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United States
Securities & Exchange Commission Washington, D.C. 20549
 FORM 10-QSB  (Mark One)[X]
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2004
 [  ]
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 Commission file number 0-25764 Spectre Gaming, Inc.  Minnesota
(State or other jurisdiction
of incorporation or organization)
    
    41-1675041
(IRS Employer
Identification No.)
 800 Nicollet Mall, Suite 2690
Minneapolis, MN 55402
(Address of principal executive offices) 612-270-2030
(Issuers telephone number) Check whether the issuer (1) filed all reports required 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 [  ] APPLICABLE TO CORPORATE ISSUERS  Transitional
Small Business Disclosure Format (check one): YES [   ]
 NO [X]




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Spectre Gaming, Inc.
Form 10-QSB
Quarter Ended March 31, 2004  
 Table of Contents Page No.PART I Financial Information
    
    
    1Item 1. Financial StatementsBalance Sheets at March 31, 2004 (unaudited) and December 31, 2003 (audited)
    
    
    1Statements of Operations for the three months ended March 31, 2004 and 2003 (unaudited)
    
    
    2Statements of Cash Flows for the three months ended March 31, 2004 and 2003 (unaudited)
    
    
    3Notes to Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis or Plan of Operation
    
    
    8Item 3. Controls and Procedures
    
    
    14PART II Other Information
    
    
    14Item 2. Changes in Securities and Small Business Issuer Purchases of Equity Securities
    
    
    14Item 6. Exhibits and Reports on Form 8-K
    
    
    15SIGNATURES
    
    
    16Employment Agreement - Russell MixSoftware Development AgreementEmployment Agreement - Gary WatkinsRule 13a-14(a) Certification of CEORule 13a-14(a) Certification of CFOSection 1350 Certification




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##### Table of Contents



PART I - Financial Information 
 Item 1. Financial Statements Spectre Gaming, Inc. 
 Balance Sheets
 March 31,
    
    December 31,2004
    
    2003(unaudited)
    
    (audited)ASSETSCURRENT ASSETS:Cash
    
    $
    1,010,660
    
    
    $
    323,675Prepaid expenses
    
    
    21,422
    
    
    
    40,461Total current assets:
    
    
    1,032,082
    
    
    
    364,136Total assets:
    
    $
    1,032,082
    
    
    $
    364,136LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    63,169
    
    
    $
    42,907Accrued payroll and related taxes
    
    
    6,615
    
    
    
    3,942Accrued expenses
    
    
    63,837
    
    
    
    57,538Total current liabilities:
    
    
    133,621
    
    
    
    104,387SHAREHOLDERS EQUITY:Capital stock, par value $.01 per share, 16,666,666 shares
authorized:Series A Convertible Preferred Stock, par value $.01 per share:Authorized
shares - 466,666Issued and outstanding shares:440,000 shares at March 31, 2004 and December 31, 2003
($660,000 liquidation preference)
    
    
    4,400
    
    
    
    4,400Common stock, par value $.01 per share:Authorized
shares - 13,333,33310,425,187 and 8,093,198 shares issued and outstanding at March
31, 2004 and December 31, 2003, respectively
    
    
    104,252
    
    
    
    80,932Additional paid-in capital
    
    
    18,039,956
    
    
    
    16,388,237Accumulated deficit
    
    
    (17,250,147
    )
    
    
    (16,213,820
    )Total shareholders equity:
    
    
    898,461
    
    
    
    259,749Total liabilities and shareholders equity:
    
    $
    1,032,082
    
    
    $
    364,136
 See accompanying notes to financial statements.




