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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-KSB
 ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 Commission file number 0-25764 Spectre Gaming, Inc.  Minnesota
State of Incorporation
    
    41-1675041
I.R.S. Employer Identification No.
 800 Nicollet Mall
Suite 2690
Minneapolis, MN 55402
(612) 338-8948 Securities registered under Section 12(g) of the Exchange Act: common
stock, par value $.01 Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [  ] Check if there is no disclosure of delinquent filers in response to Items
405 of Regulation S-B 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 the Form 10-KSB or any amendment to
this Form 10-KSB. [  ] The Companys revenues from continuing operations for the fiscal year
ended December 31, 2003 totaled $0. The aggregate market value of the common stock held by nonaffiliates of
the registrant as of February 23, 2004 was approximately $3,393,794 based on
the average of the closing bid and asked price of the registrants common stock
on such date. The number of shares outstanding of the registrants common
stock, as of February 23, 2004 was 8,527,863. Transitional Small Business Issuer Format (Check One): Yes [  ] No [X]




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SPECTRE GAMING, INC.
TABLE OF CONTENTS PagePART I
    
    
    2Item 1.Description of Business
    
    
    2Item 2. Description of Property
    
    
    6Item 3. Legal Proceedings
    
    
    6Item 4. Submission of Matters to a Vote of Security Holders
    
    
    6PART II
    
    
    7Item 5. Market for Common Equity and Related Stockholder Matters
    
    
    7Item 6. Managements Discussion and Analysis or Plan of Operations
    
    
    8Item 7. Financial Statements
    
    
    11Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    23Item 8A. Controls and Procedures
    
    
    23PART III
    
    
    24Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act
    
    
    24Item 10. Executive Compensation
    
    
    25Item 11. Security Ownership of Certain Beneficial Owners and Management
    
    
    26Item 12. Certain Relationships and Related Transactions
    
    
    28Item 13. Exhibits and Reports on Form 8-K
    
    
    29Item 14. Principal Accountant Fees and Services
    
    
    29Amendment of Amended/Restated Articles of Incorp.Articles of MergerRule 13a-14(a) Certification of CEORule 13a-14(a) Certification of CFOSection 1350 Certification




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All statements, other than statements of historical fact, included in this
Form 10-KSB, including without limitation the statements under Managements
Discussion and Analysis or Plan of Operations and Description of Business
are, or may be deemed to be, 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. Such forward-looking statements involve
assumptions, known and unknown risks, uncertainties, and other factors which
may cause the actual results, performance or achievements of Spectre Gaming,
Inc., (the Company) to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements contained in this Form 10-KSB. Such potential risks and
uncertainties include, without limitation, our ability to maintain compliance
with SEC disclosure requirements, our ability to locate a privately held
company seeking to merge with the Company and other risk factors detailed
herein and in other of the Companys filings with the Securities and Exchange
Commission. The forward-looking statements are made as of the date of this
Form 10-KSB and the Company assumes no obligation to update the forward-looking
statements or to update the reasons actual results could differ from those
projected in such forward-looking statements. Therefore, readers are cautioned
not to place undue reliance on these forward-looking statements. 
 PART I 
 Item 1. Description of Business General Spectre Gaming, Inc. (the Company or Spectre) (formerly OneLink, Inc.)
was incorporated in Minnesota in June 1990. The Company is seeking to become a
provider of interactive electronic games to the rapidly growing Native American
Class II and charitable gaming markets. The Company designs and develops
networks, software and content that provides customers with a comprehensive
gaming system. Prior to July 1, 2002, Spectre provided telecommunications-based
business-intelligence services via the Internet. The Companys services
enabled the production of business-intelligence reports based on caller data of
business customers available from telecommunications companies. The reports
included summaries and detail of the data about the location of the businesses
incoming callers, frequency of calls, number of unanswered calls, busy calls,
and similar information. Incumbent Local Exchange Carriers (referred to in the
industry as ILECs) provided the data the Company used to generate the
business-intelligence reports. The Company sold its service directly to ILECs,
primarily targeting the Regional Bell Operating Companies, and the ILECs in
turn marketed and sold the Companys services under their own private branding
to their own business customers, especially small to medium-sized businesses
depending on incoming telephone calls to generate revenue. In 2003, the
Company decided to pursue opportunities in the Native American Class II and
charitable gaming markets. Native American Gaming Market The Native American gaming market is a highly fragmented segment of the
overall gaming industry in the United States. Though not all of the over 550
federally recognized Native American tribes offer gaming, there are over 300
Class II and Class III gaming facilities throughout the United States, with the
majority of tribes operating only one facility. In 2002, the Native American
gaming market in the United States generated $14.5 billion and is expected to
generate $16.5 billion in fiscal 2003. Native American gaming is governed by the Indian Gaming Regulatory Act of
1988, or IGRA, which established the National Indian Gaming Commission, or
NIGC, with certain regulatory powers over Native American gaming. The IGRA
classifies games that may be played on Native American lands into three
categories, each of which is subject to different regulations, as follows: Class I Gaming.Class I gaming includes traditional Native American social and
ceremonial games. Class I gaming is regulated exclusively at the Native
American tribe level. 2




