period were classified as research and development expenses due to the
Company reporting at that time as a development stage enterprise, only expenses
associated with new product development are classified as research and
development expenses in the current year period. Expenses related to the further
development of the AccuSystem product, including costs associated with
interfacing with the various slot accounting systems and design modifications
necessitated by slot machine cabinet and design variations, are expensed
elsewhere in the financial statements.
Interest expense increased to $229,000 for the nine months ended March 31, 1999
from $36,000 in the prior year period primarily as a result of the issuance of
the 6% Secured Convertible Notes from the $5.0 million offering (the "Notes").
Depreciation and amortization increased to $90,000 in the first nine months of
fiscal 1999 from $34,000 in the same period in the prior year, primarily due to
amortization of AccuSystem patent costs and depreciation on office furniture and
equipment additions.
Three Months Ended March 31, 1999 and 1998
During the third quarter of fiscal 1999, the Company reported sales of
approximately $1,041,000, net of sales returns and allowances of $142,000,
compared to its initial sales of $180,000 that occurred in the quarter ended
March 31, 1998. The gross margin was approximately 45%, reflecting discounts
from the listed sales prices to introduce product in the various domestic
markets and to establish a customer base. In addition, the gross margin was
negatively impacted by costs associated with the customization of the AccuSystem
product to a wider than expected assortment of slot machines internal
configurations into which the AccuSystem is installed.
Selling, general and administrative expenses increased $509,000, or
approximately 53%, to $1,477,000 for the quarter ended March 31, 1999 from
$968,000 in the same period in the prior year. Payroll and payroll related
expenses were approximately $716,000 during the current three month period,
reflecting an increase of approximately $486,000 over prior year's three month
payroll and payroll related expenses. This increase in payroll and payroll
related expenses was primarily due to additional administrative, product
development and support personnel necessitated by sales activities, and
approximately $118,000 in engineering labor costs that would have been
classified as research and development expense in the prior year period when the
Company reported as a development stage company. When comparing the two
quarters, the increase in payroll and payroll related expenses were offset by
$25,000 in royalty amortization and $218,000 in accrued expense that is based on
fiscal period changes in the market capitalization of the Company's common
stock. The reserve for inventory obsolescence increased by $85,000 to $135,000
in the quarter ended March 31, 1999, primarily due to reserving for certain
items that have become functionally obsolete through product development, from
$50,000 in the prior year's third quarter. Travel expenses were $250,000 for the
third quarter of fiscal 1999 compared to $118,000 in the same period in the
prior year. Travel associated with sales and marketing and administrative
activities were the principal reasons for this increase. When comparing the two
three month periods, other general and administrative expenses in the current
year period are generally higher than the prior year period due to increased
staffing and sales activities.
Research and development expenses decreased by $217,000, or 82%, to $40,000 in
the current year's third quarter. Whereas all engineering and product
development expenses were classified as research and development expenses in the
quarter ended March 31, 1998, only expenses associated with new product
development are classified as research and development expenses due to the
Company no longer reporting as a development stage enterprise. Expenses related
to the further development of the AccuSystem product, including costs associated
with interfacing with the various slot accounting systems and design
modifications necessitated by slot machine
11
<PAGE>
cabinet and design variations, are expensed elsewhere in the financial
statements.
Interest expense increased to $94,000 for the quarter ended March 31, 1999 from
$15,000 in the same quarter in the prior year as a result of the issuance of the
Notes. Depreciation and amortization increased to $52,000 in the current year's
quarter from $14,000 for the three month period ended March 31, 1998, primarily
due to amortization of the AccuSystem patent costs.
Liquidity and Capital Resources
The Company's current assets at March 31, 1999 totaled $4,452,000, including
$1,059,000 in cash and cash equivalents, deposits on pending inventory purchases
of $685,000, and $1,785,000 in inventory. The Company's current liabilities were
$5,721,000, including $732,000 in accrued conversion preference (which Preferred
Stock converted into common stock as noted below), $163,000 in accrued interest,
$850,000 in demand notes payable to stockholder, and $1,404,000 in deposits from
customers. Net cash used in operating activities was approximately $2,665,000.