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Spectre Gaming, Inc. 
 Statements of Operations
 Three Months Ended March 31,2004
    
    2003(unaudited)OPERATING EXPENSES:Research and development
    
    $
    850,000
    
    
    $
    General and administrative
    
    
    186,983
    
    
    
    30,693Total Operating Expenses:
    
    
    1,036,983
    
    
    
    30,693Operating loss
    
    
    (1,036,983
    )
    
    
    (30,693
    )
OTHER INCOME (EXPENSE):Interest income
    
    
    656
    
    
    
    Net Loss:
    
    $
    (1,036,327
    )
    
    $
    (30,693
    )NET LOSS PER COMMON SHARE:Basic and diluted
    
    $
    (0.12
    )
    
    $
    (0.01
    )
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING:Basic and diluted
    
    
    8,813,752
    
    
    
    3,287,084
 See accompanying notes to financial statements. 2




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Spectre Gaming, Inc. 
 Statements of Cash Flows
 Three Months Ended March 31,2004
    
    2003(unaudited)Operating activitiesNet loss
    
    $
    (1,036,327
    )
    
    $
    (30,693
    )Adjustments to reconcile net loss to net cash used in
operating activities:Common stock issued for development services
    
    
    600,000
    
    
    
    Changes in operating assets and liabilities:Prepaid expenses
    
    
    19,039
    
    
    
    13,055Checks issued in excess of cash in bank
    
    
    
    
    
    
    41Accounts payable, payroll and related taxes and
accrued expenses
    
    
    29,234
    
    
    
    14,251Net cash used in operating activities:
    
    
    (388,054
    )
    
    
    (3,346
    )Financing activitiesProceeds from sale of common stock, net of issuance costs
    
    
    1,075,039
    
    
    
    Net cash provided by financing activities
    
    
    1,075,039
    
    
    
    Increase (decrease) in cash
    
    
    686,985
    
    
    
    (3,346
    )Cash at beginning of the period
    
    
    323,675
    
    
    
    3,346Cash at end of the period:
    
    $
    1,010,660
    
    
    $
    Supplemental cash flow informationCash paid for interest
    
    $
    
    
    
    $
    Cash paid for income taxes
    
    
    
    
    
    
    
 See accompanying notes to financial statements. 3




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Spectre Gaming, Inc. 
    Note 1. Business Description. Spectre Gaming, Inc. (the Company or Spectre) (formerly OneLink, Inc.)
was incorporated in Minnesota in June 1990 and changed its name to Spectre
Gaming, Inc. in January 2004. The Company is a provider of interactive
electronic games to the rapidly growing Native American and charitable gaming
markets. The Company designs and develops networks, software and content that
provide its customers with a comprehensive gaming system. The Company
anticipates that it will generate revenues starting in the third quarter of
2004. Note 2. Summary of Significant Accounting Policies. Interim Financial Information. The accompanying unaudited financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States of America and pursuant to the rules
and regulations of the U. S. Securities and Exchange Commission for interim
financial information. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been omitted pursuant to such rules and regulations. Operating results
for the three months ended March 31, 2004 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2004. The
accompanying financial statements and related notes should be read in
conjunction with the Companys audited financial statements, and notes thereto,
for the fiscal year ended December 31, 2003, contained in its Annual Report on
Form 10-KSB for the year ended December 31, 2003 (Readers should also carefully
review Note 3 below discussing the sale of assets). The financial information furnished reflects, in the opinion of
management, all adjustments, consisting of normal recurring accruals, necessary
for a fair presentation of the results of the interim periods presented. Net Loss Per Common Share. Basic and diluted loss per common share is
computed by dividing net loss by the weighted-average number of common shares
outstanding for the reporting period. Dilutive common-equivalent shares have
not been included in the computation of diluted net loss per share because
their inclusion would be antidilutive. Antidilutive common equivalent shares
issuable based on future exercise of stock options or warrants could
potentially dilute basic loss per common share in subsequent years. All
options and warrants outstanding were antidilutive for the three months ended
March 31, 2004 and 2003. Stock Based Compensation.In accordance with Accounting Principles Board
(APB) Opinion No. 25 and related interpretations, the Company uses the
intrinsic value-based method for measuring stock-based compensation cost which
measures compensation cost as the 4