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Class II Gaming.Class II gaming includes bingo and, if played at the same
location where bingo is offered, pull-tabs and other games similar to bingo.
Class II gaming is regulated by the individual Native American tribes, with the
NIGC having oversight of the tribal regulatory process. States that allow
bingo and games similar to bingo to be conducted by any other entity or for any
other purposes, such as bingo at charities or schools, may not regulate Class
II gaming, and therefore receive no tax revenues from income the tribes derive
from Class II gaming. Class III Gaming.Class III gaming includes all other forms of gaming that are
not included in either Class I or Class II, including slot machines and most
table games. Class III gaming is governed by compacts that must be negotiated
between individual states and individual Native American tribes. The compacts
typically include provisions entitling the state to receive taxes at an
agreed-upon rate from the income a tribe derives from Class III gaming
activities. The Companys proposed Class II games will be designed and operated to
meet the requirements of IGRA or the appropriate Native American-state
compacts. Recent rulings by the NIGC have generally favored the suppliers of
Class II gaming equipment. This market, once considered a so-called grey
market is now becoming a legitimate and expanding opportunity to the
mainstream gaming industry. Indian reservations ventured into the gaming market in 1979 by operating
bingo halls. Aided by their semi-autonomous status, Indian bingo games, which
are free from state regulations, have grown rapidly as players continue to
flock to reservations by the busloads to take advantage of the lucrative
high-stakes prizes and casino-style gaming. There are currently over 25,000
Class II machines in the United States marketplace. This number
is expected to grow to 150,000 by the end of 2006. The Company believes Native
American tribes that have no Class III state compacts (e.g. tribes in Florida),
or have machine limits under their specific Class III compacts (e.g. tribes in
California and South Dakota) or that have compacts allowing the state to take a
substantial portion of the tribes revenue for Class III gaming are all
potential customers for Class II gaming equipment. Charitable Gambling Market Over 600 million people play charitable bingo worldwide per year and there
are 35,000 bingo halls in North America. States such as Alabama and Texas are
now offering electronic bingo games. There are ongoing legislative initiatives
in a number of jurisdictions that, if successful, the Company believes would
allow the use of its technology in charitable-bingo establishments in those
jurisdictions. Spectres Strategy The Company plans on initially delivering its Class II games to Native
American customers nationwide through a broadband telecommunications network,
which links player stations located both within and among Class II gaming
facilities and enables players to compete against one another in the same game
to win pooled prizes and or individually. The Company has designed and
developed and continues to design and develop hardware, software, networks and
content able to provide its Native American customers with comprehensive gaming
systems. As opportunities arise, the Company intends to expand into the
charitable gaming market. Sale of Assets On April 24, 2002, while the Company was involved in providing
business-intelligence products and 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, Inc. 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. 3




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Pursuant to the asset purchase agreement with CallVision, the
Company sold substantially all its assets in exchange for cash payments totaling $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 qualified 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. Reverse Stock Split On November 10, 2003, the Companys Board of Directors approved a reverse
stock split of the Companys capital stock at a ratio of one-for-three. The
reverse split became effective with respect to shareholders of record at the
close of business on December 2, 2003. In lieu of fractional shares,
shareholders of common stock received a cash payment. Stockholders equity has
been restated to give retroactive recognition of the reverse split for all
periods presented by reclassifying to additional paid-in capital the amount in
excess of the par value of the outstanding shares. All references to share and
per share amounts for all periods presented have been retroactively restated to
reflect this reverse split. Employees As of December 31, 2003, the Company had one employee. Risk Factors Unpredictability of Future Results of Operations. As a result of the
Companys lack of operating history in the Native American Class II 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 requires to expand or 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, and your shareholder investment will likely
be lost. 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, and 3,333,333 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 4




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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. Dependence on Senior Management; Need for Additional Personnel. The
Companys success in the Native American Class II 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 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 material 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 and otherwise. 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. 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 considering
new business opportunities in the rapidly growing Native American Class II 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. 5




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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 strategy of becoming involved 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 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. 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 a required authorizations,
licenses, permits or other form of approval may thwart the Companys business
plans entirely. 
 Item 2. Description of Property Through June 30, 2002, the Company leased approximately 8,228 square feet
of commercial office and warehouse space for $8,228 per month plus operating
expenses and utilities at 10340 Viking Drive, Suite 150, Eden Prairie, MN
55344. As of July 1, 2002, the Company terminated this lease. The Company
currently uses 800 Nicollet Mall, Suite 2690, Minneapolis, MN 55402 as its
administrative headquarters. The Company paid Corporate Services Group, a
company wholly-owned by the Companys Chairman and Chief Executive Officer,
$30,363 for rent and overhead in 2003. The Company anticipates using this
space through 2004 and believes that the space will be adequate for its
operations. 
 Item 3. Legal Proceedings The Company is not a party to any material legal proceedings. 
 Item 4. Submission of Matters to a Vote of Security Holders None. 6




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PART II 
 Item 5. Market for Common Equity and Related Stockholder Matters The Companys common stock traded on the pink sheets under the symbol
ONEL.PK through December 19, 2003. From December 22, 2003, until January 12,
2004, the Companys common stock traded on the OTC Bulletin Board under the
symbol ONLK.OB. Since January 12, 2004, the Companys common stock has
traded under the symbol SGMG.OB. The following table sets forth the high and
low bid prices for our common stock as reported by the OTC Bulletin Board in
2003 and 2002. These quotations reflect inter-dealer prices, without retail
mark-up, markdown, or commission, and may not represent actual transactions.
These quotations are also adjusted to reflect the one-for-three reverse stock
split of the Companys common stock effected on December 2, 2003. Trading in
the Companys capital stock was sporadic, exemplified by low trading volume and
many days during which no trades occurred. Year Ended December 31, 2003High
    
    LowFirst Qtr.
    
