UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

 _X_ Annual report pursuant to Section 13 or 15(d) of the Securities  Exchange
     Act of 1934 for the fiscal year --- ended June 30, 1998 or

     Transition  report  pursuant  to  Section  13 or  15(d)  of the  Securities
     Exchange Act of 1934

                         Commission File Number: 0-27226

                        SPINTEK GAMING TECHNOLOGIES, INC.
        (Exact name of small business issuer as specified in its Charter)

             Nevada                                        33-0134823
(State or other  jurisdiction of               (IRS Employer Identification No.)
 incorporation or organization)

901-B Grier Drive, Las Vegas, Nevada 89119                  (702) 263-3660
--------------------------------------------------------------------------------
(Address of principal executive offices)             (Issuer's telephone number)

         Securities registered under Section 12(b) of the Exchange Act:

Title of each class:                       Name of Exchange on which registered:
--------------------                       -------------------------------------
      None                                                None

         Securities registered under Section 12(g) of the Exchange Act:

                    Common Stock, par value $0.002 per share
                    ----------------------------------------
                                (Title of Class)

Indicate by mark whether the issuer (1) filed all reports to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.    Yes _X_   No ___

Indicate by mark if  disclosure  of  delinquent  filers  pursuant to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. ____

The issuer's revenues for the fiscal year ended June 30, 1998 were:  $444,011. 
                                                                     --------

There were 18,673,055  outstanding  shares of common stock, par value $0.002 per
share, as of August 31, 1998. The aggregate  market value of the voting stock of
the Registrant held by non-affiliates of the Registrant,  as of August 31, 1998,
was $4,624,570 based on the last sales price on such date.

DOCUMENTS INCORPORATED BY REFERENCE:   None

Transitional Small Business Disclosure Format:  Yes ___     No  _X_
<PAGE>

                                CAUTIONARY NOTICE
                                -----------------

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,  and like  expressions
typically identify such statements.  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.
<PAGE>
                                     PART I

ITEM 1.   DESCRIPTION OF BUSINESS
          -----------------------

General

     Spintek Gaming  Technologies,  Inc., referred to herein as the "Company" or
"Spintek" was  originally  incorporated  in the State of California on September
11,  1984.  Pursuant  to a vote of the  shareholders  approving  a merger at the
Company's  annual  meeting on January 21, 1998,  the Company was merged with and
into a  newly-formed  corporation  solely  for  effecting  a change in the legal
domicile of the Company.  Upon  acceptance  of articles of merger filed with the
States of  California  and Nevada,  the Company was  reincorporated  as a Nevada
corporation on August 24, 1998. The Company is based in Las Vegas,  Nevada.  The
Company is  authorized to issue  100,000,000  shares of Common Stock and 100,000
shares of  preferred  stock.  Its $0.002 par value  Common  Stock  trades on the
Bulletin  Board  under the symbol  "SPTK."  The  Company  markets  and  licenses
worldwide certain proprietary gaming and nongaming technology.

     The Company  originally  distributed  products in the medical first aid and
personal safety field from its corporate offices in Laguna Hills, California. On
September 14, 1995, the  stockholders of the Company approved the acquisition of
Spintek Gaming, Inc. ("Gaming"),  a Georgia corporation that was incorporated in
December 1993. Such acquisition,  effected by an exchange of the common stock of
the  entities,  was deemed to be  effective  as of July 1, 1995.  As part of the
transaction  whereby the Company  acquired  Gaming,  the medical,  first aid and
related  safety  product  distribution  business  of the  Company,  as  well  as
substantially all of its assets, together with its liabilities, were sold to and
assumed by a limited liability company, owned by its former president and former
controlling  stockholder for $150,000. This transaction was also approved by the
stockholders  of the Company on September 14, 1995.  On September 26, 1995,  the
Company filed an amendment to its articles of incorporation pursuant to which it
effected  a  reverse  split on a 1 share for 2 basis,  changed  the value of its
common  stock  from no par value to $0.002 par value per share and  changed  its
name from GSA, Inc. to Spintek Gaming Technologies, Inc. As a consequence of the
above  described  transactions,  the Company  became the holding  company of its
wholly-owned  subsidiary  Gaming, as well as Gaming's  wholly-owned  subsidiary,
Spinteknology, Inc. ("Spinteknology").


Equipment and Technology

     The Company's  corporate mission calls for it to identify,  refine and then
market and license  proprietary gaming and non-gaming  technology on a worldwide
basis. Since April 1996, the Company, through its subsidiaries,  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   this   financial   and   security   information
("AccuSystem").  The Company believes this  proprietary  technology is unique in
the  gaming  industry.  Trademark  applications  on  the  Company's  proprietary
trademarks  are  currently  pending  with the United  States  Patent  Office and
certain foreign patent authorities.

     AccuSystem  was developed for the casino  industry to gather  financial and
security information into an easy to read format which uses the latest standards
in open database technology,  allowing access for custom reporting through third
party programs such as Crystal Reports or Report Smith.  AccuSystem is comprised
of the following products:  "AccuHopper(TM),"  "AccuBoard,"  "AccuDrop," and the
AccuSystem  software.  Some of these products can be used  independently or they
can be  combined  together  to  offer a level  of coin  control  that  has  been
non-existent in the casino industry.

                                       3
<PAGE>
     The  heart of the  system is the  AccuHopper,  which  utilizes  proprietary
technology for weighing  hopper  contents.  AccuHopper can be calibrated for any
denomination of coin or token and, once calibrated, is accurate within three one
hundredths of one percent.  Management  believes that no other product currently
exists in the market  that can give the  current  contents of a slot hopper with
reliability.  Any other system that attempts to provide this information  relies
on at least four separate components:  beginning hopper balance,  coin traveling
from the coin receptor into the hopper,  fills placed into the hopper,  and coin
diverted from the hopper. An error in any one of the four components  results in
an error that continues  indefinitely  (and can increase due to cumulative meter
errors unless corrected manually).  The Company has developed AccuHopper,  which
relays the hopper  contents  electronically  to  AccuBoard  or to other  on-line
accounting systems currently on the market.

     AccuDrop,  which is being  tested in a Nevada  casino,  is  similar  to the
AccuHopper but relays the number of coins currently in the drop compartment.  By
allowing  the  casino  operator  to always  know the amount of money in the drop
compartment on a real-time  basis, it can be used to determine when drop buckets
need to be emptied.  With the  proliferation of bill acceptors in slot machines,
coin drop has been  reduced  to only  about ten to twenty  percent  of the total
drop.  Currently,  most casinos  waste a lot of time  emptying and tracking drop
buckets that are either empty or would not necessarily  require  emptying due to
insignificant contents.

     AccuBoard is capable of collecting  data from AccuHopper and AccuDrop along
with other types of data from a slot machine  (i.e.  "Door Open",  "Door Close",
meter  information,  and "In  Play"  status).  The  AccuBoard  is  powered  by a
micro-controller which includes a real-time clock to timestamp events that occur
at the slot machine. Up to two hundred and fifty-five events can be recorded and
maintained  until a system  requests  them.  AccuBoard  also adds the ability to
monitor  external  switches  which have been used for  monitoring  activity in a
casino's  auxiliary fill containers.  AccuBoard will create an event when either
an  auxiliary  fill  container  door is opened or a fill bag of coins is removed
from the compartment.  AccuBoard is configurable such that low hopper levels can
be  assigned  and used to  illuminate  an  indicator  to show that the hopper is
currently  low,  thus  potentially  avoiding a hopper empty  condition  and play
interruption.

     AccuSystem software includes the following programs: AccuPoller,  AccuView,
AccuReports, and AccuAdministrator.

     o   AccuPoller is a real-time  polling  system  program that  retrieves the
         data from the AccuBoard and stores it into the SQL database.

     o   AccuView is a real-time  floor display that provides the casino with an
         easy  to use  graphic  display  of  the  hopper,  drop,  and  fill  bag
         inventory.

     o   AccuAdministrator  allows the user to define application level security
         for all AccuSystem  software.  Security setup includes designating user
         groups and assigning  features and functions  applicable to that group.
         An unlimited number of different used groups may be setup.

     AccuSystem offers the operator control features that are not available from
any other product currently available in the market. Some knowledgeable  members
of the gaming  industry have  estimated  that employee  theft from slot machines
could be in excess of two  percent of the house win.  Theft can occur any time a
slot  machine  door is open and an  employee  has  access to funds in the hopper
while performing  normal duties such as clearing a coin jam,  replacing a burned
out light bulb,  or making a routine  hopper  fill.  AccuSystem  can  accurately
report the amount of coins in the hopper before the machine door is opened,  and
the amount of coins in the hopper  after the  employee  closes the machine  door
securing the slot machine.  With this information any coin  discrepancies can be
reported to the operator for further investigation.

                                       4
<PAGE>
     In  addition  to the added  controls  which  reduce the amount of  employee
theft,  it is  Management's  belief that use of AccuHopper  in  connection  with
existing on-line slot accounting  systems will also result in payroll savings to
the operator.  Some  jurisdictions  require that the contents of slot hoppers be
counted on a routine basis, a cumbersome and costly process. AccuHopper provides
this  information  continuously  and  accurately  to  within a  tolerance  which
management  anticipates will be acceptable to gaming regulators in substantially
all  jurisdictions,  domestic and  international,  thus  eliminating the need to
count the hopper contents  manually.  AccuHopper can also notify the operator of
the need for a fill  before the hopper  goes  empty and the slot  machine  shuts
down, thereby interrupting a customer's play. A fill can interrupt the play of a
customer for an average of fifteen minutes but can take more than thirty minutes
during times of heavy play.  By using  AccuHopper  the operator  will be able to
schedule some fills during slower periods of play,  thereby  reducing the number
of slot machines that shut down due to an empty hopper condition.

     The Company has conducted tests on the AccuHopper at various casinos in Las
Vegas,  Nevada and Atlantic  City,  New Jersey  during the past several  months.
During the tests the product  continued  to be refined to meet the  requests and
needs of the operators at those casinos testing the product. Management believes
that the changes  incorporated as a result of input from the tests have enhanced
the product.

     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.  Two of the primary  developers and vendors of slot machine  accounting
systems,  Bally  Systems and Casino Data Systems,  have  completed the interface
process  which  allows  for  the  data  received  from  the   AccuSystem  to  be
incorporated  into their  accounting  reports.  The interface with the Bally SDS
system is, as of  September 9, 1998,  undergoing  field trial as required by the
Nevada gaming authorities.  Should the field trial not result in any significant
operational  problems,  management  anticipates  Bally  Systems  will submit the
interface  for  approval as required  by the gaming  authorities  in the various
worldwide  jurisdictions  in which they operate.  The interface with Casino Data
Systems was recently submitted for approval to the gaming authorities in various
jurisdictions  in the United  States in which they  operate.  Management is also
currently in discussions  with other slot accounting  software  vendors who have
expressed  an interest in  completing  an interface  for their  online  software
accounting systems with AccuHopper.

     In addition to working with various slot accounting  software  companies to
incorporate  the AccuHopper  into their systems,  the Company is also engaged in
discussions  with  several  of  the  slot  machine  manufacturing  companies  to
encourage  them  to  incorporate   the  AccuHopper  as  an  option  for  factory
installation in their newly  manufactured  slot machines.  Although  discussions
with those companies continue, to date only two slot machines manufacturers have
entered into license agreements with the Company for AccuHopper (see "Marketing"
below).


Marketing

     The Company has initiated a comprehensive  sales and marketing  program for
its product.  Management believes there is a worldwide market for the AccuSystem
and/or the  components  which  comprise  the  system  and  intends to market its
products  either  by  direct  sales  or  through  licensing   arrangements  with
manufacturers  of slot  machines,  coin  hoppers  and  the  major  domestic  and
worldwide manufacturers of automated accounting systems for slot machines.

     Direct Sales.  The Company has developed  AccuHopper kits for slot machines
from all major  manufacturers.  The retrofit kits can be installed on the hopper
by either the  operator or Company  personnel.  Management  plans to make direct
contact to  strategic  targets in the gaming  industry to offer its products for
sale in the form of retrofit  kits which can either be  installed  on hoppers by
the Company for a fee, or the Company will train the 

                                       5
<PAGE>
purchaser's  technicians to perform the procedure.  Hoppers retrofitted with the
AccuSystem  can either be installed  by the  Company,  or once again the Company
will train the purchaser's technicians on installation procedures.

     License  Agreements.  Management is attempting to forge strategic alliances
with  companies  that are already  successful in the gaming  industry  which are
presently  looking  to enhance  their  existing  products  and/or  expand  their
presence in foreign markets as opportunities  for sales growth. In January 1998,
Spinteknology entered into a joint venture with Kinsale Development  Proprietary
Limited  ("Kinsale"),  an Australian  company,  to form a company named "Spintek
Gaming Pty Ltd.  ("SGPL")  which  will  distribute  the  Company's  products  in
Australia,   New  Zealand,  Macao,  Singapore,   Hong  Kong,  China,  Indonesia,
Philippines, South Korea, Guam, Brunei, Thailand, Noumea, Vanuatu, Taiwan, Laos,
Cambodia,  Kampuchea,  Vietnam,  Samoa,  Fiji, Nauru,  Kiribati,  and Tonga (the
"Territory"). Spinteknology, a twenty percent (20%) joint venture participant in
SGPL,  will receive a royalty of US$50 per unit sold by SGPL in the Territory in
addition to twenty percent (20%) of the net profits of SGPL.

     As of May 31,  1998,  the  Company  had signed  four  technology  licensing
agreements,  in which the  Company  has  given a  nonexclusive  license  to four
separate  companies for the AccuHopper.  These four license  agreements are with
SGPL, SUZO International, (N.L.) B.V. ("SUZO"), International Gaming Technology,
Inc. ("IGT") and Alliance/Bally  Gaming, Inc. ("Bally").  Each of the agreements
requires  a fee to be  paid  to the  Company  for  each  AccuHopper  sold by the
licensee.  SUZO  has  completed  a  field  trial  at a  European  casino.  While
management is optimistic about its international opportunities, to date no sales
have taken place by any of these companies,  nor can there be any assurance that
the Company will recognize revenues as a result of these agreements.


Competition

     Management  does not believe  there is currently  any  competition  for its
hopper-weighing  technology.  The Company's  principal product,  AccuSystem,  is
capable of operating on a stand-alone basis. In addition, management has adopted
a policy of forming alliances with accounting  system  manufacturer with a focus
on writing interfaces to incorporate the data generated by AccuSystem into their
systems. Management is diligently working toward solidifying those relationships
in the belief that once a working  interface  has been  written the Company will
benefit  from  access  to  the  existing  customers  of  the  accounting  system
manufacturers.  Those  manufacturers who have completed an interface have a more
complete product to market. Management therefore no longer considers the Company
to be in direct competition with existing data collection and accounting systems
manufacturers.


Raw Materials and Principal Suppliers

     The  components  of  AccuSystem  and  associated  products  are  made  from
currently  available  materials.  Such raw materials  include  steel,  aluminum,
copper, brass,  plastics,  zinc, and silicon, and are currently widely available
to the Company.  The Company  sometimes  purchases the raw  materials  directly,
which it  subcontracts  to assemblers  for assembly,  and sometimes it purchases
completed sub-parts and subassemblies from suppliers.  There can be no assurance
that certain raw materials used in the Company's  products will remain available
in the future or that the Company  will be able to find  alternate  materials in
the event that such materials become unavailable.

     The Company is dependent on various  suppliers  for the  components  of its
AccuSystem  and data  collection  and accounting  systems.  Although  management
believes  that  there  are a number  of  alternative  sources  for most of these
components,  the Company presently must obtain certain components from a limited
number of 
                                       6

<PAGE>
suppliers.  The principal  suppliers to the Company for the components that make
up  its  AccuSystem  and  data  collection  and  accounting   systems  are;  ESS
Electronics, GMD Multitek Ltd and American Laser.


Major Customers

     Although   management   believes  the  field  trials  mentioned  above  are
proceeding  satisfactorily,  there can be no  assurances  that any of the trials
will result in a sale.  As of September  19, 1998,  the Company has  consummated
sales to five casinos for approximately  1,375 AccuHoppers and is in the process
of installing  2,672  AccuHoppers in three other casinos for which it has signed
sales contracts.  Once these current  installations  are completed,  the Company
will have recorded sales of over 4,000  AccuHoppers for a total of approximately
$2,000,000,  with sales  having  occurred  in  Nevada,  New  Jersey,  Minnesota,
Connecticut and Iowa.

Patents, Trademarks, Licenses and Royalty Agreements

     The  Company  currently  has patent  applications  for its hopper  weighing
technology  pending with the United States Patent Office as well as applications
pending in other countries. Patents have been awarded and the Company feels that
more patents will be issued. However, there can be no assurance that the patents
will be granted or, if granted, will be effective in preventing competitors from
developing similar systems.

     On  July  30,  1997,   Spinteknology  received  a  patent  for  proprietary
slot/amusement/vending  machine coin-weighing  technology from the Department of
Trade and Industry,  Republic of South Africa.  This patent  encompasses  hopper
weighing technology used by the Company to thwart technician and player fraud as
well as drop-box  counting and weighing of coins. The Company has filed numerous
applications  for  other  countries  worldwide  under  the  auspices  of  the of
international patent treaty guidelines.

     On June 3, 1998, Spinteknology was awarded its first patent by the European
Patent Organization (E.P.O.).  Another patent received its second publication on
August 26,  1998.  Patents  issued by the E.P.O.  are  applicable  for  eighteen
contracting  European states and four designated  extension  European states. In
regard to the patent  issued June 3, 1998,  the Company is currently  expediting
validation  for each of these states and it is  anticipated  that the  validated
patents will be  forthcoming.  The issued E.P.O.  patent,  as well as the patent
having been given a second  publication,  are  applicable  for the five European
states in which Azkoyen, a Spanish company, has pending patent applications that
may be deemed similar to the Company's E.P.O.  patent.  Though the granting of a
patent  to the  Company  in  the  E.P.O.  states  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 of any  potential  proceedings  regarding  this matter nor the
ultimate financial effect it might have on the Company.

     The  Company  has  applied  for   trademarks   for  corporate  and  product
identification in the United States and worldwide. To date, some trademarks have
been issued in various countries and the Company  anticipates  further trademark
publications in the coming fiscal year.

     As of June 30, 1998, the Company had no franchises.


Federal Gaming Regulation

     The  federal  Gambling  Devices  Act of 1962 (the  "Federal  Act") makes it
unlawful,  in general,  for a person to  manufacture,  deliver,  or receive slot
machines (or devices defined as "gaming-type"  units,  e.g., video poker 

                                       7

<PAGE>
games).  The  Federal  Act also  makes it  illegal  to ship  certain  slot  game
components  across state lines as well as operating  gaming machines unless that
person or company has first  registered with the Attorney  General of the United
States.  In  addition,  various  record  keeping  and  equipment  identification
requirements  are imposed by the Federal  Act.  Violation of the Federal Act can
result in seizure and forfeiture of the equipment, as well as other penalties.