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excess, if any, of the quoted market price of the Companys common stock at the
grant date over the amount the employee must pay for the stock. The Companys
general policy is to grant stock options and warrants at fair value at the date
of grant. Options and warrants issued to non-employees are recorded at fair
value, as required by Statement of Financial Accounting Standards (SFAS) No.
123 Accounting for Stock Based Compensation, using the Black-Scholes pricing
model. The Company has adopted the disclosure only provision of SFAS No. 148,
Accounting for Stock Based Compensation. The Company applies APB No. 25 and related interpretations in accounting
for its stock options and warrants. Accordingly, no compensation cost has been
recognized in the accompanying statements of operations for the three months
ended March 31, 2004 and 2003. Had compensation costs for the Companys stock
options and warrants been determined based on the fair value at the grant dates
consistent with the method of SFAS No. 123, the Companys net loss and loss per
share would have been changed to the approximate pro forma amounts indicated
below: Three Months Ended March 31,2004
    
    2003Net loss:As reported
    
    $
    (1,036,327
    )
    
    $
    (30,693
    )Pro forma
    
    
    (1,149,626
    )
    
    
    (30,693
    )
Basic and diluted net loss per common
shareAs reported
    
    $
    (0.12
    )
    
    $
    (0.01
    )Pro forma
    
    
    (0.13
    )
    
    
    (0.01
    )
Stock-based compensationAs reported
    
    $
    
    
    
    $
    Pro forma
    
    
    113,299
    
    
    
    
 The following significant assumptions were utilized to calculate the fair
value information presented utilizing the Black-Scholes pricing model: Three Months Ended March 31,2004
    
    2003Risk Free interest rate
    
    
    2.77

    %
    
    
    N/AExpected life
    
    5.0 years
    
    
    N/AExpected volatility
    
    
    636
    %
    
    
    N/AExpected dividends
    
    
    0
    %
    
    
    N/A
 5




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Note 3. Sale of Assets and Liquidity On April 24, 2002, while the Company was involved in providing
telecommunications-based business-intelligence services, the Company announced
that its ability to generate cash flow was severely impacted by the downturn in
the telecommunications market. The severe downturn greatly delayed the
deployment of the Companys products by Regional Bell Operating Companies. On
June 3, 2002, the Company announced that a letter of intent had been signed
with CallVision, Inc. (CallVision) pursuant to which CallVision agreed in
principle to purchase substantially all of the Companys assets. The Company
entered into an asset purchase agreement with CallVision on June 28, 2002, and
ceased operations as of July 1, 2002. On December 6, 2002, the Companys
shareholders approved the asset sale and on December 11, 2002, the Company
closed on its sale of substantially all of its assets to CallVision. Pursuant to the asset purchase agreement with CallVision, the Company sold
substantially all its assets in exchange for cash payments of $214,300. Upon
the execution and delivery of the asset purchase agreement, CallVision paid the
Company $100,000 in cash, plus an additional $14,300 in cash for the Companys
June 2002 office rent and T-1 bandwidth. At the closing of the asset sale,
CallVision paid the Company the remaining $100,000 in cash. The Company was
also to receive an amount equal to 15% of revenue generated from certain sales
of current or future versions of the Companys products during the period from
closing through December 31, 2003. There were no such sales of the Companys
products during such period. The proceeds received from the sale of the
Companys assets were not sufficient to allow the Company to make any
distributions to the Companys shareholders. During the year ended December
31, 2002, the Company recorded a loss of approximately $337,000 related to a
long-term prepaid expense, and property and equipment sold to CallVision in
connection with the asset sale. The accompanying financial statements have been prepared on the basis that
the Company will continue as a going concern. The Company had net losses for
the three months ended March 31, 2004 and 2003 and the years ended December 31,
2003 and 2002 and had an accumulated deficit at March 31, 2004. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties. Note 4. Shareholders Equity In November 2003, the Company began a private placement which ended in
March 2004 (the Offering). A majority of the sales of the Companys common
stock occurred after December 31, 2003. In the Offering, the Company sold a
total of 1,796,829 shares of its common stock (of which 1,531,989 were sold in
2004) for a per share price of $0.75 (i.e., raising a gross total of
$1,347,626, $1,148,996 of which was raised in 2004). The Offering was a
private placement made under Rule 506 promulgated under the Securities Act of
1933, as amended. The Company raised funds in this private placement in
anticipation of entering into the business of developing, manufacturing,
distributing and servicing gaming machines, primarily for the Native American
and charitable gaming markets. The Company used an agent for a portion of 6