    $
    .03
    
    
    $
    .03Second Qtr.
    
    
    .09
    
    
    
    .03Third Qtr.
    
    
    .15
    
    
    
    .03Fourth Qtr.
    
    
    .936
    
    
    
    .059
 Year Ended December 31, 2002High
    
    LowFirst Qtr.
    
    $
    .00
    
    
    $
    .00Second Qtr.
    
    
    .03
    
    
    
    .00Third Qtr.
    
    
    .00
    
    
    
    .00Fourth Qtr.
    
    
    .12
    
    
    
    .00
 The approximate number of shareholders of record of the Companys common
stock as of February 24, 2004 was 150. The Company has never declared or paid a cash dividend on our common stock
and does not anticipate paying any cash dividends in the foreseeable future. The following table sets forth certain information regarding the sale of
common stock by the Company during the calendar year 2003 in transactions which
were not registered under the Securities Act of 1933. References to exemptions
applicable to such sales refer to sections of Regulation D promulgated under
the Securities Act of 1933 Exemption fromDate of Sale
    
    Number of Shares Sold
    
    Persons to Whom Sold
    
    Consideration Paid
    
    Registration Relied Upon9/24/03
    
    1,974,667(1)
    
    28 entities
    
    $118,480
    
    Regulation 5069/29/03
    
    2,566,666(1)
    
    5 entities
    
    $154,000
    
    Regulation 50612/17/03
    
    264,840
    
    20 entities
    
    $198,630
    
    Regulation 506
 (1) Adjusted for one-for-three reverse stock split effective for
shareholders of record on December 2, 2003. The following table sets forth certain information regarding equity
compensation plan information as of December 31, 2003. 7




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Item 6. Managements Discussion and Analysis or Plan of Operations Overview: On December 11, 2002, pursuant to an agreement and shareholder approval,
the Company closed on the sale of substantially all of its net operating
assets. 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 for which gross cash proceeds were $214,300.
After the asset sale, the Company had no sources of revenue as the net
operating assets sold represented substantially all of its operations. The
Company believed that the asset sale would enable the Company to seek a
business combination or other transaction that would provide a more attractive
opportunity than the Companys former telecommunications-based business. In
July 2003, the Company raised funds through the private placement of its common
stock (the July Offering). Then, in November 2003, the Company began a
second private placement which ended in March 2004 (the Subsequent Offering).
Both the July and Subsequent Offerings were private placements made under Rule
506 promulgated under the Securities Act of 1933, as amended. The Company
raised funds in these private placements in anticipation of entering into the
business of developing, manufacturing, distributing and servicing gaming
machines, primarily for the Native American and charitable gaming markets. Results of Operations: Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 Revenues.The Companys revenues for the year ended December 31, 2003
were $0 compared to $556,000 for the year ended December 31, 2002, a decrease
of 100%. The decrease in revenues is the result of the Company ceasing
operations in the telecommunications-based business-intelligence services
business on July 1, 2002. Cost of Revenues and Gross Profit. The Companys cost of revenues for the
year ended December 31, 2003 was $0, compared to $390,000 for the year ended
December 31, 2002, a decrease of 100%. The decrease was the result of no
revenues due to the Company ceasing operations in the telecommunications-based
business-intelligence services business on July 1, 2002. Gross profit for the year ended December 31, 2003 was $0, compared to
$166,000 for the year ended December 31, 2002, a decrease of 100%. Research and Product Development Expenses. Research and product
development expenses for the year ended December 31, 2003 were $0, compared to
$40,000 for the year ended December 31, 2002, a decrease of 100%. The decrease
in research and product development expenses was the result of the Company
ceasing operations in the telecommunications-based business-intelligence
services business on July 1 ,2002. Selling Expenses. Selling expenses for the year ended December 31, 2003
were $0, a 100% decrease, compared to $32,000 for the year ended December 31,
2002. General and Administrative Expenses. General and administrative expenses
for the year ended December 31, 2003 were $ 218,000, compared to $781,000 for
the year ended December 31, 2002, a decrease of 72%. The decrease mainly
resulted from reductions of overall expenses of the Company and the Company
ceasing operations in the telecommunications-based business-intelligence
services business on July 1, 2002. Loss on Sale of TeleSmart and TeleMetrics Products.The Company recorded
a loss of $337,000 on a long-term prepaid expense and the sale of property and
equipment to CallVision, Inc. for the year ended December 31, 2002. 8