     Regulation  of  Stockholders  of  Publicly  Traded  Corporations:  In  most
jurisdictions,  at  the  discretion  of the  gaming  regulatory  authorities,  a
stockholder with a substantial position in a company (i.e., owning 5% or more of
available shares) can be required to file an application for a license,  finding
of  suitability  or other  approval,  and in the  process to subject  himself or
herself to an investigation by those authorities.

     Nevada  Regulation:  The Company is subject to regulation by authorities in
most  jurisdictions  in which its products are anticipated to be sold or used by
persons or entities  licensed to conduct  gaming  activities,  including but not
limited to, Nevada. The gaming regulatory requirements vary from jurisdiction to
jurisdiction,  and licensing, other approval or finding of suitability processes
with respect to the Company,  its  personnel and its products can be lengthy and
expensive.  Generally,  gaming regulatory  authorities may deny applications for
licenses,  other  approvals or findings of  suitability  for any cause they deem
reasonable.  The  Company's  AccuSystem  as  well  as  each  of  the  individual
components  thereof,  are generally  classified as "associated gaming equipment"
which is equipment  that is not  classified as a "gaming  device," but which has
such an integral  relationship to the conduct of licensed gaming that regulatory
authorities  have  discretion  to  require  manufacturers  and  distributors  of
"associated equipment" to meet licensing or suitability requirements prior to or
concurrent with the use of such equipment in the respective jurisdiction.

     In Nevada, manufacturers and distributors of "associated equipment" are not
required to be licensed or found suitable,  unless the Nevada Gaming  Commission
("Nevada Commission") upon the recommendation of the Nevada State Gaming Control
Board  ("Nevada  Board")  elects  to  require  that  such  manufacturer   and/or
distributor  file an  application  for a finding of  suitability  to manufacture
and/or  distribute  associated  equipment  for use or play in  Nevada.  However,
associated  equipment must be approved by the Nevada Board. To date, the Company
has complied with the associated equipment approval process for each location at
which the AccuSystem is installed  and/or on field trial in Nevada.  The Company
has not been  required by the Nevada Board or Nevada  Commission  to apply for a
finding  of  suitability  as  a  manufacturer  and  distributor  of  "associated
equipment."  In the event that the Company were  required to apply for a finding
of  suitability,  it would have to file the required  applications  and be found
suitable  by the Nevada  Commission  in order to  continue  to  manufacture  and
distribute the AccuSystem for use or play in Nevada.

     Currently,  the Company's product line of hopper  assessment  technology is
considered "non-gaming" in many US jurisdictions. However, the Company maintains
its registration  with the US Attorney General so that any shipments of product,
regardless of destination, are legal under the Federal Act.


Present Gaming Compliance Status

     Compliance  with  United  States  and  international   gaming  jurisdiction
regulations  falls within two distinct areas;  suitability of the product (i.e.,
certification  that the product  meets the  standards of the  jurisdiction)  and
suitability of the corporation and its  directors/officers to do business in the
jurisdiction.  The Company has  achieved  compliance  standards in both of these
areas.

     The Company  currently  produces a product line that is, in the majority of
gaming jurisdiction,  considered "non-gaming".  Since AccuSystem does not affect
game outcome in slot machines and does not directly affect revenue reporting, it
is not a gaming  device.  Generally,  such  products are defined as  "associated
equipment".

                                       8

<PAGE>
     Since the Company does not make a gaming device it has not been required by
most jurisdictions to obtain a "gaming license" (i.e.,  corporate  suitability).
However,  since  AccuSystem is installed in gaming devices,  most  jurisdictions
have required certification of the product.

     In 1995, the Company  submitted a combination of products to the Electronic
Services  division of the State of Nevada  Gaming  Control  Board  ("SNGCB") for
assessment  and  certification.  The  AccuSystem  at  that  time  comprised  the
AccuHopper weighing  technology,  AccuTrack user interface  software,  AccuBoard
machine/coin  data acquisition PCB (Printed Circuit Board) and the TEK TOUCH PEN
2000, a data acquisition device that extracted stored data from the AccuBoard.

     On October 13, 1995,  the SNGCB found that the  AccuSystem was suitable and
issued a product approval for use in Nevada. Subsequent approvals by that entity
have been granted up to and including  1998 for hardware,  firmware and software
modifications to the original AccuSystem product line.

     In  September  1997,  the  Company  was given the  opportunity  to  install
AccuSystem into slot machines of Bally's Park Place Casino in Atlantic City, New
Jersey.  Again,  the Company was not required to obtain a gaming  license1,  but
certification  of AccuSystem by the Division of Gaming  Enforcement  ("DGE") was
required.  The Company submitted AccuSystem to the DGE and the product was found
suitable on October 16, 1997.

     In September  1997, the Mohegan Sun Resort  Casino,  located in Uncasville,
Connecticut,   requested   the  Company  to  initiate   endeavors   for  product
certification  so that that facility  could  purchase  AccuSystem2.  The Company
submitted  AccuSystem  for  testing  and  certification  by Gaming  Laboratories
International, Inc. ("GLI"), an independent testing facility3 for gaming devices
and associated  equipment based in Toms River, New Jersey.  GLI found AccuSystem
suitable  and issued a  certification  letter on October 10, 1997 to the Mohegan
tribal  gaming  commission  and the State of  Connecticut  Department of Revenue
Services.  Subsequently,  GLI approved  hardware/firmware/software  upgrades and
issued a second  certification  letter  on  February  20,  19984..  Since  then,
approvals for AccuSystem by G.L.I. have extended to other gaming  jurisdictions,
and modifications to software/firmware have been certified. Independently of the
GLI's  findings,  on April 15, 1998,  the State of  Connecticut,  Department  of
Revenue  Service/Division  of Special Revenue notified the Mohegan Tribal Gaming
Commission  that there had been a reassessment  of AccuSystem by that authority.
Because of the  possibility of fundamental  changes in slot  accounting  systems
that could be precipitated by the use of AccuSystem, it was the determination of
the state  authority  that the Company must be registered  as a gaming  services
entity  as  defined  by  the   Tribal-State   Compact.   Registration   requires
applications  filed  for  the  Company,  its  directors  and  officers.  It  was
stipulated that further  business between the company and the Mohegan Sun Casino
was to be suspended  pending  completion of applications,  review of application
material and background investigations.

     The Company intends to have all applications  submitted in the near future.
The Mohegan Tribal Gaming Commission,  pursuant to amended conditions defined by
the  Tribal-State  Compact can petition the State of Connecticut,  Department of
Revenue  Service/Division  of Special  Revenue,  to  expedite  the review of the

--------

1 The Company was required to obtain a "Vendor  Registration"  with the customer
casino,  which is a document filed with the gaming  authorities in New Jersey. A
Vendor Registration allows a company to do business in Atlantic City, but is not
a  "gaming  license".  Each  sale in that  jurisdiction  will  require  a Vendor
Registration complete for each property/customer.

2 As was the case with New Jersey,  the Company was required to obtain a "Vendor
Registration" with the Mohegan tribe. This was accomplished in October 1997.

3 Only  four  (4)  US  gaming  jurisdictions   maintain   testing/certification
facilities;  Nevada,  New Jersey,  Mississippi  and  Montana.  Most other US and
Canadian gaming jurisdictions rely on GLI for testing and product certification.

4 GLI can  and  will  issue  product  approval/certification  letters  to  other
jurisdictions  based on a request by a casino  and/or  Amerindian  tribal gaming
commission.

                                       9

<PAGE>
submitted applications.

     In November  1997, the Company was asked to begin  licensing  procedures by
the Shakopee Mdewakanton Sioux Community Gaming Commission,  which is the tribal
entity that  oversees  compliance  matters for the tribal  property  Mystic Lake
Casino in Minnesota.  Due to the compact that tribe has with the state under the
auspices of the National  Indian  Gaming Act of 1988,  all vendors of any gaming
devices  and  associated  equipment  are  required  to be licensed by the tribal
gaming  commission.  The Company  completed its application and a Class C Vendor
gaming license was issued to the Company on January 29, 1998.


Application of Future or Additional Regulatory Requirements

     In the  future,  the  Company  intends  to  seek  the  necessary  licenses,
approvals  and findings of  suitability  for the  Company,  its products and its
personnel in other  jurisdictions  throughout the world where  significant sales
are  expected to be made.  However,  there is no assurance  that such  licenses,
approvals or findings or suitability  will be obtained and that they will not be
revoked,  suspended or unsuitably  conditioned.  There is no assurance  that the
Company will be able to obtain in a timely  manner the  necessary  approvals for
its future  products  as they are  developed  nor is there  assurance  that such
approval  can  be  obtained  at  all.  If a  license,  approval  or  finding  of
suitability is required by a regulatory  authority and the Company fails to seek
or does not receive the necessary license or finding of suitability, the Company
may be prohibited from selling its products for use in that  jurisdiction or may
be required to sell its products  through other  licensed  entities at a reduced
profit to the Company.


Impact of Environmental Laws

     The Company is not aware of any federal,  state or local environmental laws
which would effect its operations.


Employees

     The  Company is not  subject to any union  labor  contracts  or  collective
bargaining agreements, and relations with its employees are satisfactory.  As of
September  19, 1998,  the Company had  thirty-three  full time  employees at its
corporate facilities in Las Vegas, Nevada.


Research and Development

     During the years ended June 30, 1998,  1997 and 1996, the Company  expended
approximately $1,327,000, $880,000 and $1,352,000, respectively, on research and
development  activities.  From  inception  on March 31,  1995  through the third
quarter of fiscal  1998,  the Company and its  subsidiaries  reported  operating
activities as a development stage enterprise. With the development of marketable
product and the  commencement  of active  marketing and sales  activities in the
last four months of fiscal 1998,  management  feels that the Company has emerged
from reporting its financial  activities as a development stage enterprise.  The
cost of research is not borne directly by the Company's customers.

     The Company will incur  certain  research and  development  expenses in the
refinement of certain  AccuSystem  related products  currently being researched,
and into the development of new products that utilize the Company's  

                                       10
<PAGE>
proprietary   technology  that  is  incorporated   into  its  current  products.
Management does not intend to commit significant resources to the development of
products  or  technologies  outside of its  current  focus until the Company has
achieved positive cash flow from the sales of its existing products.


ITEM 2.       DESCRIPTION OF PROPERTIES
              -------------------------

     The Company's corporate  headquarters are located in Las Vegas, Nevada in a
15,182 square foot  building.  On August 31, 1998,  the  Company's  lease on the
facility  expired,  and  the  Company  currently  occupies  the  facility  on  a
month-to-month  basis for a net  monthly  rental to the  Company of $8,350  plus
$2,250  for common  area  maintenance  fees.  The  Company  has  entered  into a
sixty-two month lease agreement for a 16,903 square foot facility located in the
same general area as the current facility.  Approximately  three quarters of the
new building will be utilized for office space and the remainder for  warehouse,
shop and product  assembly.  The commencement date of the lease will be the date
when  construction  is  completed  and the Company  acquires  possession  of the
premises.  Management  anticipates  that possession will occur in November 1998.
The  monthly  base rent for the new  facility  will be $13,130 in the first year
with annual increases to $18,655 for the final twelve months of the lease,  plus
$1,690 in estimated monthly common area maintenance fees and landlord  operating
expense  reimbursement  which may increase during the term of the lease based on
possible increases in expenses incurred by the landlord as defined in the lease.
The  minimum  lease  commitment  for this  noncancellable  operating  lease will
approximate   $92,000   for  the  year  ended  June  30,  1999  and  will  total
approximately $1,125,000 during the sixty-two month term of the lease.


ITEM 3.  LEGAL PROCEEDINGS
         -----------------

     On October 1, 1997,  the Company  entered into an  Interference  Settlement
Agreement with Bally Gaming International,  Inc./Alliance Gaming Corporation and
filed same with the United  States Patent and  Trademark  Office in  Washington,
D.C.  In  settlement,   both  parties  have  agreed  to  grant  to  one  another
non-exclusive  licensing  of the coin  weighing  patent  claims  that  they own,
including  the grant of those  rights to  affiliates.  "...  Bally  acknowledges
Spintek's  exclusive right,  priority and entitlement to TECHNICIAN FRAUD patent
claims  wherever  Spintek has  patents or patent  applications  containing  such
claims  ...  Spintek   acknowledges   Bally's  exclusive  right,   priority  and
entitlement  to PLAYER FRAUD patent claims  wherever  Bally has patent or patent
applications containing such claims."

     On  September  25,  1996,  Unique   Entertainment,   a  Nevada  Corporation
("Unique"), filed a complaint in Clark County (Las Vegas), Nevada District Court
against Spintek  asserting  breach of contract and related claims.  Unique is an
entertainment  agency.  It alleges  that on November  22,  1995,  Unique and the
Company entered into a written contract whereby the agency agreed to provide two
magicians  to  perform on the  Company's  behalf at various  gaming  shows.  The
contract price is $80,000.  The magicians never in fact  performed.  The Company
has filed an answer denying  liability,  specifically  asserting that no Company
agent or employee  signed the contract and no such  signature  was or would ever
have been authorized by the Company.  The Company 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
Unique has  conducted  virtually no discovery  and has done little to pursue the
case. It is  anticipated  that the case will be tried or settled within the next
few months.

     On October 10, 1996,  Richard M. Mathis of Reno,  Nevada ("Mathis") filed a
complaint  in the Washoe  County  (Reno),  Nevada  District  Court  against  the
Company,  Spintek  International,  Inc.,  and Lanier M.  Davenport,  who,  until
October 18,  1996,  was chairman  and chief  executive  officer of Gaming and is
still the beneficial owner of more than 5% of the Company's common stock. In his
suit,  Mathis  contends  that he was  

                                       11
<PAGE>
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 a fiduciary  duty to him and demands actual damages in
excess of $500,000  and punitive  damages in excess of  $500,000.  On January 6,
1997, the Company and Spintek International,  Inc. filed a motion to dismiss. On
April 14, 1998, the trial court granted in part the Company's  motion to dismiss
and dismissed two of the eleven  claims in Mathis'  complaint.  On July 8, 1998,
the court granted  summary  judgment to  co-defendant  Lanier  Davenport.  Still
pending before the court is the Company's separated motion for summary judgment,
which essentially asserts, among other things, that because the court ruled that
Davenport  had committed no  wrongdoing,  the Company could not be found to have
committed any wrongdoing,  as all of Mathis' allegations against the Company are
based  solely upon the acts or  omissions of  Davenport.  The Company  expects a
ruling on its motion by the end of the calendar year.

         The Company has  compromised  and  settled  all of the  litigation  and
binding  arbitration  between  itself,  Michael D. Fort  ("Fort"),  and  Sailfin
Investments,  Ltd ("Sailfin") , a company that the Company  believed to be under
the control of Fort. The Company filed suit on February 14, 1997 against Fort, a
former  officer and  director  of the  Company,  claiming  that Fort must return
$240,000  to the  Company  that was paid to him in  anticipation  of a change in
control of the Company that did not  actually  occur.  In addition,  the Company
filed suit against Sailfin  seeking a declaratory  judgment that the Company had
already paid Sailfin in full for services  rendered in accordance with the terms
of a consulting  services agreement,  and was,  therefore,  not required to make
quarterly royalty payments. The Company also sought the return of certain shares
of the Company's stock that were paid to Sailfin in accordance with the terms of
the consulting services  agreement.  As a result of the global settlement of the
Fort and Sailfin litigation,  each party dismissed all of its claims against the
other. The Company removed the Rule 144 restrictive  legend from the certificate
representing  the shares of the  Company's  common stock at issue in the Sailfin
case. Further, each party has agreed to bear its own costs and expenses incurred
in the litigation.  Finally, Sailfin dismissed its claim to any royalties on all
past and future sales.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         ---------------------------------------------------

     No matters were  submitted to a vote of security  holders during the fourth
quarter ended June 30, 1998.

                                       12
<PAGE>
                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
         ---------------------------------------------------------------------

     The common stock of the Company,  subsequent to the  acquisition of Spintek
Gaming,  Inc.,  began trading in September  1995 on the OTC Bulletin Board under
the symbol "SPTK". Previously, the common stock of the Company was traded on the
OTC Bulletin Board under the symbol "GSAC".  The following  table sets forth the
high and low quotations from the National Quotation Bureau,  Inc. The quotations
shown  reflect  inter-dealer  prices,  without  retail  mark-up,  mark-down,  or
commission and may not represent actual transactions.
<TABLE>
<CAPTION>
                                              Common Stock Price
                                              ------------------
                                   Bid Prices                   Ask Prices
                                   ----------                   ----------
                              High           Low             High         Low
                              ----           ---             ----         ---
<S>                          <C>            <C>             <C>          <C>  
Fiscal 1997
         1st Quarter         $2.06          $1.00           $2.06        $1.12
         2nd Quarter          1.12           0.31            1.19         0.31
         3rd Quarter          0.56           0.31            0.56         0.31
         4th Quarter          0.65           0.19            0.65         0.19

Fiscal 1998
         1st Quarter          0.56           0.45            0.59         0.45
         2nd Quarter          1.14           0.43            1.23         0.45
         3rd Quarter          0.73           0.39            0.78         0.39
         4th Quarter          0.69           0.42            0.75         0.43
</TABLE>
     As of August 31, 1998, the Company had  approximately 320 holders of record
of its common stock, representing approximately 6,260,000 shares.  Approximately
12,413,000  additional shares were held by Cede & Co. for street name holders of
the Company's common stock. The Company estimates there were approximately 2,000
additional beneficial holders of the Company's common stock.

     The Company has not paid any  dividends on its common  stock,  other than a
dividend  aggregating  approximately  $150,000  distributed to  stockholders  of
record on August 22, 1995. This dividend preceded the acquisition of Gaming. The
Company  does  not  intend  to pay any  dividends  on its  common  stock  in the
foreseeable future.

                                       13
<PAGE>
ITEM 6.   MANAGEMENTS'  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND
          RESULTS OF OPERATIONS
          ----------------------------------------------------------------------

Background Information

     Since its inception in March 1995, the Company's  business plan has been to
develop and market  proprietary  gaming and  nongaming  technology,  patent such
technology nationally and internationally, and obtain all necessary governmental
approvals  and/or  licenses  to sell  products  developed  with  this  exclusive
technology not only in the United States, but worldwide. The Company has focused
its efforts on a slot  machine  hopper  weighing  system and  certain  ancillary
products  specifically  for the gaming industry  ("AccuSystem"  or "AccuHopper")
that Spintek began to actively market in the second half of the Company's fiscal
1998. With sales of AccuHopper  having occurred in the third and fourth quarters
of fiscal  1998,  and  continuing  into the first  quarter of fiscal  1999,  the
Company  is no  longer  considered  to be a  development  stage  enterprise  for
financial  reporting  purposes.  The Company is currently  focused on developing
revenues  and income from sales of the  AccuSystem  on both a stand alone basis,
and,  as  described  below,   through  association  with  various  slot  machine
manufacturers  and  through  the  interface  of  AccuSystem  with  slot  machine
accounting  systems  utilized  in the  gaming  industry.  Based on this  current
philosophy,  management does not intend to commit  significant  resources to the
development  of products or  technologies  outside of its current focus until it
has achieved positive cash flow from sales of its initial products.