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these sales. As a fee, the Company paid
the agent $62,550 in cash which was
accounted for as a reduction of gross proceeds, and issued the agent five-year warrants to
purchase up to 83,400 shares of the Companys common stock for an exercise
price of $0.75 per share. Note 5. Software On March 4, 2004, the Company signed an agreement with MET Games, Inc.
(MET) to purchase certain Linux-based software and technology being developed
by and owned by MET for the operation of certain gaming computers and systems.
Pursuant to the agreement, the Company made a $250,000 cash payment to MET and
issued 800,000 unregistered, restricted shares of the Companys common stock.
The Company will utilize the software as it develops its business opportunities
in the rapidly growing Native American Class II and charitable gaming markets. The Company has the right to terminate the agreement and recover the
$250,000 payment and 800,000 unregistered, restricted shares of the Companys
common stock if MET fails to deliver software that meets the specifications
detailed in the agreement or in the event that MET fails to provide the
software in accordance with the development schedule detailed in the agreement.
Despite this fact, due to the development of the software not having reached
technological feasibility on the date of the agreement and the $250,000 cash
payment being a significant performance commitment, the Company expensed the
cash payment and the value of the common stock, $600,000, as research and
development expense. The common stock was valued at $0.75 per share, based
upon the price of the Companys recently completed private placement. MET is wholly-owned by an individual who became an employee of the Company
on March 4, 2004. Note 6. Related Party Transactions A corporation, owned by a director and officer of the Company and
employing another director and officer of the Company, received payments for
rent and consulting services of $33,000 and $2,000 during the three months
ended March 31, 2004 and 2003, respectively. Note 7. Subsequent Events Letter of Credit.In April 2004, the Company issued a $300,000 letter of
credit for the benefit of a Japanese company. The letter of credit will be
used to purchase Class III gaming devices. The Company has pledged $300,000 of
cash as security for the letter of credit. Employment Agreement.In April 2004, the Company signed an employment
agreement with Russell Mix to serve as the Companys Chief Executive Officer
and President. The agreement provides for Mr. Mix to receive a salary of
$170,000 per year and to be eligible for an annual bonus based upon meeting
agreed-upon goals and objectives for the Company. Mr. Mix also received
options to purchase 600,000 shares of the Companys common stock with an
exercise price of $1.50 per share based on the fair value of the stock on the
date of grant. Mr. Mix will 7




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receive salary payments for a one-year period if he is terminated
without cause and in certain other limited circumstances, as defined in the
employment agreement. 
 Item 2. Managements Discussion and Analysis or Plan of Operation The accompanying managements discussion and analysis of the Companys
financial condition and results of operations should be read in conjunction
with Managements Discussion and Analysis of Financial Condition and Results of
Operations and the Companys audited financial statements, and notes thereto,
for the fiscal year ended December 31, 2003, included in our Annual Report on
Form 10-KSB for the year ended December 31, 2003. Results of Operations The Three Months Ended March 31, 2004 Compared to the Three Months Ended
March 31, 2003 Research and Development Expenses.Research and development expenses for
the three months ended March 31, 2004 were $850,000 as compared with $0 for the
same period in the prior year. On March 4, 2004, the Company signed an
agreement with MET Games, Inc. (MET) to purchase certain Linux-based software
and technology being developed by and owned by MET for the operation of certain
gaming computers and systems. Pursuant to the agreement, the Company made a
$250,000 cash payment to MET and issued 800,000 unregistered, restricted shares
of the Companys common stock. The Company will utilize the software as it
develops its business opportunities in the rapidly growing Native American
Class II and charitable gaming markets. The Company has the right to terminate the agreement and recover the
$250,000 payment and 800,000 unregistered, restricted shares of the Companys
common stock if MET fails to deliver software that meets the specifications
detailed in the agreement or in the event that MET fails to provide the
software in accordance with the development schedule detailed in the agreement.
Despite this fact, due to the development of the software not having reached
technological feasibility on the date of the agreement and the $250,000 cash
payment being a significant performance commitment, the Company expensed the
cash payment and the value of the common stock, $600,000, as research and development
expense. The common stock was valued at $0.75 per share, based upon the price
of the Companys recently completed private placement. MET is wholly-owned by an individual who became an employee of the Company
on March 4, 2004. General and Administrative Expenses. General and administrative expenses
for the three months ended March 31, 2004 were $187,000, consisting mainly of
salaries, professional services, consulting and travel expenses, compared to
$31,000 for the three months ended March 31, 2003, an increase of 509%. The
increase mainly resulted from the Company commencing operations in the Native
American and charitable gaming markets. To execute on
the opportunity in this market, the Company has hired employees and engaged
consultants. 8