Based on sales contracts as of May 6, 1999, management is expecting to record
sales of approximately $5.0 million in the fourth quarter of fiscal 1999.
As previously noted, the Company's initial sales and marketing activities
commenced in the latter stages of the fiscal year ended June 30,1998. Absent
significant revenues from operations, the Company has funded itself primarily
through equity and debt financing, including through the issuance of the
Preferred Stock and the Notes.
During the first two quarters of fiscal 1999, the Company closed the $5,000,000
Note offering, with the Malcolm C. Davenport V Family Trust (the "Trust")
purchasing an additional $2,400,000 of the Notes from the Company in fiscal
1999. Consequently, the Trust, for which Malcolm C. Davenport V (a stockholder
and member of the Company's Board of Directors) serves as Co-trustee, held a
total of $4,300,000 of the Notes at the time of the previously noted conversion
of the Notes into common stock. In addition, a member of the Board of Directors
at the time purchased an additional $250,000 of the Notes, bringing his holdings
in the Notes to $350,000 at the time of the conversion. During the quarter ended
March 31, 1999, Malcolm C. Davenport V loaned the Company an additional $850,000
at 10% annual interest which loan is secured by the Company's Intellectual
Rights.
Management believes that increases in sales activities will continue into the
future, and, consequently, the Company expects to achieve sales and operating
cash flows that will sustain future operations. In addition, the Company is
exploring the possibility of obtaining a line of credit from a financial
institution that would be utilized to repay stockholder loans and for working
capital purposes. However, no assurance can be given that the Company will
generate sufficient revenues or obtain an adequate line of credit to support
future operations.
Subsequent to the end of the third quarter of fiscal 1999, the Company received
notification from the holders of its 4% Convertible Preferred Stock ("Preferred
Stock") and the 6% Secured Convertible Notes ("Notes") that all of the holders
of each were converting their securities into SGT's common stock. As a result of
the conversions, stockholders' equity increased by approximately $5,732,000
through the conversion of accrued conversion preference in accordance with the
terms of such instruments on the 4% Preferred Stock of $732,000, which is
reported as a current liability on the Company's March 31, 1999 balance sheet,
and $5,000,000 in principal of the Notes which were due in 2008. As a result of
these conversions, annual interest expense related to the Notes of $300,000,
together with the annual conversion preference on the Preferred Stock of
$330,000, will no longer be reported.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities
None
ITEM 3. Defaults upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None
13
<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.
Date: May 12, 1999 By: /s/ GARY L. COULTER
------------------------------
Gary L. Coulter
Chairman of the Board, Chief
Executive
Officer
Date: May 12, 1999 By:/s/ GEORGE P. MILLER
------------------------------
George P. Miller
Chief Financial Officer
(Principal Financial
and Accounting Officer)
14
<PAGE>
EXHIBIT INDEX
Exhibit Index Description Page Number
- ------------- ----------- -----------
27.1 Financial Data Schedule E - 10
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SPINTEX GAMING TECHNOLOGIES, INC. FINANCIAL STATEMENTS FOR THE QUARTER
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,059
<SECURITIES> 0
<RECEIVABLES> 891
<ALLOWANCES> 0
<INVENTORY> 1,785
<CURRENT-ASSETS> 4,452
<PP&E> 369
<DEPRECIATION> 104
<TOTAL-ASSETS> 5,792
<CURRENT-LIABILITIES> 5,721
<BONDS> 5,000
5,355
0
<COMMON> 40
<OTHER-SE> (10,324)
<TOTAL-LIABILITY-AND-EQUITY> 5,792
<SALES> 3,050
<TOTAL-REVENUES> 3,050
<CGS> 1,693
<TOTAL-COSTS> 1,693
<OTHER-EXPENSES> 3,716
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 229
<INCOME-PRETAX> (2,635)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,635)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,635)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