     During fiscal 1998,  the Company,  after  various  field  trials,  received
approval  of  its  stand  alone  AccuSystem  product  from  Gaming  Laboratories
International,  from the states of Nevada,  Mississippi and New Jersey, and from
Native American  tribal  authorities in the states of Connecticut and Minnesota.
Two of the primary  developers and vendors of slot machine  accounting  systems,
Bally Systems and Casino Data  Systems,  have  completed  the interface  process
which allows for the data received from the AccuHopper to be  incorporated  into
their  accounting  reports.  The  interface  with the Bally SDS system is, as of
September  9, 1998,  undergoing  field trial as  required  by the Nevada  gaming
authorities.  Should the field trial not result in any  significant  operational
problems,  management  anticipates  Bally  Systems will submit the interface for
approval  as  required  by  the  gaming  authorities  in the  various  worldwide
jurisdictions in which they operate.  The interface with Casino Data Systems was
recently   submitted  for  approval  to  the  gaming   authorities   in  various
jurisdictions in the United States in which they conduct business operations.

     The Company is currently  working with other  manufacturers of slot machine
accounting  systems  on the  interface  of  AccuSystem  with their  systems.  No
assurance  can be given  that any of the above  interfaces  will  ultimately  be
successful,   or  that  the  various  governmental  agencies  overseeing  gaming
activities  in  jurisdictions   where  gaming  is  legal  will  approve  of  the
interfacing  of the  Company's  AccuSystem  with the above noted vendors of slot
machine accounting systems.

     The Company  has license  agreements  with IGT,  Bally,  SUZO and SGPL that
permits each of them to incorporate  the  AccuHopper  technology in new machines
they produce with a license fee payment to the Company.  To date,  none of these
companies has produced any slot machines that incorporate the Company's system.

     The  accompanying  financial  statements for prior periods  reflect certain
reclassifications,  which  have no  effect  on net  losses or cash flow in those
periods, to conform with classifications in the current period.

                                       14
<PAGE>
Year 2000 Considerations

     The approach of the year 2000 has become a potential problem for businesses
utilizing  computers in their operations  since many computer  programs are date
sensitive  and will only  recognize  the last two  digits  of the year,  thereby
recognizing  the year"  2000" as the year  "1900" or not at all (the  "Year 2000
Issue").  Management  has  made a  comprehensive  assessment  of  the  Company's
exposure  to the Year 2000 Issue and what will be  required  to ensure  that the
Company is Year 2000 compliant.

     Spintek's  hopper  weighing  technology  is date  sensitive  and  has  been
programmed  to be Year 2000  compliant.  The  Company's  primary  customers  are
hotel/casinos who utilize slot machines and/or slot machine  accounting  systems
into which the Company's product is either installed or interfaced. Although the
Company has not received assurances from the primary slot machine  manufacturers
or the slot system  manufacturers as to the Year 2000 Issue, the Company expects
that at least a majority of these manufacturers will be Year 2000 compliant.

     Spintek is preparing to contact 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.  The
Company  will request  that such  assurances  be received by the end of calendar
1998 which will provide for a one year period to locate alternative suppliers.

     Now that the Company has commenced  sales of its product,  management is in
the process of researching the purchase of an enhanced software system that will
meet its manufacturing, inventory control and accounting needs. The Company will
receive assurance from each supplier that the new system is 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.


Results of Operation

Years Ended June 30, 1998 and 1997

     During the third and fourth  quarters  of 1998,  the Company  recorded  its
initial sales of  approximately  $444,000.  The Company  offered sales discounts
from the listed  sales price to those  casinos who have  assisted the Company in
perfecting  AccuHopper through field tests. These sales discounts,  coupled with
higher initial cost of product due to the initial relatively small quantities of
inventory ordered,  negatively impacted the Company's gross margin which was 37%
on these  initial  sales.  On June 30, 1998,  the Company  reported as a current
liability  approximately $247,000 in deposits received from customers for future
sales.  As of  September  9,  1998,  the  Company  has  recorded  sales of 1,375
AccuHoppers and is in the process of installing 2,672 additional  AccuHoppers in
three  casinos  in Nevada,  Iowa and  Minnesota  pursuant  to the terms of sales
contracts with those casinos.

     Research and development expenses increased approximately $446,000, or 51%,
to  $1,327,000  for the year ended June 30, 1998 from just over  $880,000 in the
prior year. In addition to research and development costs incurred in perfecting
the  AccuHopper  to operate on a stand alone  basis,  in fiscal 1998 the Company
significantly  increased  its focus on enhancing  the  AccuSystems's  ability to
interface with the predominant slot accounting systems currently utilized in the
casino industry.  Additional research and development  expenses were 

                                       15

<PAGE>
incurred in developing ancillary products that will be marketable in conjunction
with the AccuHopper.

     Selling,  general and administrative  expenditures increased  approximately
$1,225,000, or 54%, from $2,271,000 in fiscal 1997 to $3,496,000 in fiscal 1998.
An increase in payroll and payroll related expenses of  approximately  $409,000,
$280,000  of  which  was  for  sales  and  marketing  personnel,  was  the  most
significant contributor to the increase.  Legal fees for the year ended June 30,
1998 were  $898,000  compared  to  $551,000  in the prior  year,  an increase of
$347,000 or 63%. Legal expenses  incurred in  jurisdictional  product  licensing
activities,  debt and equity  financing  activities,  the joint venture with the
Australian company and various litigation matters accounted for this increase in
legal   expenses.   Other   significant   increases  in  selling,   general  and
administrative   expenses  were  (i)  bonus  compensation  associated  with  the
Company's SAR Plan  implemented  on June 1, 1997 increased to $195,000 in fiscal
1998 compared to $15,000 in the prior year;  (ii) bad debt expense  increased to
$180,000 from $60,000 when comparing the two years in connection with a $240,000
receivable  from a former  officer and  director of the Company that was written
off during the year ended June 30,  1998;  and (iii) an  increase  of $67,000 in
advertising expense.

     Interest and other income  decreased  from $141,000 for the year ended June
30, 1997 to $13,000 for the year ended June 30,  1998,  primarily  due a $74,000
deposit  that was  forfeited  to the Company in fiscal  1997.  Interest  expense
decreased  from  $534,000  for the year ended June 30, 1997 to $71,000 in fiscal
1998 as a result of the expensing of debt discount and issuance  costs  incurred
in  connection  with the  debenture  issued in July 1996  being  converted  into
preferred stock in October 1996.

     Depreciation and amortization expense increased $18,000, or 67%, to $45,000
if fiscal 1998 from $27,000 in the prior year. The increase was primarily due to
purchases of depreciable assets used in the Company's business operations.

     As detailed in the accompanying  Notes to Financial  Statements,  valuation
allowances  have been  established  for deferred tax assets due to the Company's
historical  results of  operations.  Therefore,  the income  statement  does not
reflect any income tax benefit that would  potentially  be realized  through net
operating loss carry forwards.

Years Ended June 30, 1997 and 1996

     Research and  development  expenses  decreased from $1,352,000 for the year
ended June 30, 1996 to $880,000 for the year ended June 30, 1997. A  significant
portion of the research and  development  expenses  incurred in fiscal 1996 were
associated  with the  Company's  slot machine and slot machine  hopper  projects
which were abandoned in April 1996.

     Selling,  general and administrative  expenses decreased $558,000,  or 20%,
from  $2,829,000  for the year ended June 30,  1996 to  $2,271,000  for the year
ended June 30, 1997. Trade show expenses decreased  $336,000,  from $363,000 for
the year ended June 30, 1996 to $27,000 in fiscal 1997. In addition, fiscal 1996
included $524,000 in expense which resulted from the  extinguishment of employee
contracts  which was paid in the form of common  stock of the Company to certain
key employees  and/or their  designees.  Legal  expenses  increased  $272,000 to
$551,000 in fiscal 1997 from  $279,000 in fiscal  1996,  primarily  due to legal
fees incurred in in pursuit of perfecting  the Company's  pending  patent on its
hopper  weighing  technology;  legal  fees  incurred  in  conjunction  with  the
Company's various financing and equity transactions; and legal expenses incurred
in various litigation.

     Interest  and other  income  increased  $123,000,  to $141,000 for the year
ended June 30,  1997 from  $18,000 in fiscal  1996,  primarily  due to a $74,000
deposit to the Company that was forfeited in fiscal 1997.  Interest  expense was
$534,000  for the year ended June 30, 1997  compared  to  $106,000  for the year
ended June 30, 1996,
                                       16

<PAGE>
an increase of $427,000. The increase was primarily due to the write off of debt
discount and issuance  costs  associated  with the debenture  that was issued in
July 1996 and converted into common stock in October, 1996.

     Depreciation  and  amortization  expense  increased  $16,000 or 154%,  from
$11,000 in fiscal 1996 to $27,000 in fiscal 1997,  primarily due to purchases of
depreciable assets used by the Company in its business operations.


Liquidity and Capital Resources

     Since its  inception on March 31, 1995 through the third  quarter of fiscal
1998, the Company and its subsidiaries have filed their financial  statements as
a development stage enterprise,  with no sales until the third quarter of fiscal
1998. With  additional  sales occurring in the fourth quarter of fiscal 1998 and
into the first  quarter of fiscal  1999,  management  feels that the Company has
commenced its principal business  operations and is no longer considered to be a
development stage enterprise for financial reporting  purposes.  The Company has
incurred  approximately  $13,296,000  in  operating  losses and  $11,092,000  in
negative cash flows from operations  during the  thirty-nine  month period ended
June 30, 1998.  Absent  significant  revenues from  operations,  the Company has
funded itself primarily through equity and debt transactions.

     On June 30, 1998, the Company's  working capital deficit was  approximately
$1,012,000,  which  included  approximately  $190,000 in demand  liabilities  to
stockholders  and affiliates and $484,000 in dividends on preferred  stock.  Net
cash  used in  operating  activities  for the  year  ended  June  30,  1998  was
approximately $3,6002,000.

     During the first quarter of fiscal 1998,  the Malcolm C. Davenport V Family
Trust (the "Trust"),  Malcolm C. Davenport V being a director of the Company and
co-trustee  of the Trust with  certain  beneficial  control  though no  economic
interest, loaned $500,000 to Spinteknology,  with such loan being evidenced by a
note and secured by a pledge of the Company's weighing technology. 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.  These
shares  of  common  stock  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%  Convertible
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.

     On May 1, 1998 the Company  received a Notice of Conversion  ("Conversion")
to convert 500 shares of the Preferred from RBB. Such Conversion resulted in the
company  issuing  1,000,690 new shares of the  Company's  $0.002 common stock to
RBB. The Conversion price was based on the five day average closing bid price of
the  common  stock for the five days ended  April 30,  1998.  At June 30,  1998,
management  believes  that  RBB  owned  approximately  1,101,890  shares  of the
Company's common stock, or approximately 6.3% of the total outstanding shares.

     At June 30,  1998,  there  were  8,241  issued  and  outstanding  shares of
Preferred,  all of which were held by 

                                       17
<PAGE>
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 $3.00 per share.  All common stock issued
upon conversion of the Preferred is subject to Registration Rights Agreements.

     As of June 30, 1998,  the 8,241  shares of  preferred  stock and the unpaid
dividends of  approximately  $485,000 would have  converted  into  approximately
18,179,000 shares of additional common stock of the Company based on the average
closing bid price of the shares of the Company's  common stock for the last five
trading days of June, 1998. Had such a conversion occurred,  management believes
that RBB would  have  owned  approximately  19,280,810  shares of the  Company's
common stock, or 54.3% of the total outstanding shares assuming no conversion of
the 6% Convertible  Notes described below. If both a conversion of the Preferred
and the 6% Convertible Notes had occurred on June 30, 1998, RBB would have owned
19,280,810  shares of common stock of the Company,  or approximately  41.2% (see
"Security Ownership of Certain Beneficial Owners and Management").

     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 31, 1996  pursuant to the terms and  conditions  of a
Subscription  Agreement entered into by RBB and the Company on July 16, 1996. As
of the date of this  document,  RBB has not caused the Company to reverse  split
its common stock.

     On January  21,  1998,  the Company  issued a Warrant  for the  purchase of
277,778  shares  of the  Company's  common  stock  for  $0.36  per  share to NAC
Investments Properties, Inc. ("NAC") in association with a secured loan from NAC
in the amount of $100,000. The Warrant was exercised by the holder and converted
into the  Company's  common stock on April 24, 1998 with the issuance of 277,778
shares in settlement of the $100,000 debt.

     On February  27,  1998,  the Company  initiated  the private  placement  of
certain 6% Secured Convertible Notes ("the "Notes") in two separate filings with
identical  terms due February 28, 2008 in the  aggregate  principal  amount of a
maximum of $5,000,000  to a limited  number of investors  with interest  payable
annually  commencing  February  28,  1999.  The Notes are  secured by a security
interest and collateral  assignment of all of the Company's and its subsidiaries
patents, patent applications, trade secrets and all other intellectual rights of
the Company  existing or developed prior to the repayment or other settlement of
the Notes.  The Notes are  convertible  by the  holders of the Notes at any time
through  February 28, 2001 into shares of the Company's $0.002 common stock in a
number  equal to 0.8% of the then  outstanding  shares of the  Company's  common
stock for each  $100,000 in  principal  amount of the Notes.  In  addition,  the
Company may require  conversion at certain times through February 28, 2001 under
certain  circumstances.  As of June 30, 1998 and July 31, 1998,  $2,350,000  and
$4,450,000 of the Notes had been purchased,  respectively.  Of the $4,450,000 of
Notes issued and  outstanding  as of July 31, 1998,  the Malcolm C.  Davenport V
Family Trust (the "Trust") had purchased  $4,000,000.  An additional $100,000 of
the Notes had been purchased by a member of the Company's board of directors.

     As of June 30, 1998,  $1,900,000 of the  $2,350,000 in principal  amount of
the Notes were held by the Trust.  If the Trust would have  converted  the Notes
into common  stock on that date based on the average bid price of the shares for
the last five trading days of June, the Trust would have received  approximately
6,606,000  shares  of  additional  common  stock  of  the  Company.  Had  such a
conversion occurred,  management believes that Malcolm C. Davenport V would have
beneficially owned approximately 9,402,000 shares of the Company's common stock,
or 36.7% of the  outstanding  shares  assuming no  conversion  of the  Preferred
Stock. If both a 

                                       18
<PAGE>
conversion of the  Preferred  Stock and the Notes had occurred on June 30, 1998,
Malcolm C. Davenport V would have owned 9,402,000  shares of common stock of the
Company,  or approximately  21.5% (see "Security Ownership of Certain Beneficial
Owners and Management").

     As of September 9, 1998, the Company was negotiating  with other sources to
secure investors for the remaining $550,000 of principal amount of the Notes.

     Upon completion of the installation of approximately  2,672  AccuHoppers at
three casinos which were in process on September 9, 1998,  the Company will have
recorded  sales  of  over  4,000   AccuHoppers  for  a  total  of  approximately
$2,000,000,  with sales  having  occurred  in  Nevada,  New  Jersey,  Minnesota,
Connecticut  and  Iowa.  In  addition,  the  Company  is  pursuing  other  sales
opportunities  and, as  previously  noted in the Results of  Operations  section
above,  has recently  obtained  the  capability  to interface  with certain slot
machine accounting systems.

     Should  the  Company  fail  to  generate  sufficient  revenues  to  support
operations,  the  Company  would  have  to  secure  additional  debt  or  equity
financing.  If this additional debt or equity financing should not be available,
and no assurances can be given that such additional debt or equity financing can
be located,  and if the Company can not generate  sufficient revenues to support
operations, the Company will be unable to continue as a going concern.



                                       19
<PAGE>
ITEM 7.  CONSOLIDATED FINANCIAL STATEMENTS
         ---------------------------------
<TABLE>
<CAPTION>
Index to Consolidated Financial Statements                                         Page No.
                                                                                   --------

<S>                                                                                 <C>
     Report of Independent Accountants                                               F-1
     Consolidated Balance Sheets as of June 30, 1998 and June 30, 1997               F-2
     Consolidated Statements of Operations for the Years Ended June 30, 1998,
         1997 and 1996                                                               F-3
     Consolidated Statement of Changes in Stockholders' Equity (Deficit) for the
         Years Ended June 30, 1998, 1997 and 1996 F-4 Consolidated  Statement of
     Cash Flows for the Years Ended June 30, 1998,
         1997 and 1996                                                               F-5
     Notes to Consolidated Financial Statements                                      F-7
</TABLE>
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS



Board of Directors and Stockholders
Spintek Gaming Technologies, Inc.
Las Vegas, Nevada


We have audited the accompanying  consolidated  balance sheets of Spintek Gaming
Technologies, Inc. and subsidiaries as of June 30, 1998 and 1997 and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and  cash  flows  for  each of the  three  years in the  period  ended  June 30,
1998.These   financial  statements  are  the  responsibility  of  the  company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of Spintek  Gaming
Technologies,  Inc.  and  subsidiaries  as of June 30,  1998 and  1997,  and the
results of their  operations and their cash flows for each of the three years in
the period ended June 30, 1998, in conformity with generally accepted accounting
principles.

The accompanying  consolidated  financial statements have been prepared assuming
the companies  will continue as a going  concern.  As shown in the  consolidated
financial  statements,  the companies have incurred net losses $13,295,100 since
inception and a net loss of $4,786,581  during the year ended June 30, 1998, and
has a working capital deficit of $1,012,656. These facts raise substantial doubt
about the companies' ability to continue as a going concern.  Management's plans
in regard  to these  matters  are  described  in the  notes to the  consolidated
financial statements.  The consolidated  financial statements do not include any
adjustments  relating to the recoverability and classification of recorded asset
amounts and  classifications  of liabilities  that might be necessary should the
companies be unable to continue in existence.