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Net Loss. The Company incurred a net loss of $1,036,000 for the three
months ended March 31, 2004, compared to a net loss of $31,000 for the
comparable period in the prior year. This increase is primarily the result of
the Company commencing operations in the Native American and charitable gaming
markets and the Company expensing the consideration given in the MET
transaction. Liquidity and Capital Resources. The Company had working capital of
$898,000 and $260,000 at March 31, 2004 and December 31, 2003, respectively.
Cash used in operations was $388,000 and $3,000 for the three months ended
March 31, 2004 and 2003, respectively. For both the three months ended March
31, 2004 and 2003, the primary use of cash was to fund the Companys net loss
partially offset by a decrease in prepaid expenses and increases in accounts
payable, payroll and related taxes and accrued expenses. For the three months
ended March 31, 2004, a non-cash expense related to common stock issued for
development services also partially offset cash used to fund the Companys
operating loss. Cash provided by financing activities was $1,075,039 for the three months
ended March 31, 2004. In November 2003, the Company began a private placement
which ended in March 2004 (the Offering). A majority of the sales of the
Companys common stock occurred after December 31, 2003. In the Offering, the
Company sold a total of 1,796,829 shares of its common stock (of which
1,531,989 were sold in 2004) for a per share price of $0.75 (i.e., raising a
gross total of $1,347,626, $1,148,996 of which was raised in 2004). The
Company used an agent for a portion of these sales. As a fee, the Company paid
the agent $62,550 in cash and issued the agent five-year warrants to purchase
up to 83,400 shares of the Companys common stock for an exercise price of
$0.75 per share. The Company expects to spend a significant amount on capital equipment
purchases over the next twelve months, primarily as it places its gaming
machines in Native American and charitable gaming facilities. The Company
expects that it will use debt and/or equity financing to purchase this
equipment. In April 2004, the Company issued a $300,000 letter of credit for the
benefit of a Japanese company. The letter of credit will be used to purchase
Class III gaming devices. The Company has pledged $300,000 of cash as security
for the letter of credit. On June 28, 2002, the Company entered into an asset purchase agreement
with CallVision, Inc., pursuant to which the Company agreed to sell
substantially all of its assets to CallVision. On December 6, 2002, the
Companys shareholders approved the asset sale and on December 11, 2002, the
Company closed on its sale of substantially all of its assets to CallVision.
The Company ceased conducting business operations in the
telecommunications-based business-intelligence services business and
transferred physical possession of its operating assets related to this
business to CallVision. 9