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Other Income and Expense. Other income was $0 for the year ended December
31, 2003, compared to $17,000 for the year ended December 31, 2002. The other
non-interest income in 2002 primarily related to finance charges and a gain
from the sale of miscellaneous property and equipment. Net Loss. The Company incurred a net loss of $218,000 for the year ended
December 31, 2003, compared to a net loss of $1,007,000 for the prior year.
This reduction is primarily the result of the Company ceasing operations in the
telecommunications-based business-intelligence services business on July 1,
2002 and other factors noted above. Liquidity and Capital Resources. The Company had positive working capital
of $260,000 and $9,000 at December 31, 2003 and 2002, respectively. During
2003, cash used in operations was $148,000, primarily related to funding the
Companys net loss, partially offset by a decrease in prepaid expenses and
deposits and an increase in accounts payable, payroll and related taxes and
accrued expenses. Cash provided by financing activities was $469,000,
primarily due to proceeds from the sale of common stock of $427,000. During 2002, cash used in operations was $369,000 primarily due to a net
loss of $1,007,000, offset by depreciation and amortization of $209,000, loss
on the sale of TeleSmart and TeleMetrics products of $337,000, a decrease in
accounts receivable of $146,000 and a decrease in prepaid expenses and deposits
of $102,000. Cash provided by investing activities was $225,000, primarily
related to the sale of miscellaneous property and equipment and the sale of
TeleSmart and TeleMetrics products. 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. 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. Management believes that its cash should be sufficient to satisfy its cash
requirements for at least the next 12 months. New Accounting Pronouncements In April 2003, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities, effective for
contracts entered into or modified after June 30, 2003. This amendment
clarifies when a contract meets the characteristics of a derivative, clarifies
when a derivative contains a financing component and amends certain other
existing pronouncements. The adoption of SFAS No. 149 did not have a material
effect on the Companys financial statements. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
SFAS No. 150 is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. SFAS No. 150 requires the
classification as a liability of any financial instruments with a mandatory
redemption feature, an obligation to repurchase equity shares, or a conditional
obligation based on the issuance of a variable number of its equity shares.
The Company does not have any financial instruments as defined by SFAS No. 150.
The adoption of SFAS No. 150 did not have a material effect on the Companys
financial statements. 9




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##### Table of Contents



In
November 2002, the FASB issued FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 clarifies the requirements for a guarantors accounting for and disclosure of
certain guarantees issued and outstanding. The initial recognition and
initial measurement provisions of FIN 45 were applicable to guarantees issued
or modified after December 31, 2002. The disclosure requirements of FIN 45 are
effective for financial statements for periods ending after December 15, 2002.
The adoption of FIN 45 did not have a material effect on the Companys
financial statements. In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46). FIN 46 states that
companies that have exposure to the economic risks and potential rewards from
another entitys assets and activities have a controlling financial interest in
a variable interest entity and should consolidate the entity, despite the
absence of clear control through a voting equity interest. The consolidation
requirements apply to all variable interest entities created after January 31,
2003. For variable interest entities that existed prior to February 1, 2003,
the consolidation requirements are effective for annual or interim periods
beginning after December 15, 2004. Disclosure of significant variable interest
entities is required in all financial statements issued after January 31, 2003,
regardless of when the variable interest was created. The Company does not
expect the adoption of FIN 46 to have a material effect on the Companys
financial statements. Critical Accounting Estimates Critical accounting policies are those (i) having the most impact on the
reporting of he Companys financial condition and results, and (ii) requiring
significant judgments and estimates. Due to the cessation of operations in the
telecommunications-based business-intelligence services business, the Company
does not believe it has any critical policies or procedures. 10




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##### Table of Contents



Item 7. Financial Statements REPORT OF INDEPENDENT AUDITORS To Shareholders and Board of Directors of
Spectre Gaming, Inc. (Formerly OneLink, Inc.) We have audited the accompanying balance sheets of Spectre Gaming, Inc.
(formerly OneLink, Inc.) as of December 31, 2003 and 2002, and the related
statements of operations, shareholders equity and cash flows for the years
then ended. 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 auditing standards generally
accepted in the United States of America. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Spectre Gaming, Inc. (formerly
OneLink, Inc.) as of December 31, 2003 and 2002, and the results of its
operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company had net losses for the years ended December
31, 2003 and 2002 and had an accumulated deficit at December 31, 2003. These
conditions raise substantial doubt about its ability to continue as a going
concern. Managements plans regarding those matters also are described in Note
1. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty. /s/ VIRCHOW, KRAUSE & COMPANY, LLP Minneapolis, Minnesota
February 3, 2004 11




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##### Table of Contents



Spectre Gaming, Inc.
Balance Sheets December 31,2003
    
    2002ASSETSCURRENT ASSETS:Cash
    
    $
    323,675
    
    
    $
    3,346Prepaid expenses
    
    
    40,461
    
    
    
    60,527Total current assets:
    
    
    364,136
    
    
    
    63,873Total Assets:
    
    $
    364,136
    
    
    $
    63,873LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    42,907
    
    
    $
    7,887Accrued payroll and related taxes
    
    
    3,942
    
    
    
    Accrued expenses
    
    
    57,538
    
    
    
    46,538Total current liabilities:
    
    
    104,387
    
    
    
    54,425SHAREHOLDERS 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 December 31, 2003 and 2002
    
    
    4,400
    
    
    
    4,400($660,000 liquidation preference)Common stock, par value $.01 per share:Authorized shares13,333,333Issued and outstanding shares:8,093,198 shares at December 31, 2003 and 3,287,084 at December
31, 2002
    