                                                JOSEPH DECOSIMO AND COMPANY, LLP
                                            /s/ JOSEPH DECOSIMO AND COMPANY, LLP

Chattanooga, Tennessee
August 7, 1998

                                      F-1
<PAGE>
                        SPINTEK GAMING TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
                           CONSOLIDATED BALANCE SHEETS
 
                                                                            June 30,
                                                                            --------
                                                                     1998            1997
                                                                     ----            ----                            
<S>                                                           <C>             <C>         
                                     ASSETS
Current assets:
  Cash ....................................................   $    499,551    $    404,048
  Accounts receivables, net ...............................        229,245         186,707
  Inventories, net ........................................        679,445         483,469
  Prepaid expenses and other current assets ...............         45,922           3,326
                                                                    ------           -----
      Total current assets ................................      1,454,163       1,077,550

Furniture, fixtures and equipment, net ....................        144,397         130,748
Licenses and patents ......................................      1,019,490       1,019,490
Note receivable from related company ......................           --            88,278
Other assets ..............................................        125,542         140,471
                                                                   -------         -------

Total assets ..............................................   $  2,743,592    $  2,456,537
                                                              ============    ============


           LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable ........................................   $    851,775    $    425,900
  Demand notes payable to stockholders ....................        170,188         313,412
  Demand notes payable to affiliated party ................         20,000          20,000
  Accrued liabilities .....................................        639,679         128,750
  Accrued interest ........................................         53,084           5,416
  Customer deposits .......................................        247,211            --
  Dividends payable .......................................        484,882         187,884
                                                                   -------         -------
      Total current liabilities ...........................      2,466,819       1,081,362
                                                                 ---------       ---------

Long-term debt ............................................      2,350,000            --
                                                                 ---------       ---------             

Stockholders' equity (deficit):
  Convertible preferred stock, no par value, 100,000 shares
    authorized, 8,241 and 7,313 shares issued and
    outstanding ...........................................      5,355,182       4,825,014
  Common stock, $0.002 par value, 100,000,000 shares
    authorized, 19,990,384 and 17,103,772 shares issued
    and outstanding .......................................         39,982          34,208
  Additional paid-in capital ..............................      5,855,303       5,053,066
  Accumulated deficit .....................................    (13,295,100)     (8,508,519)
  Treasury stock, 1,317,329 shares, at cost ...............        (28,594)        (28,594)
                  ---------                                        -------         ------- 
    Total stockholders' equity (deficit) ..................     (2,073,227)      1,375,175
                                                                ----------       ---------

Total liabilities and stockholders' equity ................   $  2,743,592    $  2,456,537
                                                               ===========         ===========
</TABLE>
           See accompanying Notes to Consolidated Financial Statements

                                       F-2
<PAGE>
                        SPINTEK GAMING TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                           For the Year Ended June 30,
                                                           ---------------------------
                                                       1998           1997            1996
                                                       ----           ----            ----
<S>                                             <C>             <C>             <C>       
Sales .......................................   $    444,011    $       --      $       --
Cost of sales ...............................        280,375            --              --
                                                     -------          ------         ------                           
  Gross profit ..............................        163,636            --              --

Selling, general and administrative expenses       3,496,315       2,271,161       2,829,010
Research and development expenses ...........      1,326,698         880,353       1,352,025
                                                   ---------         -------       ---------
  Operating loss ............................     (4,659,377)     (3,151,514)     (4,181,035)

Other income (expense):
  Interest and other income .................         13,454         141,272          18,197
  Depreciation and amortization .............        (45,132)        (26,999)        (10,645)
  Interest expense ..........................        (70,928)       (533,658)       (106,459)
  Other .....................................        (24,598)           --              (798)
                                                     -------          ------            ---- 
Net loss ....................................     (4,786,581)     (3,570,899)     (4,280,740)
Dividends on convertible preferred stock ....       (328,614)       (215,336)           --
                                                    --------        --------         -------         

Net loss applicable to common shares ........   $ (5,115,195)   $ (3,786,235)   $ (4,280,740)
                                                ============    ============    ============ 

Earnings (loss) per common share information:
  Weighted average common shares:
    Basic ...................................     18,268,423      11,284,874       9,943,869
                                                  ==========      ==========       =========
    Diluted .................................     18,268,423      11,284,874       9,943,869
                                                  ==========      ==========       =========

  Net loss per common share:
    Basic ...................................   $      (0.28)   $      (0.34)   $      (0.43)
                                                ============    ============    ============ 
    Diluted .................................   $      (0.28)   $      (0.34)   $      (0.43)
                                                ============    ============    ============ 
</TABLE>


           See accompanying Notes to Consolidated Financial Statements
                                       F-3
<PAGE>
                        SPINTEK GAMING TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

                                                                   Treasury                           Additional
                                               Common Stock         Stock        Preferred Stock       Paid-In     Accumulated
                                             Shares      Amount     Amount     Shares     Amount       Capital       Deficit
                                             ------      ------     ------     ------     ------       -------       -------

<S>                                         <C>          <C>      <C>           <C>     <C>           <C>          <C>        
Balance, July 1, 1995                        3,761,000   $ 4,865  $     -          -    $        -    $   727,007  $   (656,880)
Transaction resulting from acquisition:
 Cancellation of Spintek Gaming, Inc.
   common stock                             (3,761,000)
 Common stock acquired in acquisition        1,275,001
Issuance of common stock in acquisition
 of Spintek Gaming, Inc.                     8,000,000    13,685                                          (13,760)
Contribution of common stock to treasury    (1,418,359)           (2,127,539)                           2,127,539
Issuance of treasury stock for compensation
 and for extinguishment of stock options       864,030             1,296,045                             (518,418)
Issuance of treasury stock for services
 related to acquisition of 
 Spintek Gaming, Inc.                          392,000               588,000                             (235,200)
Issuance of common stock for services
 related to acquisition of Spintek             475,000       950                                          426,550
 Gaming, Inc.
Costs related to acquisition of Spintek                                                                (1,014,275)
 Gaming, Inc.
Issuance of treasury stock pursuant to                                                                
 Rule 504                                      145,000               217,500                              263,500
Issuance of common stock pursuant to
 Regulation S                                  454,545       909                                          818,893
Issuance of common stock to repay
 debt                                          464,545       929                                        1,009,784
Net loss                                                                                                             (4,280,740)
                                            ----------   -------    --------    ------   ----------    ----------  ------------

Balance, June 30, 1996                      10,651,762    21,338     (25,994)        -            -     3,591,620    (4,937,620)
Issuance of common stock to repay
 debt to stockholders                          401,140       802                                          439,198
Issuance of preferred stock for conversion
 of Convertible Debenture                                                        7,202    4,828,687
Issuance of common stock for conversion
 of preferred stock                          6,033,541    12,068                (1,318)    (883,673)      899,549
Contribution of common stock to treasury    (1,300,000)               (2,600)                               2,600
Conversion of debt to additional paid in                                                              
 capital                                                                                                  335,435
Issuance of preferred stock                                                      1,429      880,000
Dividends on preferred stock                                                                             (215,336)
Net loss                                                                                                             (3,570,899)
                                            ----------   -------    --------     -----   ----------     ---------  ------------

Balance, June 30, 1997                      15,786,443    34,208     (28,594)    7,313    4,825,014     5,053,066    (8,508,519)
Issuance of common stock to repay
 debt                                        1,678,658     3,358                                          596,642
Issuance of common stock for conversion
 of preferred stock                          1,000,690     2,001                  (500)    (335,232)      364,847
Exercise of stock options                        7,264        15                                            1,488
Stock options issued to nonemployees                                                                       58,274
Issuance of preferred stock                    200,000       400                 1,428      865,400       109,600
Dividends on preferred stock                                                                             (328,614)
Net loss                                                                                                             (4,786,581)
                                            ----------   -------   ---------     -----  -----------   -----------  ------------ 

Balance, June 30, 1998                      18,673,055   $39,982   $ (28,594)    8,241  $ 5,355,182   $ 5,855,303  $(13,295,100)
                                            ==========   =======   =========     =====  ===========   ===========  ============ 

</TABLE>

           See accompanying Notes to Consolidated Financial Statements

                                       F-4

<PAGE>
                        SPINTEK GAMING TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                    For the Year Ended June 30,
                                                                    ---------------------------
                                                             1998              1997              1996
                                                             ----              ----              ----
<S>                                                    <C>               <C>               <C>          
Cash flows from operating activities:
  Net loss                                             $ (4,786,581)     $ (3,570,899)     $ (4,280,740)
  Adjustments to reconcile net loss to net cash
   used by operating activities:
    Depreciation and amortization                            45,272            26,999            10,645
    Provision for doubtful receivables                      (60,000)           60,000                 -
    Allowance for inventory obsolescence                     10,000           212,000            28,000
    Non-cash interest expense                                     -           394,687
    Non-cash operating expenses for common
     stock or common stock options                           58,274                 -           597,146
    Other                                                         -                 -               798
    Royalty expense used to reduce note
     receivable from related company                         88,278            75,632                 -
  (Increase) decrease in assets:
    Inventories                                            (205,976)         (243,734)         (464,235)
    Receivables and other                                    16,871          (356,368)           (3,967)
  Increase (decrease) in liabilities:
    Accounts payable                                        425,871            13,169           309,334
    Accrued liabilities                                     510,929          (104,537)          233,287
    Interest payable                                         47,668           (70,285)           75,701
    Customer deposits                                       247,212                 -                 -
                                                            -------          --------         ---------
Net cash used in operating activities                    (3,602,182)       (3,563,336)       (3,494,031)
                                                         ----------        ----------        ---------- 

Net cash used by investing activities:
  Purchases of furniture, fixtures and equipment            (85,377)          (81,722)          (62,021)
  Acquisition of licenses and patents                             -                 -          (145,167)
  Proceeds from sale of securities                                -                 -            60,292
  Note receivable from related company                            -            (4,000)          (42,820)
  Other                                                        (617)                -                 -
                                                               ----            ------           -------  
Net cash used in investing activities                       (85,994)          (85,722)         (189,716)
                                                            -------           -------          -------- 

Net cash provided by financing activities:
  Proceeds from (repayment of) demand notes
    payable to related parties                              357,176          (446,121)          184,899
  Proceeds from (repayment of) advances from
    stockholders                                                  -        (1,004,588)        2,264,670
  Proceeds from issuance of convertible debentures        2,350,000         4,503,151                 -
  Proceeds from issuance of common and treasury
    stock                                                   101,503                 -         1,331,040
  Proceeds from issuance of preferred stock                 975,000           880,000                 -
                                                            -------           -------         ---------
Net cash provided by financing activities                 3,783,679         3,932,442         3,780,609
                                                          ---------         ---------         ---------

Net increase in cash and cash equivalents                    95,503           283,384            96,862
                                                                       
Cash and cash equivalents, beginning of period              404,048           120,664            23,802
                                                            -------           -------            ------

Cash and cash equivalents, end of period                  $ 499,551         $ 404,048         $ 120,664
                                                          =========         =========         =========
</TABLE>
           See accompanying Notes to Consolidated Financial Statements

                                       F-5
<PAGE>
                        SPINTEK GAMING TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                    For the Year Ended June 30,
                                                                    ---------------------------
                                                                   1998           1997           1996
                                                                   ----           ----           ----

<S>                                                           <C>            <C>            <C>        
Supplemental schedule of non-cash investing and
 financing activities:
    Issuance of common stock in exchange for debt .........   $   500,000    $   440,000    $    10,693
                                                              ===========    ===========    ===========
    Issuance of common stock and treasury stock for
      advances from stockholders ..........................   $      --      $      --      $ 1,000,000
                                                              ===========    ===========    ===========
    Issuance of common stock and treasury stock
      for services ........................................   $   110,000    $      --      $ 1,014,275
                                                              ===========    ===========    ===========
    Issuance of preferred stock in exchange for convertible
      debenture, net of unamortized debt issuance costs ...   $      --      $ 4,828,687    $      --
                                                              ===========    ===========    ===========  
    Issuance of common stock in exchange for preferred
      stock and dividends payable .........................   $   366,848    $   911,617    $      --
                                                              ===========    ===========    ===========  
    Notes and interest payable to stockholders converted
      to additional paid-in capital .......................   $      --      $   335,435    $      --
                                                              ===========    ===========    ===========  
    License and patent costs acquired by issue of notes
      payable .............................................   $      --      $      --      $   850,000
                                                              ===========    ===========    ===========
    Dividends payable on preferred stock ..................   $  (328,614)   $  (187,884)   $      --
                                                              ===========    ===========    ===========  

Supplemental disclosure of cash flow information:
    Cash paid for interest ................................   $    23,259    $   119,737    $    33,121
                                                              ===========    ===========    ===========

</TABLE>
           See accompanying Notes to Consolidated Financial Statements

                                       F-6

<PAGE>
                        SPINTEK GAMING TECHNOLOGIES, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    ORGANIZATION

     Spintek Gaming  Technologies,  Inc., referred to herein as the "Company" or
"Spintek",  was originally  incorporated in the State of California on September
11, 1984 and  reincorporated  in Nevada on August 24, 1998 pursuant to a vote of
the shareholders  approving the  reincorporation at the Company's annual meeting
on January 21, 1998.. The Company is located in Las Vegas,  Nevada.  The Company
is authorized to issue 100,000,000  shares of common stock and 100,000 shares of
preferred  stock.  Its  $0.002  par value  common  stock  trades on the over the
counter  Bulletin  Board under the symbol  "SPTK".  Until the  completion of the
fiscal year ended June 30, 1995, the Company distributed products in the medical
first aid and personal safety field from its corporate  offices in Laguna Hills,
California.

     Spintek  Gaming,  Inc.  ("Gaming") was  incorporated  under the laws of the
State of  Georgia  in  December  1993 as a  wholly-owned  subsidiary  of Spintek
International, Inc. ("International"),  also a Georgia corporation. On April 12,
1995,  Gaming was spun off from  International  through a dividend  of  Gaming's
shares to stockholders of record of International as of that date. International
is  neither  a parent  nor a  subsidiary  of the  Company.  However,  Lanier  M.
Davenport,  the  Company's  former  Chairman and Chief  Executive  Officer and a
current   shareholder   of  the  Company  is  a   significant   shareholder   of
International. In September 1995, Gaming became a wholly owned subsidiary of the
Company effected by an exchange of common stock of the entities.

     In May 1995, Spinteknology,  Inc. ("Spinteknology") was incorporated in the
State of Georgia as the wholly-owned subsidiary of Gaming.

     The Company's  corporate mission calls for it to identify,  refine and then
market and license  proprietary gaming and non-gaming  technology on a worldwide
basis. Since  approximately  April 1996, the Company,  through its subsidiaries,
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 this financial and security  information.
The  Company  believes  this  proprietary  technology  is unique  in the  gaming
industry.

     From  inception  on March 31, 1995 through the third  quarter of 1998,  the
Company and its  subsidiaries  reported  operating  activities  as a development
stage enterprise. With the commencement of active marketing and sales activities
in the fourth  quarter of 1998,  management  feels that the Company is no longer
considered  to  be  a  development  stage  enterprise  for  financial  reporting
purposes.  During the thirty-nine  month period from inception on March 31, 1995
through  the year  ended  June 30,  1998,  the  Company  incurred  net losses of
approximately $13.3 million and negative cash flows from operating activities of
approximately $11.1 million


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation.  The consolidated  financial statements include the
accounts of the Company, its wholly-owned subsidiary,  Spintek Gaming, Inc., and
Spintek Gaming, Inc.'s wholly-owned subsidiary, Spinteknology, Inc. All material
inter-company accounts and transactions have been eliminated in consolidation.

                                      F-7

<PAGE>
Reclassifications.  The financial  statements for prior periods  reflect certain
reclassifications,  which have no effect on losses incurred in those periods, to
conform with classifications adopted in the current year.

Estimates  and  Uncertainties.   The  preparation  of  financial  statements  in
conformity with generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.

     Certain significant estimates were made in the preparation of the financial
statements. While management's estimates of the allowance for doubtful accounts,
allowance for inventory  obsolescence and valuation allowance for deferred taxes
were  based  on the  best  information  currently  available,  it is  reasonably
possible that these estimates could change by a material amount within one year.

Cash and Cash Equivalents. The Company maintains cash and investment accounts at
financial  institutions  which may exceed federally insured amounts at times and
which may at times significantly exceed balance sheet amounts due to outstanding
checks.  The  Company  classifies  as cash  equivalents  all highly  liquid debt
instruments with a maturity of three months or less when purchased.

Inventories.  Inventories  are  stated at the lower of cost or  market.  Cost is
determined using the first-in, first-out method.

Furniture,  Fixtures and Equipment.  Furniture, fixtures and equipment is stated
at cost.  Expenditures  for  repairs and  maintenance  are charged to expense as
incurred and additions and improvements that  significantly  extend the lives of
assets are capitalized.  Upon sale or other retirement of depreciable  property,
the cost and accumulated  depreciation are removed from the related accounts and
any gain or loss is reflected in operations.

     Depreciation  is provided at the time  equipment is placed in service using
the  straight-line  method over the  estimated  useful lives of the assets which
range from three to ten years.

Licenses and Patent Costs. Spinteknology holds various international patents and
has other  patent  applications  pending  in the  United  States  and  elsewhere
regarding its coin hopper technology. Deferred patent costs are recorded at cost
and will be amortized  over the life of the patents.  Management  requires  that
licenses, patents, other intangible assets and long-lived assets be reviewed for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying amount of the assets may not be recoverable.

Financial  Instruments.  The  Company's  financial  instruments  recorded on the
balance sheet include cash, accounts receivable,  accounts payable and debt. The
carrying amount of cash, accounts  receivable and accounts payable  approximates
fair value  because of their short term  maturity.  The  carrying  amount of the
Company's debt instruments  approximates fair value based on borrowing rates for
similar types of debt arrangements.

Income Taxes.  Income taxes are computed based on the provisions of Statement of
Financial  Accounting Standards No. 109, "Accounting for Income Taxes." Deferred
tax assets and  liabilities,  if  significant,  are recognized for the estimated
future tax effects attributed to temporary  differences between the book and tax
bases of assets and liabilities and for  carryforward  items. The measurement of
current  and  deferred  tax assets  and  liabilities  is based on  enacted  law.
Deferred tax assets are reduced, if necessary,  by a valuation allowance for the
amount of tax benefits that may not be realized. (See note 11).

     The Company and its wholly-owned  subsidiaries file a consolidated  federal
income tax return.