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On July 1, 2002 the Company ceased business operations in the
telecommunications-based business-intelligence services business. Accordingly,
the Company engaged in no business operations during the six months ended
December 31, 2002 or the first nine months of the year ended December 31, 2003.
In the fourth quarter of 2003, the Company decided to pursue opportunities in
the Native American and charitable gaming market. Management believes that its cash should be sufficient to satisfy its cash
requirements through 2004. Risk Factors Unpredictability of Future Results of Operations. As a result of the
Companys lack of operating history in the Native American and charitable
gaming markets, the Company is unable to accurately forecast its future
revenues. Need for Additional Financing. The Companys operations, as currently
conducted, generate costs related to the exploration of additional business
opportunities for the Company, as well as ongoing personnel, legal and
accounting expenses. If the Company is unable to capitalize on its existing
opportunities or locate and act on other business opportunities, or if
expenditures exceed the Companys current expectations, the Company will be
required to find additional sources of financing. Even if the Company
successfully avails itself of current or future opportunities, additional
financing may be required to expand or to continue being involved in such
opportunities. Additional financing could be sought from a number of sources, including
but not limited to additional sales of equity or debt securities, loans from
banks, loans from affiliates of the Company or other financial institutions.
No assurance can be given, however, that the Company will be able to sell any
such securities, or obtain such additional financing when needed, or do so on
terms and conditions acceptable or favorable to the Company, if at all. If
financing is not available, we may be forced to abandon our business plans or
the Companys entire business, discontinue preparing and filing the disclosure
reports, or dissolve the Company. Possible Issuance of Additional Common or Preferred Stock. Our authorized
capital consists of 16,666,666 shares of capital stock, 13,333,333 of which
have been designated as Common Stock, 466,666 of which have been designated as
Series A Convertible Preferred Stock and 2,866,667 of which are undesignated
(i.e., available for issuance as either Common Stock or preferred stock).
Pursuant to authority granted by the Companys Articles of Incorporation, our
Board of Directors, without any action by the shareholders, may designate and
issue shares in such classes or series (including other classes or series of
preferred stock) as it deems appropriate and establish the rights, preferences,
and privileges of such shares, including dividends, liquidation and voting
rights. The rights of holders of other classes or series of preferred stock
that may be issued could be superior to the rights of the current shareholders.
Our Boards ability to designate and issue such undesignated shares could
impede or deter an unsolicited tender offer or takeover proposal. Any such
issuances will dilute the percentage of ownership interest of current
shareholders and may dilute the book value of the Company. 10




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Dependence on Senior Management; Need for Additional Personnel. The
Companys success in the Native American and charitable gaming markets depends
in significant part upon the continued service of its key senior management
personnel. In particular, we are materially dependent upon the services of
Ronald E. Eibensteiner, the Companys Chairman, Russell Mix, a director of the
Company and the Companys President and Chief Executive Officer, and Brian D.
Niebur, a director of the Company and the Companys Chief Financial Officer.
If such persons are unable to continue serving the Company, it could have a
materially adverse impact on the Companys business, financial condition and
operations. The Companys success also depends on its ability to identify,
hire, train, retain and motivate highly-skilled technical, managerial, sales
and marketing personnel. The Company intends to hire a number of sales,
business development, marketing, technical and administrative personnel in the
future. Competition for such personnel is intense and there can be no
assurance that the Company will successfully attract, assimilate or retain a
sufficient number of qualified personnel. The failure to retain and attract
the necessary technical, managerial, sales and marketing and administrative
personnel could have a material adverse impact on the Companys business,
financial condition and operations. Control by Existing Shareholders. The outstanding shares of the Companys
common stock are concentrated in the hands of a relatively few shareholders.
These shareholders are able to exercise significant control over matters
requiring shareholder approval, including the election of directors, and the
approval of mergers, consolidations and sales of all or substantially all of
the assets of the Company. Our Common Stock Trades only in an Illiquid Trading Market. Trading of
our common stock is conducted on the OTC Bulletin Board. This has an adverse
effect on the liquidity of our common stock, not only in terms of the number of
shares that can be bought and sold at a given price, but also through delays in
the timing of transactions and reduction in security analysts and the medias
coverage of our Company and common stock. This may result in lower prices for
our common stock than might otherwise be obtained and could also result in a
larger spread between the bid and asked prices for our common stock. Our Common Stock is Subject to Penny-Stock Rules Which May Further Hamper
Your Ability to Sell Shares. Our Common Stock is a penny stock under current
SEC rules. Broker-dealers who sell penny stocks must provide purchasers of
these stocks with a standardized risk disclosure document prepared by the SEC.
This document provides information about penny stocks and the nature and level
of risks involved in investing in the penny stock market. A broker must also
give a purchaser, orally or in writing, bid and offer quotations and
information regarding broker and salesperson compensation, make a written
determination that the penny stock is a suitable investment for the purchaser,
and obtain the purchasers written agreement to the purchase. The penny stock
rules may make it difficult for you to sell shares of our Common Stock.
Because of the rules, there is less trading in penny stocks. Also, many
brokers choose not to participate in penny stock transactions because of the
administrative burden. Accordingly, you may not always be able to resell
shares of our Common Stock publicly at times and prices that you feel are
appropriate or fair. 11