    
    80,932
    
    
    
    32,871Additional paid-in capital
    
    
    16,388,237
    
    
    
    16,191,517Stock-subscription receivable
    
    
    
    
    
    
    (223,922
    )Accumulated deficit
    
    
    (16,213,820
    )
    
    
    (15,995,418
    )Total shareholders equity:
    
    
    259,749
    
    
    
    9,448Total liabilities and shareholders equity:
    
    $
    364,136
    
    
    $
    63,873
 See accompanying notes to financial statements. 12




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Spectre Gaming, Inc.
Statements of Operations Years ended December 31,2003
    
    2002Revenues
    
    $
    
    
    
    $
    556,311Cost of revenues
    
    
    
    
    
    
    390,479Gross profit
    
    
    
    
    
    
    165,832OPERATING EXPENSES:Selling
    
    
    
    
    
    
    32,285Research and product development
    
    
    
    
    
    
    40,470General and administrative
    
    
    218,402
    
    
    
    780,589Impairment charge related to TeleSmart and TeleMetrics products
    
    
    
    
    
    
    336,507Total Operating Expenses:
    
    
    218,402
    
    
    
    1,189,851Operating loss
    
    
    (218,402
    )
    
    
    (1,024,019
    )OTHER INCOME (EXPENSE):Interest income
    
    
    
    
    
    
    458Other income (expense)
    
    
    
    
    
    
    16,923Net Loss:
    
    $
    (218,402
    )
    
    $
    (1,006,638
    )NET LOSS PER COMMON SHARE:Basic and diluted
    
    $
    (.05
    )
    
    $
    (.31
    )WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING:Basic and diluted
    
    
    4,072,188
    
    
    
    3,287,084
 See accompanying notes to financial statements. 13




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Spectre Gaming, Inc.
Statements of Shareholders Equity Series A Convertible
    
    
    
    
    
    
    
    
    
    Additional
    
    Stock
    
    
    
    
    
    TotalPreferred Stock
    
    Common Stock
    
    Paid-In
    
    Subscription
    
    Accumulated
    
    ShareholdersShares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Receivable
    
    Deficit
    
    EquityBalance at December 31, 2001
    
    
    440,000
    
    
    $
    4,400
    
    
    
    3,287,084
    
    
    $
    32,871
    
    
    $
    16,191,517
    
    
    $
    (223,922
    )
    
    $
    (14,988,780
    )
    
    $
    1,016,086Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,006,638
    )
    
    
    (1,006,638
    )Balance at December 31, 2002
    
    
    440,000
    
    
    
    4,400
    
    
    
    3,287,084
    
    
    
    32,871
    
    
    
    16,191,517
    
    
    
    (223,922
    )
    
    
    (15,995,418
    )
    
    
    9,448Cash payments related to
reverse stock split
    
    
    
    
    
    
    
    
    
    
    (59
    )
    
    
    (1
    )
    
    
    (34
    )
    
    
    
    
    
    
    
    
    
    
    (35
    )Sale of common stock,
net of issuance costs
    
    
    
    
    
    
    
    
    
    
    4,106,173
    
    
    
    41,062
    
    
    
    385,676
    
    
    
    
    
    
    
    
    
    
    
    426,738Conversion of related
party debt to common
stock
    
    
    
    
    
    
    
    
    
    
    700,000
    
    
    
    7,000
    
    
    
    35,000
    
    
    
    
    
    
    
    
    
    
    
    42,000Cancellation of stock-
subscription receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (223,922
    )
    
    
    223,922
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (218,402
    )
    
    
    (218,402
    )Balance at December 31, 2003
    
    
    440,000
    
    
    $
    4,400
    
    
    
    8,093,198
    
    
    $
    80,932
    
    
    $
    16,388,237
    
    
    $
    
    
    
    $
    (16,213,820
    )
    
    $
    259,749
 See accompanying notes to financial statements. 14




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##### Table of Contents



Spectre Gaming, Inc.
Statements of Cash Flows Years ended December 31,2003
    
    2002Operating activitiesNet loss
    
    $
    (218,402
    )
    
    $
    (1,006,638
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    
    
    
    
    208,537Gain on disposal of property and equipment
    
    
    
    
    
    
    (6,770
    )Loss on sale of TeleSmart and TeleMetrics products
    
    
    
    
    
    
    336,507Changes in operating assets and liabilities:Trade accounts receivable
    
    
    
    
    
    
    145,761Prepaid expenses and deposits
    
    
    20,066
    
    
    
    102,231Accounts payable, payroll and related taxes and
accrued expenses
    
    
    49,962
    
    
    
    (95,202
    )Deferred revenue
    
    
    
    
    
    
    (53,916
    )Net cash used in operating activities:
    
    
    (148,374
    )
    
    
    (369,490
    )Investing activitiesProceeds from the sale of property and equipment
    
    
    
    
    
    
    225,068Net cash provided by investing activities:
    
    
    
    
    
    
    225,068Financing activitiesProceeds from sale of common stock, net of issuance costs
    
    
    426,738
    
    
    
    Proceeds from loans payable  related parties
    
    
    47,000
    
    
    