                                      F-8

<PAGE>
3.    ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
     Accounts receivable at June 30, 1998 and 1997 consist of the following:

                                                           1998         1997
                                                           ----         ----
<S>                                                    <C>          <C>    
Trade Accounts ..........................              $ 224,188    $    --
Other ...................................                  5,057      246,707
-----------------------------------------              ---------    ---------  
     Subtotal ...........................                229,245      246,707
Less allowance for doubtful accounts ....                    --       (60,000)
                                                        ---------    ---------  
                                                                   
Net .....................................              $ 229,245    $ 186,707
                                                       =========    =========
</TABLE>
<TABLE>
<CAPTION>
     Changes in the allowance for doubtful accounts for the years ended June 30,
1998, 1997 and 1996 are summarized as follows:

                                                    1998       1997        1996
                                                    ----       ----        ----
<S>                                             <C>         <C>          <C>   
Allowance for doubtful accounts, beginning ..   $ (60,000)  $     --     $   --
Provision for bad debts .....................    (180,000)   (60,000)        --
                                                ---------   ---------    -------
Allowance for doubtful accounts, ending .....   $     --    $(60,000)   $    --
                                                =========   =========    =======
</TABLE>

4.   INVENTORIES
<TABLE>
<CAPTION>
     Inventories at June 30, 1998 and 1997 consist of the following:

                                                         1998             1997
                                                         ----             ----
<S>                                                  <C>              <C>      
Raw materials ................................       $ 693,504        $ 483,309
Finished goods
                                                       235,941          240,160
Less allowance for obsolescence ..............        (250,000)        (240,000)
                                                     ---------        ---------
Net ..........................................       $ 679,445        $ 483,469
                                                     =========        =========
</TABLE>
<TABLE>
<CAPTION>
     Changes in the  allowance  for  obsolescence  for the years  ended June 30,
1998, 1997 and 1996 are summarized below:

                                               1998         1997         1996
                                               ----         ----         ----
<S>                                        <C>          <C>          <C>    
Allowance for obsolescence, beginning ..   $(240,000)   $ (28,000)   $    --
Provision for obsolete inventory .......    (205,130)    (212,000)     (28,000)
Write-offs .............................     195,130         --           --
                                           ---------    ---------    ---------
Allowance for obsolescence, ending .....   $(250,000)   $(240,000)   $ (28,000)
                                           =========    =========    =========
</TABLE>


                                      F-9
<PAGE>
5.    FURNITURE, FIXTURES AND EQUIPMENT
<TABLE>
<CAPTION>
     Furniture, fixtures and equipment at June 30, 1998 and 1997 consists of the
following:

                                                              1998        1997
                                                              ----        ----
<S>                                                      <C>          <C>      
Furniture and fixtures ................................  $  29,889    $  20,909
Equipment .............................................    174,185      147,763
                                                         ---------    --------- 
                                                           204,074      167,672
Less accumulated depreciation .........................    (59,677)     (37,924)
                                                         ---------    --------- 
Furniture, fixtures and equipment - net ...............  $ 144,397    $ 130,748
                                                         =========    =========
</TABLE>


6.    CONVERTIBLE LONG-TERM DEBT

     On July 16, 1996, the Company issued a $7,143,000, 4% Convertible Debenture
(the "Debenture") due December 31, 1997. The Debenture was issued to an offshore
investor  pursuant to Regulation S promulgated  under the Securities Act of 1933
at a discount of 30% and netted the Company  $4,375,000 after discount and costs
associated  with the offering.  The Debenture,  plus any accrued  interest,  was
issued with the intent that it was to be converted  into  preferred  stock after
the  Board of  Directors  received  authority  to  issue  such  shares  from the
stockholders  of the Company.  On October 1, 1996,  the  Debenture  plus accrued
interest  thereon was converted to preferred  shares as described in these notes
to the financial statements.

     On February  27,  1998,  the Company  initiated  the private  placement  of
certain 6% Secured  Convertible Notes (the "Notes") in two separate filings with
identical  terms due February 28, 2008 in the  aggregate  principal  amount of a
maximum of $5,000,000  to a limited  number of investors  with interest  payable
annually  commencing  February  28,  1999.  The Notes are  secured by a security
interest and  collateral  assignment  of all of the  Company's  patents,  patent
applications,  trade  secrets and all other  intellectual  rights of the Company
existing or developed  prior to the repayment or other  settlement of the Notes.
The Notes are  convertible by the holders at any time through  February 28, 2001
into shares of the Company's  $0.002 par value common stock in a number equal to
0.8% of the then  outstanding  shares  of the  Company's  common  stock for each
$100,000 in principal amount of the Notes. In addition,  the Company may require
conversion   at  certain   times   through   February  28,  2001  under  certain
circumstances.  As of June 30, 1998 and July 31, 1998, $2,350,000 and $4,450,000
of the Notes had been purchased, respectively. Of the $4,450,000 of Notes issued
and  outstanding  as of July 31, 1998,  the Malcolm C.  Davenport  Family Trust,
Malcolm C. Davenport being a director of the Company and co-trustee of the trust
with certain  beneficial  control  though no economic  interest,  had  purchased
$4,000,000.


7.    STOCKHOLDERS' EQUITY, OPTIONS AND WARRANTS

Preferred Stock - On August 6, 1996 the Board of Directors was granted authority
by a consent of a majority  of the  stockholders  of the  Company to issue up to
100,000  shares of  Series A 4%  Convertible  Preferred  Stock  (the  "preferred
stock"),  without  nominal or par value per share,  in one or more series and to
fix the  number of shares  constituting  any such  series,  the  voting  powers,
designation,  preferences and relative participation,  optional or other special
rights and qualifications,  limitations or restrictions  thereof,  including the
dividend rights and dividend rate, terms of redemption  (including  sinking fund
provisions),  redemption  price or prices,  conversions  rights and  liquidation
preferences of the shares  constituting any series,  without any further vote or
action by the stockholders.

                                      F-10
<PAGE>
     The  Company  has  issued  10,059  shares  of  preferred  stock to RBB Bank
Aktiengesellschaft  (the  "Holder"),  an offshore  bank  representing  investors
pursuant to Regulation S promulgated under the Securities Act of 1933, including
7,202 shares on October 1, 1996 in exchange for $7,143,000  principal  amount of
the Debenture plus accrued  interest;  and,  pursuant to Regulation S Securities
Subscription  Agreements  (a) 1,429 shares of preferred  stock on April 21, 1997
for which the Company received $880,000 after discount and commissions;  and (b)
1,428  shares of  preferred  stock on  October  22,  1997 for which the  Company
received  approximately  $1,000,000  after  discount.  In  conjunction  with the
October 1997 transaction,  the Company incurred  commission  expense of $100,000
which was paid through the issuance of 200,000  shares of the  Company's  $0.002
par value common stock.

     The Holder has  converted a total of 1,818 shares of  preferred  stock into
common stock in three  transactions  since the initial issuance of the preferred
stock, as follows:  (a) on November 21, 1996, 360 shares of preferred stock were
converted  into  1,113,883  shares of common stock at an average price of $0.325
per share;  (b) on June 5, 1997,  958 shares of preferred  stock were  converted
into 4,919,658  shares of common stock at a conversion price of $0.20 per share;
and (c) on May 1,  1998,  500 shares of  preferred  stock  were  converted  into
1,000,690 shares of common stock at a conversion price of $0.53 per share.  Each
of the conversion  prices was based on the closing bid price of the common stock
for the  five  days  ended  immediately  prior  to the  date of the  notices  of
conversion.

     At June 30,  1998,  there  were  8,241  issued  and  outstanding  shares of
preferred  stock,  all of which were in the  possession of the Holder.  All such
preferred stock plus any accrued and unpaid  dividends  thereon can be converted
to common stock at any time at the  discretion  of the holder and any  preferred
stock not converted prior to December 31, 1999 will  automatically  be converted
on that date based on an average of the closing  bid prices of the common  stock
for the five days ended immediately prior to that date, but not to exceed $3 per
share. All common stock issued upon conversion of the preferred stock is subject
to Registration Rights Agreements.

     At June 30,  1998,  the 8,241  shares  of  preferred  stock and the  unpaid
dividends of  approximately  $485,000 would have  converted  into  approximately
18,179,000 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 last five
trading days of June, 1998. Had such a conversion occurred,  management believes
that the Holder would have owned approximately 19,281,000 shares of common stock
of the Company, or approximately 54.3% of the common shares that would have been
issued and  outstanding at June 30, 1998 assuming no conversion of the Notes. If
a  conversion  of both the Notes and the  preferred  stock into common stock had
occurred on June 30, 1998,  the Holder of the  preferred  stock would have owned
approximately 19,281,000 shares of common stock of the Company, or approximately
41.2%.

6% Secured  Convertible  Notes - On February 27, 1998, the Company initiated the
issuance  of a maximum  of  $5,000,000  of 6%  Secured  Convertible  Notes  (the
"Notes"),  with $2,350,000 having been issued as of June 30, 1998 and a total of
$4,450,000  as of July 31, 1998,  $4,000,000 of which are held by the Malcolm C.
Davenport V Family Trust.  The Notes are  convertible by the holders at any time
through  February 28, 2001 into shares of the Company's  $0.002 per value common
stock in a number equal to 0.8% of the then outstanding  shares of the Company's
common stock for each $100,000 in principal amount of the Notes.

     At June 30, 1998, the $2,350,000  principal  amount of the Notes would have
converted into approximately  7,982,000 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 last five trading days of June, 1998.

Common Stock - The Company's Articles of Incorporation authorize the issuance of
up to  100,000,000  shares of $0.002 par value common  stock.  At June 30, 1998,
19,990,384  shares  had been  issued,  of which  1,317,329  shares  were held as
treasury shares by the Company.  As noted above, a total of 7,034,231  shares of
common stock 
                                      F-11

<PAGE>
have been  issued to the  Holder  when it  elected  to  convert a portion of its
preferred stock.

     The  holder  of the  Company's  preferred  stock 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 the Company's July 16, 1996 Debenture.  As of the date of this document,  the
holder has not caused the Company to reverse split its common stock.

     On January  20,  1998,  the Company  issued a Warrant  for the  purchase of
277,778  shares  of the  Company's  common  stock  for  $0.36  per  share to NAC
Investments Properties, Inc. N.V ("NAC") in association with a secured loan from
NAC in the amount of $100,000.  On April 24, 1998, NAC exercised the Warrant and
was issued 277,778 shares of common stock in settlement of the loan.

Treasury  Stock - On October  18,  1997,  Mr.  Lanier M.  Davenport  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
was  recorded as treasury  stock at December 31, 1996 with a basis at par value,
or $2,600.

Warrants - On July 16,  1996,  the Company  issued a Warrant for the purchase of
250,000  shares  of its  common  stock  as  part  of the  consideration  paid in
conjunction  with  the  funding  provided  to the  Company  from  the  Debenture
described above. In addition, as noted in Common Stock above, the Company issued
a Warrant for the purchase of 277,778  shares of its common stock on January 20,
1998 that was exercised by the holder on April 24, 1998.

Stock  Options - On January  21,1998,  the  Company's  stockholders  approved an
increase in the number of shares of common stock  available  under the Company's
1996 Stock  Option Plan from  1,500,000  shares to  4,000,000.shares.  Under the
Plan, incentive and nonqualified options may be issued to purchase shares of the
Company's  common  stock at prices not less than the market price on the date of
the grant.  The plan consists of two component plans, one for the benefit of key
employees,  independent  directors and  consultants  and a second solely for the
benefit of  independent  directors.  The shares of common  stock  issuable  upon
exercise of such options may be either previously authorized but unissued shares
or treasury shares. Any employee, independent director or consultant selected by
the Company's employment committee is eligible under the plan unless that person
owns stock  possessing  more than ten percent of the total combined voting power
of all classes of stock of the Company,  any then existing  subsidiary or parent
corporation.  The  options  have  maximum  terms  of ten  years  and vest at the
discretion  of the Board of  Directors  of the  Company  at  various  times from
immediately upon grant to up to four years. The plan provides certain provisions
that allow the  Company's  employment  committee  or the Board of  Directors  to
adjust the total number of shares of the Company's  common stock available under
the plan to  avoid a  potential  dilution  or  enlargement  of the  benefits  or
potential benefits intended to be made available under the plan.

                                      F-12
<PAGE>

<TABLE>
<CAPTION>
     Summarized stock option information follows:

                                                                      Weighted
                                                       Number of       Average
                                                         Shares        Exercise
                                                          Under       Price Per
                                                         Option         Share
                                                         ------         -----
<S>                                                     <C>             <C>  
      Outstanding at beginning of year                  3,185,946       $0.36
      Granted                                           1,353,006        0.50
      Exercised                                            (7,264)       0.21
      Forfeited                                           (21,790)       0.21
                                                       ----------  
      Outstanding at end of year                        4,509,898        0.21
                                                       ==========
</TABLE>
<TABLE>
<CAPTION>
                                                                                                Options
                                                          Options Outstanding                 Exercisable
                                                          -------------------                 -----------
                                                       Weighted        Weighted                        Weighted
                                                        Average         Average                        Average
                                                       Remaining       Exercise                        Exercise
           Range of Exercise          Number of       Contractual      Price Per      Number of       Price Per
            Price Per Share            Shares        Life (years)        Share          Shares          Share
            ---------------            ------        ------------        -----          ------          -----

<S>                                   <C>                <C>            <C>              <C>           <C>     
Employees:
             $0.20 - $0.3125          1,147,032          8.87           $0.2231            961,019     $ 0.2221
             $0.43 - $0.62            2,094,563          9.10            0.4945          1,336,413       0.4812
             $0.75 - $1.20               95,372          8.56            0.9989             56,715       1.1467
                                      ---------                                          ---------
                                      3,336,967                                          2,354,147
                                      ---------                                          ---------
      Non-employees:
             $0.20 - $0.3125            426,360          8.86            0.2264            426,360       0.2264
             $0.43 - $0.65              746,751          9.02            0.4665            746,571       0.4665
                                      ---------                                          ---------
                                      1,172,931                                          1,172,931
                                      ---------                                          ---------
                Totals                4,509,898                                          3,572,078
                                      =========                                          =========


</TABLE>

                                      F-13



<PAGE>
     The Company  applies APB  Opinion  No. 25 and  related  interpretations  in
accounting for the stock option plan.  Accordingly,  no compensation expense has
been  recognized  for stock  options  issued to  employees.  FASB  Statement 123
"Accounting for Stock-Based  Compensation"  ("SFAS 123") was issued in 1995 and,
if fully adopted,  changes the methods for  recognition of cost on plans similar
to those of the Company.  Had  compensation  cost for the Company's  stock-based
compensation  plans been determined based on the fair market value of options on
the dates of grant in 1998, 1997 and 1996 using the Black-Scholes option-pricing
model with the following assumptions:  (a) no dividends, (b) expected volatility
of 33%,  75% and 75% for  1998,  1997 and  1996,  respectively,  (c)  risk  free
interest rates of 6%, 6% and 6% for 1998, 1997 and 1996,  respectively,  and (d)
expected lives of 9.75 years, 9.5 years and 9.5 years, respectively,  the effect
on net income and earnings per share would be as follows:
<TABLE>
                                           1998                1997                1996
                                           ----                ----                ----
<S>                                    <C>                 <C>                 <C>         
       Net loss:
          As reported                  $(4,786,581)        $(3,570,899)        $(4,280,740)
                                       ============        ============        ============
          Pro-forma                    $(5,072,386)        $(4,313,028)        $(4,330,112)
                                       ============        ============        ============

       Loss per common share:
          As reported                  $     (0.28)        $     (0.34)        $     (0.43)
                                       ============        ============        ============
          Pro-forma                    $     (0.30)        $     (0.40)        $     (0.44)
                                       ============        ============        ============
</TABLE>


     The weighted  average fair market values of options  granted in 1998,  1997
and 1996 were $0.50, $0.35 and $1.20, respectively.

     Although  the  Company  has  not  recognized  compensation  expense  in its
financial  statements  for stock options  issued to employees,  expense has been
recognized in the financial statements for stock options issued to non-employees
in the amount of $58,274 for the year ended June 30, 1998 .


8.    BONUS PLAN

     Effective  June 1,  1997,  the  Company  adopted  a bonus  plan to  provide
incentive  compensation  to  certain  key  employees,   directors  and  advisory
directors.  The plan provides for stock appreciation rights to employees covered
by the plan.  Compensation  under the plan is based on the award of  performance
units,  which are  defined  as a  percentage  of the total  market  value of the
Company and which have a value related to the  appreciation  in the value of the
Company's  common stock.  The maximum  number of  performance  units that may be
issued under the plan shall not exceed an aggregate of twelve  percent  (12%) of
the total market value of the Company.

     Performance  units are vested upon issuance and mature at a rate of 25% per
year over a four year period from the date granted.  After the first anniversary
of any grant of performance  units,  participants  may elect to receive payments
which represent the  appreciation in value of the performance unit form the date
granted  through the date such payment is elected.  A participant is entitled to
receive payments  following  termination if an election to receive such payments
is made prior to the third  anniversary  of  termination;  or, at the  Company's
discretion following the third anniversary of termination if no such election is
made by the participant.

     Compensation  expense of $194,998 and $15,458 was  recognized for the years
ended June 30, 1998 and 1997, respectively.


                                      F-14

<PAGE>
9.    COMMITMENTS

     The  Company  was  obligated  to pay  royalty  payments  of $100 per gaming
apparatus for all licensed slot  machines  manufactured  and sold by the Company
embodying  certain  technology under a license  agreement,  dated April 6, 1995,
with  International.  The term of the  agreement was for the life of the last to
expire of the existing  patent and  copyright and such patents as may be granted
on the applications  covered by the agreement.  The agreement required a minimum
royalty of $100,000 per year  commencing one year after its effective  date. The
Company did not sell any gaming apparatus subject to this agreement. The Company
advanced a total of $190,000 to  International,  $5,000 of which was advanced in
fiscal  1997 with the  balance  having  been  advanced  prior to that year.  The
minimum  royalty  payments thus far have been applied  toward  reducing the note
receivable from  International,  the balance of which was approximately  $88,000
and  $160,000 at June 30, 1997 and 1996,  respectively,  and had been reduced to
zero  as of  June  30,  1998.  The  Company  and  International  entered  into a
Termination of Agreement and Reciprocal Release in September 1998 that cancelled
the royalty agreement effective June 30, 1998.


     The  Company  was  obligated  to  pay  one  of  its  consultants,   Sailfin
Investments,  Ltd  ("Sailfin")  a $5 royalty for each  input/output  board ("I/O
Board") the Company sold, the technology for which was jointly  developed by the
Sailfin and the Company.  The I/O Board,  as designed,  proved to be inefficient
and inaccurate.  In connection with certain other litigation,  Sailfin dismissed
its claim to any royalties on all past or future sales of the I/O Board.

     The Company's lease on its 15,182 square foot facility in Las Vegas, Nevada
expired on August 31, 1998,  and  converted to a month to month tenancy at a net
to the  Company  base rent of $8,350  plus an  additional  $2,250  per month for
common area  maintenance  fees.  The Company has entered into a sixty-two  month
lease  agreement for a 16,903  square foot facility  located in the same general
area as the current  facility.  The  commencement  date of the lease will be the
date when construction is finished and the Company acquires  possession which is
expected to occur in November 1998.  Rent on the new facility will be $13,130 in
the first year of the lease with increases each year to a maximum of $18,655 for
the fifth year.  The following is a schedule of future minimum rent payments due
under the new lease for the years ended June 30:

                  1999                      $   92,300
                  2000                         201,796
                  2001                         229,139
                  2002                         236,013
                  2003                         243,094
                  2004                         123,343
                                            ----------
                  Total                     $1,125,685
                                            ==========

     Rent expense for the years ended June 30, 1998, 1997 and 1996 was $123,829,
$135,021, and $141,797, respectively.