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No Future Cash Dividends. To date, the Company has not paid any cash
dividends and does not anticipate the payment of cash dividends in the
foreseeable future. Our Independent Auditors Have Substantial Doubt About Our Ability To
Continue As A Going Concern. We have had net losses for each of the years
ended December 31, 2003 and 2002, and we had an accumulated deficit as of
December 31, 2003. Since the financial statements for each of these periods
were prepared assuming that we would continue as a going concern, in the view
of our independent auditors, these conditions raise substantial doubt about our
ability to continue as a going concern. Furthermore, since we are pursuing a
new line of business in the rapidly growing Native American and charitable
gaming markets, we do not expect to generate any significant revenues for the
foreseeable future. Our ability to continue as a going concern depends, in
large part, on our ability to raise additional capital through equity or debt
financing transactions. If we are unable to raise additional capital, we may
be forced to discontinue our business. Evolving Law May Adversely Impact the Companys Entry into the Gaming
Industry. On November 25, 2003, the United States Department of Justice, at the
request of the Bush administration, filed two formal requests asking the United
States Supreme Court to review caselaw affecting the 10th and 8th Circuits.
These appellate court circuits cover dozens of tribes in the west and northern
plains states. The Justice Department filing was aimed at overturning two
recent cases which determined that certain types of casino games  those called
bingo and using bingo odds and rules of play but which appear, sound and play
like slot machines  are really bingo-type machines classified as Class II
games. The classification of these particular types of games is important for
many reasons. For one, state tribal compacts typically limit the number of
Class III slot-machine games able to be installed in any one gaming location.
Second, the Companys involvement in the gaming industry is directly related to
these kinds of bingo/slot-machine games. The Company has entered into a
transaction with MET Games, Inc., an Oklahoma corporation, pursuant to which
the Company will acquire gaming technology related to these kinds of bingo/slot
machines. The Companys ability to capitalize effectively on this technology
materially depends on the classification of slot-machine/bingo games and the
number of gaming machines eligible to be used in gaming locations. On March 2, 2004, the United States Supreme Court denied writs of
certiorari for the two above-indicated lawsuits. Essentially, this act upholds
the lower courts decisions that the gaming machines using bingo rules of play
but appear and play like slot machines are rightly categorized as Class II
gaming machines. While this recent ruling is positive for the gaming industry
in general and for the Company in particular, there can be no assurance that
there will not be other attempts to overturn this result. Of course, the
result of any such further attempts is beyond the Companys control, and its
outcome must be considered a material and significant risk factor. 12