    Cash payments for reverse stock split
    
    
    (35
    )
    
    
    Payments on loans payable  related parties
    
    
    (5,000
    )
    
    
    Net cash provided by financing activities:
    
    
    468,703
    
    
    
    Increase (decrease) in cash
    
    
    320,329
    
    
    
    (144,422
    )Cash at beginning of year
    
    
    3,346
    
    
    
    147,768Cash at end of year:
    
    $
    323,675
    
    
    $
    3,346Supplemental investing and financing activities:Conversion of related party debt to common stock
    
    $
    42,000
    
    
    $
    Cancellation of stock-subscription receivable and
contingent note payable
    
    $
    223,922
    
    
    $
    
 See accompanying notes to financial statements. 15




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Spectre Gaming, Inc.
Notes to Financial Statements 1. Description of Business 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 Class II and charitable
gaming markets. The Company designs and develops networks, software and content
that provides its customers with a comprehensive gaming system. Prior to July 1, 2002, Spectre provided telecommunications-based
business-intelligence services via the Internet. The Companys services
enabled the production of business-intelligence reports based on caller data of
business customers available from telecommunications companies. The reports
included summaries and detail of the data about the location of the businesses
incoming callers, frequency of calls, number of unanswered calls, busy calls,
and similar information. Incumbent Local Exchange Carriers (referred to in the
industry as ILECs) provided the data the Company used to generate the
business-intelligence reports. The Company sold its service directly to ILECs,
primarily targeting the Regional Bell Operating Companies, and the ILECs in
turn marketed and sold the Companys services under their own private branding
to their own business customers, especially small to medium-sized businesses
depending on incoming telephone calls to generate revenue. 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 years ended December 31, 2003 and 2002 and had an accumulated deficit at
December 31, 2003. Upon the closing of the asset sale, the Company did not
have any material assets and did not have sufficient funds to pay ongoing
operating expenses. The financial statements do not include any adjustments
that might result from the outcome of these uncertainties. The Company, as noted above, is now pursuing the business opportunities in
the rapidly growing Native American Class II and charitable gaming markets. To
fund these business opportunities, the Company has engaged in equity financing
(see Note 10). There can be no assurance the Company will raise the necessary
capital to fund this business opportunity. 16




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##### Table of Contents



2. Summary of Accounting Policies Revenue Recognition.Revenue for services was recognized at the end of
each month in which services were provided. Revenue for product sales was
recorded upon shipment. Revenue on certain contracts may require revenue
recognition under contract accounting rules, whereby revenue is recognized on a
percentage-of-completion basis. Billings in excess of costs and estimated
earnings were included in deferred revenue. The Company ensured that the
transactions complied with the seven conditions and six considerations
contained in Accounting and Auditing Enforcement Release No. 108 of the SEC.
In December 2003, the SEC issued Staff Accounting Bulletin (SAB) No. 104,
Revenue Recognition. SAB No. 104 sets forth the SEC staffs position
regarding the point at which it is appropriate for a registrant to recognize
revenue. The staff believes that revenue is realizable and earned when all of
the following criteria are met: persuasive evidence of an arrangement exists,
delivery has occurred or service has been rendered, the sellers price to the
buyer is fixed or determinable, and collectibility is reasonably assured. The
Company used the above criteria to determine whether revenue could be
recognized, and therefore, believes that the issuance of this bulletin did not
have a material impact on these financial statements. The Company extended unsecured credit to customers in the normal course of
business. Use of Estimates.The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions affecting the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from these estimates. Stock-Based Compensation. The Company follows Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25), and
related interpretations in accounting for its stock options. Under APB 25,
when the exercise price of stock options equals or exceeds the market price of
the underlying stock on the date of grant, no compensation expense is
recognized. The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123) as amended by SFAS No. 148. Accordingly, the
Company has made pro formadisclosures of what net loss and net loss per common
share would have been had the provisions of SFAS No. 123 been applied to the
Companys stock options. The pro forma disclosure of the effect of SFAS No. 123 on net loss and net
loss per common share for the years ended December 31, 2003 and 2002 is
presented below. There were no stock options granted in 2002. Year Ended December 31,2003
    
    2002Net loss:As reported
    
    $
    (218,402
    )
    
    $
    (1,006,638
    )Pro forma
    
    
    (251,596
    )
    
    
    (1,006,638
    )Basic and diluted net loss per common
shareAs reported
    
    $
    (0.05
    )
    
    $
    (0.31
    )Pro forma
    
    
    (0.06
    )
    
    
    (0.31
    )Stock-based compensationAs reported
    
    $
    
    
    
    $
    Pro forma
    
    
    33,194
    
    
    
    
 17




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The following significant assumptions were utilized to calculate the fair
value information presented utilizing the Black-Scholes pricing model: Year Ended December 31,2003
    