10.   RELATED PARTY TRANSACTIONS

     The Lanier M.  Davenport,  Sr. Family Trust and the Malcolm C.  Davenport V
Family Trust,  the trustees of which are Malcolm C. Davenport V, Director of the
Company and brother of Lanier M. Davenport,  former Chairman and Chief Executive
Officer of the Company and current shareholder, and Malcolm C. Davenport, Jr., a
stockholder  of the  Company  and father of Lanier M.  Davenport  and Malcolm C.
Davenport  V, made  advances  in the amount of $70,000  during  fiscal  1997 and
$1,920,000  during the year ended June 30, 1996. The 

                                      F-15
<PAGE>
$70,000  advanced  in fiscal  1997 was  received on July 12, 1996 and was repaid
with interest on July 31, 1996.  $1,000,000 of the $1,920,000 advanced in fiscal
1996 was converted  into 454,545  shares of common stock of the Company on April
14, 1996 and an additional  $440,000 was converted into 401,141 shares of common
stock of the Company on July 16, 1996.  All of the shares of common stock issued
in satisfaction of this debt were issued with restrictive legends.

     The remaining  $480,000  plus accrued  interest of $15,542 was converted to
demand notes which bear an interest  rate of 10% per annum and are being paid at
$20,000 per month  including  interest.  On June 30, 1998, the unpaid  principal
balance was $170,188 with accrued interest of $732. These amounts were repaid in
July 1998.

     During the first quarter of 1998,  the Malcolm C. Davenport V Family Trust,
(the "Trust") loaned $500,000 to  Spinteknology,  with such loan being evidenced
by a note and  secured  by a pledge of the  Company's  weighing  technology.  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.  These
share of common stock 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.

     As discussed in Note 6 to these financial statements,  on February 27, 1998
the Company  initiated the private  placement of certain 6% Secured  Convertible
Notes in the amount of  $5,000,000.  The  Malcolm C.  Davenport  V Family  Trust
purchased  $1,000,000  of the  Company's  Notes in March,  1998,  an  additional
$900,0000  in April,  1998,  and  subsequent  to June 30,  1998,  an  additional
$2,100,000 of the Notes in July 1998. In addition,  Patrick W. McGrath, a member
of the Company's board of directors,  purchased  $100,000 of the Company's Notes
in June 1998.

     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. 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 was recorded as treasury stock at
December 31, 1996 with a basis at par value,  or $2,600.  Prior to July 1, 1996,
Mr. Lanier M. Davenport,  or companies with which he was affiliated,  made loans
and  advances  to the Company in the  aggregate  amount of $356,000 at an annual
interest  rate of 10% in the  form of  demand  notes,  of which  $145,108,  plus
accrued  and unpaid  interest of $10,951,  remained  outstanding  as of June 30,
1996. During fiscal 1997, the Company accrued additional  interest in the amount
of  $2,964  and  repaid   $123,694  and  $10,612  for  principal  and  interest,
respectively.  The  remaining  $21,414 of principal  and $3,304 of interest were
contributed back to the Company in an effort to enhance  shareholder value. Such
contribution  was  recorded  as  additional  paid in capital  by the  Company on
December  31,  1996.  At June 30, 1998 the Company did not owe any monies to Mr.
Lanier M. Davenport.

     Malcolm C.  Davenport,  Jr.,  stockholder of the Company and father of both
Lanier M. Davenport and Malcolm C. Davenport V, made loans to the Company during
fiscal 1996 in the  aggregate  amount of $418,500 at an annual  interest rate of
10% in the form of demand  notes.  At June 30,  1996,  the  balance  payable for
principal  and  accrued   interest  on  the  notes  was  $323,000  and  $21,850,
respectively. During fiscal 1997, the Company accrued additional interest in the
amount of $15,866 and paid $50,000 to Mr.  Malcolm C.  Davenport,  Jr., of which
$30,000 was applied to principal with the remaining  $20,000 applied to interest
payable on the notes. On December 31, 1996 the unpaid  principal and interest in
the amount of  $303,000  and $7,717 were  contributed  back to the Company in an
effort  to  enhance   shareholder  value.  Such  contribution  was  recorded  as
additional paid in capital by the Company.  At June 30, 1998 the Company did not
owe any monies to Mr. Malcolm C. Davenport, Jr.

                                      F-16
<PAGE>
     Sarah L. Davenport, stockholder of the Company and mother of both Lanier M.
Davenport  and  Malcolm C.  Davenport  V made loans in the  aggregate  amount of
$20,000 in the form of demand notes with an annual  interest  rate of 10% during
fiscal 1996. At June 30, 1998 none of the  principal or interest  accrued on the
notes had been repaid.  During fiscal 1997, an additional $2,200 of interest was
accrued on the debt.  There was no accrual  during fiscal 1998. At June 30, 1998
the unpaid  principal  balance on the notes  remained at $20,000,  plus  accrued
interest of $4,042.  It is the intent of Sarah L.  Davenport  and the Company to
convert  this debt plus  accrued  interest  at the time of the  conversion  into
Common Stock of the Company on or about September 30, 1998.

     Davenport  Investments,   Inc.,  a  corporation  controlled  by  Lanier  M.
Davenport  was party to an  agreement  whereby it received  lease  payments  for
office  space used by the  Company  for its  corporate  offices in  Chattanooga,
Tennessee.  Such agreement terminated September 30, 1996. During the years ended
June 30, 1997 and June 30, 1996,  the Company  made lease  payments to Davenport
Investments, Inc. in the amount of $3,655 and $19,346, respectively.

     During April 1997,  Mr.  Malcolm C. Davenport V made loans in the aggregate
amount of $150,000 in the form of demand notes with an annual  interest  rate of
9.5%. On May 7, 1997 the  principal and accrued  interest of $1,015 on the notes
was repaid.

     Coulter & Davenport, Attorneys-at-Law, whose partners were Gary L. Coulter,
Chairman and Chief Executive Officer of the Company, and Malcolm C. Davenport V,
Director and  Secretary  of the  Company,  billed the Company for legal fees and
expenses in the  aggregate  amount of $162,754 in fiscal 1996,  all of which has
been paid as of June 30, 1997.  These fees were  incurred  prior to Mr.  Coulter
becoming an employee of the Company.

                                      F-17
<PAGE>
11.   INCOME TAXES
<TABLE>
<CAPTION>
     The provision for income taxes for the years ended June 30, 1998,  1997 and
1996 are summarized as follows:

                                                           1998              1997              1996
                                                           ----              ----              ----
<S>                                                   <C>               <C>                <C>         
Deferred provision                                    $    76,000       $  (149,900)       $   (64,900)
Tax benefit of net operating loss carryforward
                                                       (1,765,000)       (1,138,000)        (1,537,500)
                                                      -----------       -----------        -----------
                                                       (1,689,000)       (1,287,900)        (1,602,400)
Change in valuation allowance                           1,689,000         1,287.900          1,602,400
                                                      -----------       -----------        -----------
                                                      $      --         $      __          $      --
                                                      ===========       ===========        ===========
</TABLE>
<TABLE>
<CAPTION>
     The provision for income taxes for the years ended June 30, 1998,  1997 and
1996 differs from the amounts computed by applying the federal statutory rate to
income before provision for income taxes as follows:

                                                            1998               1997               1996
                                                            ----               ----               ----
<S>                                                 <C>                 <C>               <C>           
       Income tax at federal statutory rate         $    1,627,000      $   1,214,000     $    1,455,500
       State income tax, net of federal benefit            191,500            142,800            171,200
       Valuation allowance                              (1,689,000)        (1,287,900)        (1,602,400)
       Other                                              (129,500)           (68,900)           (24,300)
                                                    --------------      -------------     --------------
                                                    $        --         $        --       $         --
                                                    ==============      =============     ==============
</TABLE>

     Deferred income taxes reflect the net tax effects of temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. A valuation allowance has
been recognized to offset the related deferred tax assets due to the uncertainty
of realizing the benefit of the loss carryforward.

     As of June  30,  1998,  the  Company  has  $6,786,200  net  operating  loss
carry-forwards  available to reduce future  taxable  income which will expire in
future periods as follows:


                                                
               Fiscal Year Ending            Amount
               ------------------            ------
                       2010             $    49,000
                       2011               1,311,000
                       2012                 235,200
                       2013               5,191,000
                                          ---------
                                        $ 6,786,200
                                        ===========



                                      F-18
<PAGE>
<TABLE>
<CAPTION>
     The following is a summary of the  significant  components of the Company's
deferred tax assets for the years ended, June 30, 1998 and 1997:

                                             1998                1997
                                             ----                ----
<S>                                        <C>                 <C>          
       Net operating loss carryforward     $   2,307,000       $   3,021,000
       Inventory                                 146,000              91,000
       Receivables                                  -                 53,000
       Deferred start-up costs                (2,399,000)               -
       Other                                       8,000               6,000
       Valuation allowance                    (4,860,000)         (3,171,000)
                                             -----------          ----------
                                              $     --         $        -- 
                                             ===========       =============
</TABLE>


12.   LEGAL PROCEEDINGS

     On October 1, 1997,  the Company  entered into an  Interference  Settlement
Agreement with Bally Gaming International,  Inc./Alliance Gaming Corporation and
filed same with the United  States Patent and  Trademark  Office in  Washington,
D.C.  In  settlement,   both  parties  have  agreed  to  grant  to  one  another
non-exclusive  licensing  of the coin  weighing  patent  claims  that  they own,
including  the grant of those  rights to  affiliates.  "...  Bally  acknowledges
Spintek's  exclusive right,  priority and entitlement to TECHNICIAN FRAUD patent
claims  wherever  Spintek has  patents or patent  applications  containing  such
claims  ...  Spintek   acknowledges   Bally's  exclusive  right,   priority  and
entitlement  to PLAYER FRAUD patent claims  wherever  Bally has patent or patent
applications containing such claims."

     On  September  25,  1996,  Unique   Entertainment,   a  Nevada  Corporation
("Unique"), filed a complaint in Clark County (Las Vegas), Nevada District Court
against Spintek  asserting  breach of contract and related claims.  Unique is an
entertainment  agency.  It alleges  that on November  22,  1995,  Unique and the
Company entered into a written contract whereby the agency agreed to provide two
magicians  to  perform on the  Company's  behalf at various  gaming  shows.  The
contract price is $80,000.  The magicians never in fact  performed.  The Company
has filed an answer denying  liability,  specifically  asserting that no Company
agent or employee  signed the contract and no such  signature  was or would ever
have been authorized by the Company.  The Company 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
Unique has  conducted  virtually no discovery  and has done little to pursue the
case. It is  anticipated  that the case will be tried or settled within the next
few months.

     On October 10, 1996,  Richard M. Mathis of Reno,  Nevada ("Mathis") filed a
complaint  in the Washoe  County  (Reno),  Nevada  District  Court  against  the
Company,  Spintek  International,  Inc.,  and Lanier M.  Davenport,  who,  until
October 18,  1996,  was chairman  and chief  executive  officer of Gaming and is
still the beneficial owner of more than 5% of the Company's common stock. In his
suit,  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 a fiduciary duty to
him and demands  actual  damages in excess of $500,000 and  punitive  damages in
excess of $500,000.  On January 6, 1997, the Company and Spintek  International,
Inc.  filed a motion to dismiss.  On April 14, 1998,  the trial court granted in
part the  Company's  motion to dismiss and dismissed two of the eleven claims in
Mathis'  complaint.  On July 8, 1998,  the court  granted  summary  judgment  to
co-defendant  Lanier Davenport.  Still pending before the court is the Company's
separated motion for summary judgment,  which essentially  asserts,  among other
things, that because the court ruled that Davenport had committed no wrongdoing,
the  Company  could not be found to have  committed  any  wrongdoing,  as all of
Mathis'  allegations  against  the  Company  are based  solely  upon the acts or

                                     F-19
<PAGE>
omissions of Davenport. The Company expects a ruling on its motion by the end of
the calendar year.

         The Company has  compromised  and  settled  all of the  litigation  and
binding  arbitration  between  itself,  Michael D. Fort  ("Fort"),  and  Sailfin
Investments,  Ltd  ("Sailfin"),  a company that the Company believed to be under
the control of Fort. The Company filed suit on February 14, 1997 against Fort, a
former  officer and  director  of the  Company,  claiming  that Fort must return
$240,000  to the  Company  that was paid to him in  anticipation  of a change in
control of the Company that did not  actually  occur.  In addition,  the Company
filed suit against Sailfin  seeking a declaratory  judgment that the Company had
already paid Sailfin in full for services  rendered in accordance with the terms
of a consulting  services agreement,  and was,  therefore,  not required to make
quarterly royalty payments. The Company also sought the return of certain shares
of the Company's stock that were paid to Sailfin in accordance with the terms of
the consulting services  agreement.  As a result of the global settlement of the
Fort and Sailfin litigation,  each party dismissed all of its claims against the
other. The Company removed the Rule 144 restrictive  legend from the certificate
representing  the shares of the  Company's  common stock at issue in the Sailfin
case. Further, each party has agreed to bear its own costs and expenses incurred
in the litigation.  Finally, Sailfin dismissed its claim to any royalties on all
past and future sales.

                                      F-20
<PAGE>
ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE
          ----------------------------------------------------------------------
         None.



                                    PART III


ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS: COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT
        ------------------------------------------------------------------------

Directors and Executive Officers

     The  following  table  sets forth the names and ages of the  directors  and
executive  officers of the Company,  all  positions  held with the Company as of
September  1,  1998  and a  description  of  the  business  experience  of  each
individual for at least the past five years.
<TABLE>
<CAPTION>
      Name                  Age    Position
      ----                  ---    --------

<S>                         <C>    <C>                                                  
Gary L. Coulter             52     Chairman of the Board and Chief Executive Officer
Malcolm C. Davenport V      46     Director and Secretary
Patrick W. McGrath          44     Director
Robert E. Huggins           51     President and Chief
                                   Operating Officer
George P. Miller            54     Chief Financial Officer
Erik R. Batzloff            45     Vice President - Compliance and Administration
Robert G. Guinn, Jr.        32     Vice President - Research and Development
Patrick J. Schmit           28     Vice President - Sales
</TABLE>

    Mr. Coulter has been a member of the Board of Directors of the Company since
April  1996.  He was  elected  Vice  Chairman  of the Board and Chief  Operating
Officer in April  1996,  and became  Chairman  of the Board and Chief  Executive
Office in October 1996.  He was elected  President in October 1996 and served in
that capacity  until June 30, 1998.  Beginning  July 1, 1998,  Mr.  Coulter will
relinquish his duties as President and Chief  Operating  Officer to Mr. Huggins.
Mr. Coulter serves on the Board of Directors of Tapistron International, Inc., a
publicly traded company which produces specialty carpet manufacturing  machines.
Immediately prior to joining Spintek, Mr. Coulter was in the private practice of
law with Malcolm C.  Davenport V. From April 1986 to November  1995, Mr. Coulter
served as President,  Chief  Executive  Officer and Chief  Operating  Officer of
various corporations.  He was President,  Chief Executive Officer and a Director
of Omega  International,  Inc., a developer and  distributor  of natural  health
products  from August  1992 until  December  1994;  President,  Chief  Operating
Officer,  and Director from April 1986 until August 1992 of Woodruff  Investment
Company, a developer,  manager, and financier of real estate investments.  Prior
to joining  the  Woodruff  Investment  Company,  Mr.  Coulter was in the private
practice  of law from June 1971 until  April  1986.  Mr.  Coulter  obtained  his
graduate degree from Emory University,  his Juris Doctorate, cum laude, from the
University of Georgia School of Law and his Master of Laws  (Taxation)  from New
York University School of Law.

    Mr.  Davenport  has been a member of the Board of  Directors  of the Company
since  September  1995 and Secretary  since October  1996.  Mr.  Davenport was a
partner in the law firm of Ponder and Davenport, P.C. from 

                                       21
<PAGE>
1990 through  November 1992 and has  practiced  law in West Point,  Georgia from
December  1992 through the present.  From October 1995 until April 1996,  he and
Mr.  Coulter  were  partners in the law firm of Coulter &  Davenport  located in
Atlanta, Columbus and West Point, Georgia. Mr. Davenport is a member of both the
Alabama and Georgia Bar Associations and is a Certified Public  Accountant and a
member of the Alabama CPA  Society.  From  January  1995 to June 1998,  he was a
partner  in the firm of  Davenport  & Sikes,  Certified  Public  Accountants  in
Roanoke,  Alabama.  He is a director  of  several  companies,  including  public
companies  American Artists Film  Corporation,  a public company,  ITC DeltaCom,
Inc., and ITC Holdings and several of its affiliates.  Mr.  Davenport earned his
Juris  Doctorate  from  Cumberland  School  of  Law  at  Sanford  University  in
Birmingham, Alabama.

     Mr. McGrath has been a director of the Company since  December  1997.  From
January 1992 through the present,  he has been an investor on his own behalf and
served  as  a  corporate   financial  advisor  to  various  public  and  private
corporations.  From 1974 through December 1978, he was Special  Assistant to the
C.E.O. of Waterford Crystal and served as Executive Director of Waterford Glass,
P.L.C.  from 1981 through  December 1986. He was a Director of Crest  Investment
Trust,  Ltd. from 1984 through  December 1992 and also Executive Vice President,
Saint George  Crystal Glass from 1986 through  December  1988.  Mr. McGrath is a
citizen of the U.K. but is currently residing in Newport Beach,  California.  He
holds a Bachelor  of  Business  Science  degree from  Trinity  College,  Dublin,
Ireland, and a Masters in Business Administration from Harvard University.

    Mr. Huggins served as Senior Vice President of the Company since April 1997,
and Chief  Financial  Officer since  November  1995.  As of August 1, 1998,  Mr.
Huggins  yielded his  positions  as Senior Vice  President  and Chief  Financial
Officer,  and was named President and Chief Operating Officer.  Mr. Huggins is a
Certified Public Accountant who from February 1992 until February 1995 served as
the Chief Accounting Officer and Secretary for Elsinore Corporation , a publicly
traded company. Prior to February 1992, Mr. Huggins served in various capacities
with other  gaming  companies,  including,  Vice  President,  Finance  and Chief
Financial Officer for United Gaming,  Inc. (now Alliance Gaming,  Inc.), as well
as President of two of its casino subsidiaries, Controller for Caesars Palace in
Las Vegas,  and Controller for M&R  Investments,  Inc.  (Dunes Hotel and Country
Club). Prior to his experience in the gaming industry,  Mr. Huggins was with the
firm of Haskins & Sells (now  Deloitte & Touche,  LLP) for four years,  where he
was  responsible  for planning and  supervising  casino audit  engagements.  Mr.
Huggins  received a Bachelor of Science  degree with Honors in Accounting at the
University of Nevada, Las Vegas, in 1973.