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The Company Currently Has No Licenses or Permits for its Anticipated
Gaming Business. The gaming industry in the United States is highly regulated,
and frequently requires that operators of gaming facilities and manufacturers
and distributors of gaming machines and related equipment acquire various
authorizations, licenses, permits or other forms of approval from governmental
and/or quasi-governmental agencies or bodies. At this time, the Company
possesses no such authorizations, licenses, permits or other forms of approval
that may be required for it to manufacture, manage and service its anticipated
gaming machines. Any failure to obtain required authorizations, licenses,
permits or other form of approval may thwart the Companys business plans
entirely. Off-Balance-Sheet Arrangements The Company has no off-balance-sheet arrangements. Critical Accounting Estimates Critical accounting policies are those (i) having the most impact on the
reporting of the Companys financial condition and results, and (ii) requiring
significant judgments and estimates. Due to the incipient nature of the
Companys operations in the Native American and charitable gaming markets, the
Company does not believe it has any critical policies or procedures. Forward Looking Statements This Form 10-QSB contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements
included herein regarding activities, events or developments that the Company
expect, believe or anticipate will or may occur in the future, including such
things as future capital expenditures (including the amount and nature
thereof), business strategy and measures to implement strategy, competitive
strengths, goals, expansion and other such matters are forward-looking
statements. Actual events may differ materially from those anticipated in the
forward-looking statements. Important factors that may cause such a difference
include those risk factors summarized above. For additional information
regarding these and other factors, see our Annual Report on Form 10-KSB for the
year ended December 31, 2003 and other recent filings with the SEC. 13




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Item 3. Controls and Procedures The Company carried out an evaluation, with the participation of our chief
executive and chief financial officers, of the effectiveness, as of March 31,
2004, of our disclosure controls and procedures (as defined in Rules 13a-14(c)
and 15d-14(c) of the Securities Exchange Act of 1934). Based upon that
evaluation, made at the end of the period, our chief executive officer and
chief financial officer concluded that our disclosure controls and procedures
are effective in alerting them on a timely basis to material information
required to be disclosed in our periodic reports to the Securities and Exchange
Commission, and that there has been no significant change in such internal
controls, or other factors which could significantly affect such controls
including any corrective actions with regard to significant deficiencies or
material weaknesses, since our evaluation. However, due to the limited number
of Company employees engaged in the authorization, recording, processing and
reporting of transactions, there is inherently a lack of segregation of duties.
The Company periodically assesses the cost versus benefit of adding the
resources that would remedy or mitigate this situation, and currently does not
consider the benefits to outweigh the costs of adding additional staff in light
of the limited number of transactions related to the Companys operations. 
 PART II Other Information 
 Item 2. Changes in Securities and Small Business Issuer Purchases of Equity
Securities In September 2003, the Company sold 3,841,333 shares (on a
post-reverse-split basis) of common stock in a private placement for gross
proceeds of $230,480, and issued 700,000 shares (on a post-reverse-split basis)
in satisfaction of $42,000 of debt to related parties. The private placement
was made to accredited investors only and pursuant to Rule 506 promulgated
under the Securities Act of 1933, as amended, and no commissions were paid in
connection with this private placement. On March 18, 2004, the Company completed a private placement of 1,796,829
shares of common raising an aggregate of $1,347,626 in cash, less legal and
other expenses of $74,000, including commissions of $62,550 paid in cash to a
placement agent. This private placement was made to accredited investors only
and pursuant to Rule 506 promulgated under the Securities Act of 1933, as
amended. In addition to cash commissions, the Company compensated the
placement agent by issuing a warrant to purchase up to 83,400 shares of common
stock at an exercise price of $.75 per share. 14




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Item 6. Exhibits and Reports on Form 8-K (a) Exhibits  10.1
    
    Employment agreement dated April 16, 2004 between the
Company and Russell Mix.10.2
    
    Software development agreement dated March 4, 2004
between the Company and MET Games Inc.10.3
    
    Employment agreement dated March 4, 2004 between the
Company and Gary Watkins.31.1
    
    Rule 13a-14(a) Certification of Chief Executive Officer.31.2
    
    Rule 13a-14(a) Certification of Chief Financial Officer.32
    
    Section 1350 Certification. (b) Reports on Form 8-K On March 10, 2004, the Company filed a form 8-K disclosing that it had
acquired a Linux-based Class II gaming platform from MET Games, Inc. 15




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SIGNATURES Pursuant to the registration requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized. SPECTRE GAMING, INC.Date: May 10, 2004
    
    By:
    
    /s/ Russell C. MixTitle:
    
    President and Chief Executive OfficerDate: May 10, 2004
    
    By:
    
    /s/ Brian D. NieburTitle:
    
    Chief Financial Officer
(Principal Accounting Officer)
 16