    2002Risk Free interest rate
    
    
    3.12
    %
    
    
    N/AExpected life
    
    4.7 years
    
    
    N/AExpected volatility
    
    
    469
    %
    
    
    N/AExpected dividends
    
    
    0
    %
    
    
    N/A
 Cash. The Company deposits its cash in a high quality financial
institution. The balances, at times, may exceed federally insured limits. Property and Equipment. Property and equipment was stated at cost.
Depreciation of an asset was recognized on the straight-line basis over the
assets estimated useful life ranging from one to seven years. Leasehold
improvements were amortized using the straight-line method over the shorter of
the lease term or the estimated useful life. Maintenance, repairs and minor
renewals are expensed when incurred. Depreciation and amortization expense on
property and equipment was $0 and $208,537 for the years ended December 31,
2003 and 2002, respectively. The
Company adopted Statement of Position 98-1 (SOP
98-1), Accounting
for the Costs of Computer Software Developed or Obtained for Internal
Use.
SOP 98-1 requires the capitalization of direct costs incurred in connection
with developing or obtaining software for internal use, including external
direct costs of materials and services and payroll and payroll-related costs
for employees who are directly associated with and devote time to an
internal-use software-development project. During 2003 and 2002, no
software-development costs were capitalized. Long-term prepaid expense. The long-term prepaid expense was being
amortized using the straight-line method over five years. As of December 31,
2002, the carrying value of the long-term prepaid expense was reviewed and
determined to be impaired. The Company included in the impairment loss for the
year ended December 31, 2002 of $336,507, the impairment related to the
long-term prepaid expense. Income Taxes. The Company accounts for income taxes using the liability
method. Deferred tax assets and liabilities are recognized for the expected
future tax consequences attributable to the temporary differences between the
financial and income tax reporting bases of assets and liabilities. 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 loss per common 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 during the years ended December 31, 2003 and
2002 were antidilutive (see Note 5). Fair Value of Financial Instruments. The carrying amounts for all
financial instruments approximate fair value. The carrying amounts for cash,
accounts receivable, accounts payable and accrued expenses approximate fair
value because of the short maturity of these instruments. Recent Accounting Pronouncements. In April 2003, the Financial Accounting
Standards Board (FASB) issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, effective for contracts entered
into or modified after June 30, 2003. This amendment clarifies when a contract
meets the characteristics of a derivative, clarifies when a derivative contains
a financing component and amends certain other existing pronouncements. The
adoption of SFAS No. 149 did not have a material effect on the Companys
financial statements. 18




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##### Table of Contents



In May 2003,
the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.
SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. SFAS No. 150
requires the classification as a liability of any financial instruments with a
mandatory redemption feature, an obligation to repurchase equity shares, or a
conditional obligation based on the issuance of a variable number of its equity
shares. The Company does not have any financial instruments as defined by SFAS
No. 150. The adoption of SFAS No. 150 did not have a material effect on the
Companys financial statements. In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 clarifies the
requirements for a guarantors accounting for and disclosure of certain
guarantees issued and outstanding. The initial recognition and initial
measurement provisions of FIN 45 were applicable to guarantees issued or
modified after December 31, 2002. The disclosure requirements of FIN 45 are
effective for financial statements for periods ending after December 15, 2002.
The adoption of FIN 45 did not have a material effect on the Companys
financial statements. In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46). FIN 46 states that
companies that have exposure to the economic risks and potential rewards from
another entitys assets and activities have a controlling financial interest in
a variable interest entity and should consolidate the entity, despite the
absence of clear control through a voting equity interest. The consolidation
requirements apply to all variable interest entities created after January 31,
2003. For variable interest entities that existed prior to February 1, 2003,
the consolidation requirements are effective for annual or interim periods
beginning after December 15, 2004. Disclosure of significant variable interest
entities is required in all financial statements issued after January 31, 2003,
regardless of when the variable interest was created. The Company does not
expect the adoption of FIN 46 to have a material effect on the Companys
financial statements. 3. Contingent Shareholder Notes Payable In January 1994, the Company acquired 73,121 shares of common stock from
two shareholders for $6.54 per share by issuing promissory notes totaling
$478,212 which bear interest at 6%. These shares have been canceled and
retired. Under the terms of the notes, payments shall be made when, and only
if, the Company receives payments for the exercise of options under its 1994
Stock Option Plan until the notes are paid in full. The Company is required to
use 100% of any cash proceeds resulting from the exercise of options under the
1994 Stock Option Plan to pay down these obligations until the notes are
satisfied. As of December 31, 2003, there were no options outstanding under
the 1994 Stock Option Plan. Consequently, no liability has been recorded in
the financial statements. No principal or interest payments were made on these
promissory notes in 2003 and 2002. During December 1999, the Company sold 37,808 shares of common stock and
received a stock-subscription receivable for $226,852 from one of the note
holders. The receivable was payable when payments on the contingent
shareholder notes payable are made by the Company. The outstanding balance on
the stock-subscription receivable earns interest at 6%. There were no payments
made in 2003 or 2002. In December 2003, when the principal balance of the
subscription receivable was $223,922, the Company and one of the note holders,
with an original principal amount of $232,707, agreed to offset the remaining
balance of the note against the subscription receivable from the note holder.
The agreement released the Company from its obligations under the note,
released the note holder from their obligations under the subscription
agreement and related stock pledge agreement, and mutually released both
parties from any and all claims by the other party. The principal balance of the contingent promissory notes was $238,939 and
$465,769 at December 31, 2003 and 2002, respectively. 19