     Mr. Miller joined the Company on August 1, 1998 as Chief Financial Officer.
From July 1996  through  July 1998,  Mr.  Miller was Director of Finance for Rio
Hotel  &  Casino,  Inc.,  where  he  was  responsible  for  financial  reporting
activities,  including SEC filings,  and the  coordination of  internal/external
audit  functions.  From  February 1996 through June 1996, he served as assistant
treasurer and corporate  controller for Mikohn Gaming  Corporation  where he was
responsible for financial reporting and SEC filings for operations that included
multiple manufacturing/distribution  facilities in the U.S. and internationally.
From 1991 to 1994,  Mr. Miller was vice  president  and corporate  controller of
Sahara Gaming  Corporation,  a public  company that  operated four  hotel/casino
facilities in Las Vegas and Laughlin,  Nevada. Mr. Miller served on the board of
directors  of  Sahara  Gaming   Corporation,   now  known  as  Santa  Fe  Gaming
Corporation, until he resigned due to his employment with the Rio Hotel & Casino
in July 1996. Mr. Miller, a Certified Public Accountant,  received a Bachelor of
Science degree from California State University at Long Beach.

     Mr.  Batzloff  joined the Company in  November  1996 as Vice  President  of
Compliance  and as Vice  President  of  Administration  since  1997.  His duties
include,  among other items,  compliance,  marketing,  documentation and quality
assurance.  Mr.  Batzloff has been in gaming in  California  and Nevada for over
fourteen  years.  From  September  1992 until  November  1996, he was compliance
officer with Mikohn,  Inc., a publicly  traded  manufacturer  of gaming devices,
online  accounting  systems  and  associated  equipment.  From July  1985  until
September  1992,  Mr.  Batzloff  worked for United  Gaming,  Inc.  (now Alliance
Gaming), serving first as
 

                                      22
<PAGE>
a technical writer and ending his tenure as the investor relations officer.  Mr.
Batzloff  received a Bachelor of Arts degree in History and English  Literature,
with honors,  from San Diego State  University  in 1975. He also obtained a post
graduate teaching certificate.

    Mr. Guinn has been Vice  President of Product & Research  Development  since
April 1997.  From  January 1992 until  joining the  Company,  Mr. Guinn was Vice
President of Engineering for Casino Data Systems, a publicly traded manufacturer
of slot machines,  on line slot information and management systems  ("Systems"),
and  associated  equipment.  Mr.  Guinn  joined CSDS when it was a research  and
development  company  and  assisted  in the  development  of Systems and oversaw
Systems  installation in over 100,000 slot machines at over 90 locations  around
the United States and Canada. Mr. Guinn has also assisted in the development and
patenting of certain slot machine games.  Prior to joining CSDS, he was Southern
Region Support Manager for Bally Systems from August 1987 until January 1992. In
1987,  Mr. Guinn  graduated from Ganzaga  University  with a Bachelor of Science
degree in Computer Science, minoring in Business Administration.

    Mr.  Schmit has been Vice  President  of Sales  since  July  1997.  Prior to
joining the Company,  Mr. Schmit was with Casino Data Systems from February 1994
until June 1997 and was serving as an Account  Executive  at Casino Data Systems
when he joined the Company.  In such capacity,  he coordinated  sales activities
with major corporate customers, and worked extensively with casino operators and
CDS's research and development group to develop  innovative  software and gaming
equipment.  He holds a Bachelor of Arts degree in Business Administration with a
major in marketing from the University of Iowa.


Compliance with Section 16 of the Securities Act of 1934

     Section 16(a) of the  Securities  Exchange Act of 1934 requires  directors,
executive  officers and 10% or greater  shareholders of the Company  ("Reporting
Persons") to file with the Securities and Exchange Commission initial reports of
ownership (Form 3), reports of changes in ownership of equity  securities of the
Company  (Form 4) and annual  reports of  ownership  (Form 5). To the  Company's
knowledge, based solely on its review of the copies of such reports furnished to
the Company and written  representations that certain reports were not required,
during the fiscal year ended June 30, 1998. Reporting Persons have complied with
all applicable Section 16(a) filing requirements with one exception. The October
1, 1997  transaction  reported  on Form 4 on May 7, 1998  whereby the Malcolm C.
Davenport  V Family  Trust  (the  "Trust")  was issued  1,400,880  shares of the
Company's common stock with  restrictive  legend in exchange for a $500,000 debt
owed to the Trust by the Company (see "Related Party Transactions"  elsewhere in
this Form 10-KSB). The Company has listed RBB Bank Aktiengesellschaft ("RBB") as
a beneficial  owner of more than ten percent (10%) of a class of stock,  but RBB
disputes beneficial ownership.  RBB has represented to the Company that it holds
stock for the true  beneficial  owners  and that none of these  owners  hold ten
percent (10%) or more of the Company's stock.



ITEM 10. EXECUTIVE COMPENSATION
         ----------------------

Compensation of Directors

     For service on the Board of  Directors,  directors who are not employees of
the Company  currently  receive no compensation for each meeting of the Board of
Directors  other than  options  to  purchase  common  stock of the  Company  and
reimbursement  for expenses  which are related to attending the board  meetings.
During fiscal 1998 Mr. McGrath,  one of the two directors who are not employees,
received  options to  purchase  100,000  shares of common  stock at the  closing
market price on the dates of the grants.  In  addition,  Mr.  Davenport  and Mr.
McGrath  received  additional  options to  purchase  54,852 and 9,440  shares of
common stock,  respectively,  to 

                                       23

<PAGE>
avoid dilution of options they previously had been issued.  All of these options
were vested as of June 30,  1998.  Directors  who are  employees  of the Company
receive no additional compensation for serving on the Board of Directors.

Executive Compensation

     The  following  table sets forth  information  for the years ended June 30,
1998, 1997 and 1996 concerning  compensation of the chief executive  officer and
all other  executive  officers of the Company  whose  salary and bonus  exceeded
$100,000 during the last fiscal year ("Named Executive Officers"):
<TABLE>
<CAPTION>
                                            Summary Compensation Table

                                                                                        Long Term
                                                                                       Compensation
                                                 Annual Compensation                      Awards
                                                                           Other        Securities
                                 Fiscal                                    Annual       Underlying
        Name                      Year      Salary($)(1)  Bonus($)(2)  Compensation ($)  Options
        ----                      ----      ------------  -----------  ----------------  -------
<S>                               <C>           <C>            <C>    <C>            <C>    
Gary L. Coulter (1)(3)            1998          248,067         0      39,346 (4)        338,289
Chairman of the Board of          1997          156,000         0      18,206 (4)      1,162,176
Directors, Chief Executive        1996           28,615         0           0                  0
Officer

Lanier M. Davenport (5)           1997           72,923         0       8,432 (6)              0
(formerly Chairman of the         1996           65,640         0      68,483 (6)              0
Board
Of Directors and Chief
Executive Officer)

Robert E. Huggins (1)(7)          1998          170,670         0       9,000 (8)        155,431
President and Chief               1997          150,000         0      10,015 (8)        508,452
Operating Officer                 1996           72,680         0      21,538 (8)              0
Robert G. Guinn, Jr.              1998          110,000         0       2,077 (9)         27,426
Vice President, Research and      1997           23,269         0               0        145,272
Development

<FN>
--------------

(1)  Salaries in fiscal 1998 and 1997 includes $30,000 for each year paid to Mr.
     Coulter  and  $30,000  for each  year paid to Mr.  Huggins  in lump sums in
     November 1997 and February 1997, as an incentive to remain with the Company
     as a result of a possible  change in control  situation  which  occurred in
     November 1996.

(2)  In June 1997,  the Board of Directors  approved a bonus plan based on stock
     price  performance  for the  executive  officers,  directors  and  advisory
     directors of the Company. (see the "Other Long-Term Incentive Awards" below
     for a description of the plan.

(3)  Mr. Coulter joined the Company as Vice Chairman and Chief Operating Officer
     in April 1996 and assumed  the  positions  of Chairman of the Board,  Chief
     Executive  Officer and  President  in October  1996.  He  relinquished  his
     position as President and Chief  Operating  Officer to Mr.  Huggins in July
     1998.

(4)  Represents  taxable fringe benefits for a leased car and housing  allowance
     which were provided to Mr. Coulter during fiscal 1997 and 1998.

                                       24
<PAGE>
(5)  In October 1996, Mr. Davenport  resigned as Chairman of the Board and Chief
     Executive  Officer and Mr.  Coulter  became  Chairman  and Chief  Executive
     Officer.

(6)  Includes  taxable  fringe  benefits  for  automobile  allowance  and health
     insurance of $8,432 and $17,504 for fiscal 1997 and 1996, respectively.  In
     addition,  fiscal 1996  includes  $50,979 of  consulting  for the Company's
     subsidiary, Spintek Gaming, Inc., and the conversion of options to purchase
     4,000  common  shares of Spintek  Gaming,  Inc.  into actual  shares of the
     common stock of the Company in conjunction  with the acquisition of Spintek
     Gaming, Inc. on September 14, 1995.

(7)  Mr.  Huggins  relinquished  his roles as Senior Vice President in July 1998
     and Chief  Financial  Officer in August 1998 to become  President and Chief
     Operating Officer of the Company.

(8)  Includes  taxable  fringe  benefits  for  automobile  allowance  and health
     insurance  of $9,000,  $10,015 and $6,238 for fiscal  1998,  1997 and 1996,
     respectively.  In addition, fiscal 1996 includes $15,300 of consulting fees
     for services  rendered to the Company prior  November 15, 1995, the date he
     was hired as Chief Financial Officer by the Company.

(9) Represents the taxable fringe benefit of an automobile allowance.
</FN>
</TABLE>

Employment Agreements

     Gary L.  Coulter  was named  Chairman of the Board of  Directors  and Chief
Executive  Officer on October 18, 1996. In conjunction  with his  appointment as
Chairman and CEO, Mr. Coulter's  employment  agreement was modified and extended
for two years,  until  October 17, 1998.  Mr.  Coulter's  annual base salary was
$200,000,  plus additional  salary in an amount to offset his federal income tax
liability on the taxable value of the leased  automobile and a housing allowance
as noted below,  at June 30, 1998. For the year ended June 30, 1998, his salary,
including the $30,000 paid in November 1997 as noted in footnote (1) immediately
above and the income tax reimbursement,  was $248,067.  Pursuant to the terms of
his employment  agreement he is entitled to receive two years'  severance pay if
there is a change in  control  of the  Company  or if he is  terminated  for any
reason  other than for failure to perform his  duties,  conviction  of a felony,
dishonesty  or  illegal  acts.  In  addition,  the  Company  pays  for a  leased
automobile  and a house for Mr.  Coulter  together with an additional  amount of
salary to offset the federal  income tax on the taxable value of the house.  Mr.
Coulter is also  entitled to options to  purchase a minimum of at least  100,000
shares of common stock of the Company at the closing market price on the date(s)
of grant each year of his employment agreement and is eligible to participate in
employee  benefits or a bonus plan provided by the Company pursuant to the terms
of such agreement.

     Robert E. Huggins,  Senior Vice President and Chief Financial Officer until
June 30, 1998 when he was named  President and Chief Operating  Officer,  has an
employment  agreement  with the Company  extending  through June 30,  2000.  Mr.
Huggins'  annual  base salary was  $186,000 on July 1, 1998 and  pursuant to the
terms of his  employment  agreement is entitled to receive two years'  severance
pay if there is a change in control of the Company. Further, if he is terminated
for any reason  other than for failure to perform his  duties,  conviction  of a
felony,  dishonesty  or illegal acts, he is entitled to receive one years pay as
severance.  The Company  pays $750 per month to Mr.  Huggins  for an  automobile
allowance and to reimburse him for the cost of a country club  membership not to
exceed $35,000. Mr. Huggins is also entitled to options to purchase a minimum of
at least  50,000  shares of common  stock of the Company at the  closing  market
price on the  date(s)  of grant  each year of his  employment  agreement  and is
eligible to  participate  in employee  benefits or a bonus plan  provided by the
Company pursuant to the terms of such agreement.


Change in Control Severance Agreements

     For the purpose of certain employment  agreements of the Company, a "Change
in  Control"  generally  is  deemed  to occur  if:  (i) any  person  or group of
affiliated  persons  (other than the Company,  subsidiary  of the 

                                       25

<PAGE>
Company or any employee benefit plan of the Company) becomes the owner of 40% or
greater of the voting securities of the Company; or (ii) the Company is involved
in a merger or consolidation  (with exceptions for certain events); or (iii) the
persons who constituted a majority of the Board of Directors on October 18, 1996
cease to constitute  the  majority.  As part of Mr.  Coulter's and Mr.  Huggins'
employment  agreements,  in the event of a Change in Control,  each may elect to
consider themselves  immediately terminated and entitled to two years' salary as
severance,  to be paid in a lump sum in no less than  thirty  (30) days from the
earlier of the date of the  Change in  Control  or the date each of them  elects
termination. No Change in Control has occurred under those agreements.


     In  addition  to  the  Change  in  Control  provisions  in  the  respective
employment agreements discussed above, incentives granted to Mr. Coulter and Mr.
Huggins pursuant to the Company's  Long-Term  Incentive Plan mature  immediately
upon Change in Control or termination for any reason.


                                       26
<PAGE>
Options

     The tables below set forth certain information regarding options granted to
the Named Executive Officers during fiscal 1998.
<TABLE>
<CAPTION>
                                         Option Grants in Last Fiscal Year
                                                 Individual Grants
                                             --------------------------

                                                       Percent of
                                   Number of              Total
                                   Securities            Options             Exercise
                                   Underlying          Granted to             or Base
                                    Options           Employees in             Price           Expiration
            Name                   Granted (1)          Fiscal Year          Per Share            Date
            ----                   -----------          -----------          ---------            ----
<S>                                  <C>                 <C>                 <C>                 <C>  
Gary L. Coulter                      100,000              7.39%              $ 0.52              4/15/08
                                     238,289             17.61%                0.43              6/22/08

Robert E. Huggins                      50,000             3.70%                 0.52             4/15/08
                                      105,431             7.79%                 0.43             6/22/08

Erik R. Batzloff                       27,426             2.03%                 0.43             6/22/08

Robert G. Guinn, Jr.                   27,426             2.03%                 0.43             6/22/08

Patrick J. Schmit                    100,000              7.39%                 0.52             7/08/07
                                       18,879             1.40%                 0.43             6/22/08

--------------------
<FN>
(1)  The options  elected herein have a ten year term and vest at the discretion
     of the  Board of  Directors.  There  are three  primary  vesting  schedules
     including (i) 100% of the option shares becoming exercisable on the date of
     the grant;  (ii) 25% of the option shares becoming  exercisable on the date
     of grant with an  additional  25% of the shares  covered  thereby  becoming
     exercisable  on  each  successive   anniversary  date,  with  full  vesting
     occurring on the third anniversary date; and (iii) 25% of the option shares
     vesting on each of the first, second, third and fourth anniversary dates.

</FN>
</TABLE>
                                       27
<PAGE>



Aggregated  Option  Exercises  in Last  Fiscal  Year and Fiscal  Year End Option
Values

<TABLE>
<CAPTION>
                                                    Number of Securities Underlying          Value of Unexercised
                                                              Unexercised                    In-The-Money Options
                                                       Options at June 30, 1998                 at June 30, 1998   
                          Shares         Value         ------------------------                ----------------
      Name               Acquired      Realized       Exercisable      Unexercisable     Exercisable      Unexercisable
      ----               --------      --------       -----------      -------------     -----------      -------------
<S>                       <C>            <C>            <C>                  <C>            <C>             <C>     
Gary L. Coulter             --           $ --           1,381,676            118,789        $207,907        $ 81,446

Robert E. Huggins            --          $ --             604,444             59,439          90,821          40,732
                                                                                     

Erik R. Batzloff            --           $ --              86,349             86,349           7,912          18,345
                                                                                        

Robert G. Guinn, Jr.        --           $ --              86,349             86,349                          34,835
                                                                                 

Patrick J. Schmit           --           $ --              29,720             89,159           8,405          25,214
                                                                                    
</TABLE>

Other Long-Term Incentive Awards

     Effective  June 1,  1997,  the  Company  adopted  a bonus  plan to  provide
incentive  compensation  to  certain  key  employees,   directors  and  advisory
directors.  The plan provides for stock appreciation rights to employees covered
by the plan.  Compensation  under the plan is based on the award of  performance
units,  which are  defined  as a  percentage  of the total  market  value of the
Company and which have a value related to the  appreciation  in the value of the
Company's  common stock.  The maximum  number of  performance  units that may be
issued under the plan shall not exceed an aggregate of twelve  percent  (12%) of
the total market value of the Company.

     Performance  units  generally are vested upon issuance and mature at a rate
of 25% per year over a four year period from the date granted,  but the schedule
may be varied by the terms of the specific grant. After the first anniversary of
any grant of performance  units, or earlier maturity,  participants may elect to
receive  payments which  represent the  appreciation in value of the performance
unit  from the date  granted  through  the  date  such  payment  is  elected.  A
participant is entitled to receive payments following termination if an election
to receive such payments is made prior to the third  anniversary of termination;
or, at the Company's  discretion  following the third anniversary of termination
if no such election is made by the participant.



                                       28



<PAGE>
ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
            --------------------------------------------------------------

     The  following  table sets forth  certain  information  with respect to the
beneficial  ownership of the Company's common stock as of the Filing Date of the
10-KSB as to (a) each  director,  (b) each executive  officer  identified in the
Summary  Compensation  Table, (c) all officers and directors of the Company as a
group, and (d) each person known to the Company to beneficially own five percent
(5%) or more of the outstanding shares of common stock.
<TABLE>
<CAPTION>
                   Name and Address of                 Amount of     Percent of
Title of Class     Beneficial Owner (1)                  Shares     Class(2)(3)(4)
--------------     --------------------                  ------     --------------

Directors and Executive Officers:
---------------------------------

<S>            <C>                                   <C>               <C>   
Common ....... Malcolm C. Davenport V (1)            25,691,153(4)     61.38%
Common ....... Gary L. Coulter (1)                    1,173,176(5)      5.91%
Common ....... Robert E. Huggins (1)                    558,452(6)      2.91%
Common ....... Robert G. Guinn, Jr.                      97,136         0.52%
Common ....... All directors and executive officers
               as a group (7 persons) (1)            27,692,553(7)     63.26%

Five Percent (5%) or Greater Shareholders:

Common ....   RBB Bank Aktiengesellschaft
              Burgring 16, 8010  Graz, Austria         31,029,724        63.78%
Common ....   Lanier M. Davenport, Sr.
              P. O. Box 178
              Lookout Mtn., TN 37350                      892,500         4.78%
Common ....   Starr S. Davenport
              P. O. Box 187
              Lookout Mtn. TN 37350                     1,096,953(8)      5.87%
              ----------------
<FN>
(1)  The address of all  directors  and  executive  officers is c/o the Company,
     901-B Grier Drive, Las Vegas, Nevada 89119.

(2)  Percent of class is based on the number of shares  outstanding on September
     11,  1998.   Percent  of  class  includes  the  following:   (a)  for  RBB,
     approximately  29,979,000  additional  shares  pursuant  to RBB's  right to
     acquire  common  stock  through  conversion   privileges  attached  to  the
     Company's  preferred  stock held by RBB (see  Footnote (3) below  regarding
     RBB's  conversion  rights);  (b) for  Malcolm  C.  Davenport  approximately
     22,895,000  additional shares pursuant to Mr.  Davenport's right to acquire
     common stock  through  conversion  privileges  attached to the Company's 6%
     Convertible Notes; and (c) with respect to each named person, the number of
     shares of common  stock,  if any,  which the  stockholder  has the right to
     acquire  within 60 days of such date.  RBB  disputes its  designation  as a
     beneficial owner. RBB takes the position that it does not control or direct
     the distribution or voting of the shares and that RBB only holds the shares

                                       29

<PAGE>
     for the true  beneficial  owners.  RBB has  represented to the Company that
     none of the beneficial owners it holds shares for has beneficial  ownership
     of five percent (5%) or greater of the class.

(3)  The  percentage  for RBB has been  computed  after giving effect to certain
     rights to acquire common stock arising out of the Company's issuance of its
     Series A 4% Convertible  Preferred  Stock.  At September 11, 1998, RBB Bank
     was the holder of all of the Company's 8,241 outstanding  preferred shares.
     Had RBB converted its preferred shares,  including  approximately  $513,000
     unpaid dividends,  as of this date, there would be substantial  dilution of
     the  percentage  of class  held by the named  shareholder.  RBB would  have
     received an additional  approximate 29,979,000 shares based on the five day
     average of the closing bid price of the  Company's  common  stock (the five
     days used for this calculation for computational purposes only was the five
     trading days ended September 11, 1998; changes in the Company's closing bid
     price of its  common  stock will  effect  the  number of shares  subject to
     conversion.) Such a conversion,  had it occurred  September 11, 1998, would
     have  given RBB  control of  approximately  64% of the  outstanding  common
     stock.  Percent of class for RBB  includes the above  mentioned  29,979,000
     additional shares. (See Footnote (2) for RBB  representations  that it does
     not beneficially own the above stock).

(4)  Includes an additional  approximate  22,895,000  shares that the Malcolm C.
     Davenport V Family Trust  ("Trust")  would have received if the Trust would
     have  converted the $4,000,000 in 6% Secured  Convertible  Notes it held on
     September  11,  1998 based on the five day average of the closing bid price
     of the Company's common stock for the five trading days ended September 11,
     1998. In addition, includes 313,416 shares owned and 290,544 shares subject
     to options that are currently exercisable or will become exercisable within
     60 days,  313,416 shares held by Mr. M. Davenport's  spouse,  and 1,875,723
     shares by the Trust. Mr. Davenport has certain beneficial  control,  though
     no economic interest in the Trust.

(5)  Includes  11,000 shares owned and 1,162,176  shares subject to options that
     are currently exercisable or will become exercisable within 60 days.

(6)  Includes 50,000 shares owned and 508,452 shares subject to options that are
     currently exercisable or will become exercisable within 60 days.

(7)  Includes 2,206,444 shares subject to options that are currently exercisable
     or will become exercisable within 60 days.

(8)  Includes 470,121,  shares held by the minor children of Lanier M. Davenport
     and Starr S. Davenport, with respect to which each disclaims any beneficial
     ownership. As custodial parent, Ms. Davenport has the authority to vote the
     minor children's shares on their behalf.
</FN>
</TABLE>
Changes in Control

     On August 6,  1996,  the Board of  Directors  was  granted  authority  by a
consent of a majority of the  stockholders of the Company to issue up to 100,000
shares of preferred stock,  without nominal or par value per share.  Pursuant to
the provisions of the terms of a $7,143,000,  4% Convertible Debenture with RBB,
the Board of Directors  issued  shares of the  preferred  stock (the  "Preferred
Stock") to satisfy the  underlying  debt of said debenture  while  incorporating
certain rights of the debenture  holder into the Preferred  Stock. RBB currently
holds 8,241 shares of Preferred Stock.

                                       30

<PAGE>
     Certain mandatory and optional redemption provisions apply to the Preferred
Stock. The Company has the right, in its sole discretion,  to redeem some or all
of the preferred stock in the event that the shareholder's  optional  conversion
rights are  exercised.  The  Company,  if it chooses to redeem,  shall  redeem a
pro-rata amount from each shareholder  submitting  shares of preferred stock for
conversion.  The Company has the obligation to redeem the preferred stock in the
event that the Company transfers  substantially all of its assets or if a change
in control  occurs (i.e.,  (i) anyone other than the Company,  any subsidiary of
the Company or any employee benefit plan of the Corporation  beneficially owns a
majority of the voting stock of the Company,  or (ii) the Company is involved in
certain mergers or consolidations not effected solely to change the jurisdiction
of incorporation of the Company).

     On February  27,  1998,  the Company  initiated  the private  placement  of
certain 6% Secured  Convertible  Notes (the  "Notes") in two separate  offerings
with identical terms due February 28, 2008 in the aggregate  principal amount of
a maximum of $5,000,000 to a limited number of investors.  The Notes are secured
by a  security  interest  and  collateral  assignment  of all  of the  Company's
patents, patent applications, trade secrets and all other intellectual rights of
the Company  existing or developed prior to the repayment or other settlement of
the Notes. The Notes are convertible by the holders at any time through February
28, 2001 under certain  circumstances.  As of September 11, 1998,  $4,450,000 of
the Notes had been  purchased,  with the  Malcolm C.  Davenport  V Family  Trust
holding  $4,000,000 of the Notes. The second offering expires September 30, 1998
(unless the Company elects to extend the offering until October 31, 1998).

     In addition,  the Company has issued  warrants to Third World  Investments,
Ltd.  to acquire  250,000  shares of common  stock of the Company at an exercise
price  that  ranges  from $1 to $2 per  share  exercisable  in the whole or part
between  October  1, 1996 and  September  30,  2001 (the  "Warrants").  No other
warrants are outstanding as of September 11, 1998.

     The effect of the  convertibility of the Preferred Stock and the Notes into
common  stock and the  outstanding  Warrants is to create the  possibility  of a
Change in Control of the majority of the common stock of the Company.


ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
            ----------------------------------------------

     The Lanier M.  Davenport,  Sr. Family Trust and the Malcolm C.  Davenport V
Family Trust,  the trustees of which are Malcolm C. Davenport V, Director of the
Company and brother of Lanier M. Davenport,  former Chairman and Chief Executive
Officer of the Company and current shareholder, and Malcolm C. Davenport, Jr., a
stockholder  of the  Company  and father of Lanier M.  Davenport  and Malcolm C.
Davenport  V, made  advances  in the amount of $70,000  during  fiscal  1997 and
$1,920,000  during fiscal 1996. The $70,000 advanced in fiscal 1997 was received
on July  12,  1996  and was  repaid  with  interest  on July  31,  1996.  Of the
$1,920,000 advanced in fiscal 1996, $1,000,000 was converted into 454,545 shares
of common stock of the Company on April 14, 1996 and an additional  $440,000 was
converted  into 401,141  shares of common stock of the Company on July 16, 1996.
All of the  shares of common  stock  issued  in  satisfaction  of this debt were
issued with restrictive legends.

     The remaining  $480,000  plus accrued  interest of $15,542 was converted to
demand notes which bear an interest  rate of 10% per annum and are being paid at
$20,000 per month including interest.  The unpaid principal balance on the notes
on June 30, 1998 was $170,188, plus accrued interest of $732 which was repaid in
July 1998.

                                       31

<PAGE>
     During the first quarter of 1998,  the Malcolm C. Davenport V Family Trust,
(the "Trust") loaned $500,000 to  Spinteknology,  with such loan being evidenced
by a note and  secured  by a pledge of the  Company's  weighing  technology.  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.  These
shares  of  common  stock  were  issued  at a  discount  because  they  are  not
registered, were issued with a restrictive legend and the Trust cannot currently
sell these shares in the market.

     As discussed in Note 6 to the  Financial  Statements,  on February 27, 1998
the  Company  initiated  the  private  placement  of the Notes in the  amount of
$5,000,000.  The Malcolm C. Davenport V Family Trust purchased $1,000,000 of the
Company's  Notes in March  1998,  an  additional  $900,000  in April  1998,  and
subsequent to June 30, 1998, an additional $2,100,000 of the Notes in July 1998.
In addition,  Patrick W. McGrath,  a member of the Company's board of directors,
purchased $100,000 of the Company's Notes in June 1998.

     On October 18, 1996, Lanier M. Davenport  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 was recorded as treasury stock at
December 31, 1996 with a basis at par value,  or $2,600.  Prior to July 1, 1996,
Lanier M. Davenport,  or companies with which he was affiliated,  made loans and
advances  to the  Company  in the  aggregate  amount  of  $356,000  at an annual
interest  rate of 10% in the  form of  demand  notes,  of which  $145,108,  plus
accrued  and unpaid  interest of $10,951,  remained  outstanding  as of June 30,
1996. During fiscal 1997, the Company accrued additional  interest in the amount
of  $2,964  and  repaid   $123,694  and  $10,612  for  principal  and  interest,
respectively.  The  remaining  $21,414 of principal  and $3,304 of interest were
contributed back to the Company in an effort to enhance  shareholder value. Such
contribution  was  recorded  as  additional  paid in capital  by the  Company on
December 31, 1996. At June 30, 1998 the Company did not owe any monies to Lanier
M. Davenport.

     Malcolm C.  Davenport,  Jr.,  stockholder of the Company and father of both
Lanier M. Davenport and Malcolm C. Davenport V, made loans to the Company during
fiscal 1996 in the  aggregate  amount of $418,500 at an annual  interest rate of
10% in the form of demand  notes.  At June 30,  1996,  the  balance  payable for
principal  and  accrued   interest  on  the  notes  was  $323,000  and  $21,850,
respectively. During fiscal 1997, the Company accrued additional interest in the
amount of  $15,866  and paid  $50,000 to Malcolm  C.  Davenport,  Jr.,  of which
$30,000 was applied to principal and the remaining  $20,000  applied to interest
payable on the notes. On December 31, 1996, the unpaid principal and interest in
the amount of  $303,000  and $7,717 were  contributed  back to the Company in an
effort  to  enhance   shareholder  value.  Such  contribution  was  recorded  as
additional paid in capital by the Company.  At June 30, 1998 the Company did not
owe any monies to Malcolm C. Davenport, Jr.

     Sarah L. Davenport, stockholder of the Company and mother of both Lanier M.
Davenport  and Malcolm C.  Davenport  V, made loans in the  aggregate  amount of
$20,000 in the form of demand notes with an annual  interest  rate of 10% during
fiscal 1996. At June 30, 1998 none of the  principal or interest  accrued on the
notes had been repaid.  During fiscal 1997, an additional $2,200 of interest was
accrued on the debt.  There was no accrual  during fiscal 1998. At June 30, 1998
the unpaid  principal  balance on the notes  remained at $20,000,  plus  accrued
interest of $4,042.

     Davenport  Investments,   Inc.,  a  corporation  controlled  by  Lanier  M.
Davenport,  was party to an  agreement  whereby it received  lease  payments for
office  space used by the  Company  for its  corporate  offices in  Chattanooga,
Tennessee.  Such agreement terminated September 30, 1996. During the years ended
June 30, 1997 and June 30, 1996,  the Company  made lease  payments to Davenport
Investments, Inc. in the amount of 

                                       32

<PAGE>
$3,655 and $19,346, respectively.

     During  April  1997,  Malcolm C.  Davenport  V made loans in the  aggregate
amount of $150,000 in the form of demand notes with an annual  interest  rate of
9.5%. On May 7, 1997, the principal and accrued  interest of $1,015 on the notes
were repaid.

     The lawfirm of Coulter & Davenport,  whose  partners  were Gary L. Coulter,
Chairman and Chief Executive Officer of the Company, and Malcolm C. Davenport V,
Director and  Secretary  of the  Company,  billed the Company for legal fees and
expenses in the  aggregate  amount of $162,754 in fiscal 1996,  all of which has
been paid as of June 30, 1997.  These fees were  incurred  prior to Mr.  Coulter
becoming an employee of the Company.



                                       33
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
         --------------------------------

(a)      Exhibits

         The following exhibits are submitted herewith:

No.                                     Description
----     -----------------------------------------------------------------------
2.1  Agreement of Merger and Plan of Reorganization, effective August 24, 1998
3.1  Articles of Incorporation of the Registrant
3.2  By-laws of the Registrant
4.1  Certificate of Determination,  Numbers,  Powers,  Preferences and Relative,
     Participating,  Optional,  and Other Special Rights and the Qualifications,
     Limitations,  Restrictions,  and Other  Distinguishing  Characteristics  of
     Series A Preferred Stock dated July 16, 1997, restated effective August 24,
     1998
4.21 6% Secured Convertible Notes dated February 27, 1998 
4.22 6% Secured Convertible Notes dated June 30, 1998 
4.23 Patent Assignment and Collateral Agreement dated February 27, 1998
4.24 Form of Registration Rights Agreement Premise Lease dated September 1, 1997
     (8)
10.2 Premise  Lease  dated June 9, 1998 
10.3 Employment Agreement with Gary L. Coulter dated October 18, 1996 (10) 
10.4 Employment Agreement  with  Robert E.  Huggins  dated  July 1,  1998  
10.5 Option/Purchase Agreement with Bitstream  Technologies,  Inc. (3) 
10.6 License Agreement between Spinteknology, Inc. and SUZO International (N.L.)
     B.V. (4)
10.7 Debt Conversion and Securities  Purchase  Agreement with Trusts (4) 
10.8 Regulation S Securities Subscription Agreement dated July 16, 1996 (5) 
10.9 Warrant  Agreement,  dated as of July 16,  1996,  relating  to  warrants to
     purchase 250,000 shares of common stock (5)
10.10  Registrant's 1996 Stock Option Plan, as amended (6)
10.11  Agreement  dated  February 5, 1997 by and between  Registrant and Gary L.
       Coulter and Robert E. Huggins (8)
10.12  Regulation S Securities Subscription Agreement dated April 21, 1997 (7) 
10.13  1997  Incentive  Bonus Plan of Spintek Gaming  Technologies,  Inc.  
       effective June 1, 1997 (8) 
10.14  Promissory Note, dated August 14, 1997, to Malcolm C. Davenport V Family
       Trust (8)
10.15  Regulation S Securities Subscription Agreement dated October 22, 1997 (9)
10.16  Spintek Gaming PTY LTD Shareholders  Agreement (10) 
10.17  Spintek Gaming PTY LTD Distribution Agreement (10) 
10.18  Spintek Gaming PTY LTD Articles of Association (10) 
21.1   List of  subsidiaries  of the  Registrant  (1)
27.1   Financial  Data Schedule
99.1   Patent - Reel-type  Machine (1) 
99.2   Patent  Application  (1) 
99.3   Securities Purchase Agreement for Private Placement Financing for the 
       Registrant dated  October 1995 (1)
99.4   Amendment to  Securities  Purchase  Agreement  for Private Placement 
       Financing for the Registrant, dated December 1995  (2)
99.5   Approval by Nevada Gaming Commission of "AccuSystem"  marketed by the 
       Registrant,  dated December 13, 1995 (2)
----------------

(1)  Incorporated  by  reference to the  specific  exhibit to Form 10-SB,  filed
     November 9, 1995.

(2)  Incorporated by reference to the specific exhibit to the Amendment No. 1 to
     Form 10-SB, filed January 30, 1996.

(3)  Incorporated  by reference  to the specific  exhibit to the Form 10-QSB for
     the period ended December 31, 1995.

(4)  Incorporated  by reference  to the specific  exhibit to the Form 10-QSB for
     the period ended March 31, 1996.

(5)  Incorporated  by reference to the specific  exhibit to the Form 8-K,  filed
     August 12, 1996.

(6)  Incorporated  by reference to Exhibit A to  Registrant's  definitive  Proxy
     Statement dated November 5, 1996.

(7)  Incorporated  by reference to the specific  exhibit to the Form 8-K,  filed
     April 30, 1997.

(8)  Incorporated  by reference to the Form 10-KSB for the period ended June 30,
     1997

(9)  Incorporated by reference to the Form 10-QSB for the period ended September
     30, 1997

(10) Incorporated by reference to the Form 10-QSB for the period ended December 
     31, 1997

(b)  Reports on Form 8-K

       On May 4,  1998,  a  Current  Report  on Form  8-K  was  filed  with  the
     Securities and Exchange Commission,  reporting the conversion of 500 shares
     of  the   Company's   4%   Series   A   Preferred   Stock   from  RBB  Bank
     Aktiengesellschaft.  Such conversion  resulted in the issuance of 1,000,690
     new  shares  of the  Company's  Common  Stock  and  resulted  in  RBB  Bank
     Aktiengesellschaft  being the holder of  approximately  1,230,000 shares of
     common stock, or approximately 6.6% of the total outstanding shares.



                                       35
<PAGE>
                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange  Act of 1934,  the  Registrant  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                       SPINTEK GAMING TECHNOLOGIES, INC.


                                          By:/s/ GARY L. COULTER
                                             -------------------
                                                 Gary L. Coulter
                                                 Chairman of the Board and
                                                 Chief Executive Officer

     Pursuant to  requirements  of the  Securities  Exchange  Act of 1934,  this
report  has been duly  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Signature


/s/ GARY L. COULTER                                  September 23, 1998
-------------------
Gary L. Coulter
Chairman of the Board, Chief Executive
Officer, and Director (Principal
Executive Officer)



/s/ GEORGE P. MILLER                                 September 23, 1998
------------------------------------
George P. Miller
Chief Financial Officer
(Principal Financial and
Accounting Officer)



/s/ MALCOLM C. DAVENPORT V                           September 23, 1998
--------------------------
Malcolm C. Davenport V
Secretary and Director



/s/ PATRICK W. McGRATH                               September 23, 1998
-----------------------
Patrick W. McGrath
Director

                                       36