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##### Table of Contents



4. Shareholders Equity Reverse Stock Split On November 10, 2003, the Companys Board of Directors approved a reverse
stock split of the Companys capital stock at a ratio of one-for-three. The
reverse split became effective with respect to shareholders of record at the
close of business on December 2, 2003. In lieu of fractional shares,
shareholders of common stock received a cash payment. Stockholders equity has
been restated to give retroactive recognition of the reverse split for all
periods presented by reclassifying to additional paid-in capital the amount in
excess of the par value of the outstanding shares. All references to share and
per share amounts for all periods presented have been retroactively restated to
reflect this reverse split. Common Stock During December 1999, the Company sold 37,808 shares of common stock and
received a stock-subscription receivable for $226,852. The receivable was
payable when payments on the contingent shareholder notes payable were made by
the Company (see Note 3). The outstanding balance on the stock-subscription
receivable earned interest at 6%. There were no payments made in 2003 or 2002.
In December 2003, the Company agreed to offset the remaining balance of the
subscription receivable against the contingent shareholder notes payable (see
Note 3). The agreement released the Company from its obligations under the
note, released the note holder from their obligations under the subscription
agreement and related stock pledge agreement, and mutually released both
parties from any and all claims by the other party. In September 2003, the Company sold 3,841,333 shares of common stock for
gross proceeds of $230,480, and issued 700,000 shares in satisfaction of
$42,000 of debt to related parties. In December 2003, the Company sold 264,840 shares of common stock for
gross proceeds of $198,630 and had offering expenses of $2,372. Preferred Stock During the year ended December 31, 2001, the Company sold 440,000 shares
of Series A Convertible Preferred Stock and received net proceeds of $615,133.
The preferred stock has voting rights identical to common stock. In the event
of liquidation, the Series A Preferred Shareholders receive a liquidation
preference of $660,000. Although no dividends are required with respect to the
Series A Preferred Stock, no dividend shall be paid on any shares of common
stock unless comparable dividends are paid on the Series A Preferred Stock. The holders of Series A Convertible Preferred Stock may elect to convert
all or a portion of such shares into shares of the Companys common stock in
the manner set forth in the Series A Convertible Preferred Stock Certificate of
Designation on file with the Minnesota Secretary of State. 5. Warrants and Stock Options During 2003, 16,666 five-year warrants were issued to a consultant and
none were exercised. The warrants issued to the consultant are earned and vest
as the consultant provides services and achieves milestones as described in the
consulting agreement. Pursuant to Emerging Issues Task Force 96-18 (EITF
96-18), Accounting for Equity Instruments that are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services,
the Company will value and record an expense related to the warrants as the
milestones are achieved. At December 31, 2003, no expense has been recorded
related to these warrants as no milestones were achieved. During 2002, no
warrants were issued or exercised. At December 31, 2003, the Company had
74,325 warrants outstanding with exercise prices ranging from $0.75 to $8.82.
The warrants expire serially through October 2008. 20




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##### Table of Contents



The Company
established a stock option plan in 1994 (1994 Stock Option Plan) to provide incentives to employees and under which 1,000,000 shares of common stock have been reserved for issuance. The options can be either incentive stock options or non-statutory stock options and are
valued at the fair market value of the stock on the date of grant. The options
generally vest over a period of four years and have a life of six to ten years. The Company
established a stock option plan in 1999 (1999 Stock Option
Plan) to provide incentives to directors and officers and under which 200,000
shares of common stock have been reserved for issuance. The options can only
be non-qualified stock options and are valued at the fair market value of the
common stock on the date of grant unless otherwise determined by the plan
administrator, in which case the option may not be less than 85% of the fair
market value of the common stock on the date of grant. During 2003, the Company issued options for 16,667 shares of common stock
to a director that are subject to the shareholders of the Company approving an
increase in the number of shares reserved for issuance under the 1999 Stock
Option Plan and are not considered outstanding at December 31, 2003. At December 31, 2003, the Company had 172,774 exercisable options
outstanding with a weighted-average exercise price of $0.65, and a
weighted-average remaining contractual life of 9.2 years. The weighted-average grant date fair market value of options granted
during the year ended December 31, 2003 was $0.24. The following table summarizes options and warrants to purchase shares of
the Companys common stock: Weighted
    
    Range of
    
    
    
    
    
    WeightedAverage
    
    Option
    
    
    
    
    
    Average ExerciseOptions
    
    Exercise Price
    
    Exercise
    
    Warrants
    
    PriceOutstanding
    
    Per Share
    
    Price
    
    Outstanding
    
    Per ShareBalance at December 31, 2001
    
    
    760,439
    
    
    $
    4.29
    
    
    $1.11to$11.64
    
    
    61,659
    
    
    $
    4.50Canceled/expired
    
    
    (490,833
    )
    
    
    4.11
    
    
    $1.11to$11.64
    
    
    
    
    
    
    Balance at December 31, 2002
    
    
    269,606
    
    
    
    4.62
    
    
    $3.00to$10.50
    
    
    61,659
    
    
    
    4.50Granted
    
    
    199,999
    
    
    
    .35
    
    
    $ 0.15to$0.75
    
    
    16,666
    
    
    
    .75Canceled/expired
    
    
    (250,998
    )
    
    
    4.67
    
    
    $3.00to$10.50
    
    
    (4,000
    )
    
    
    3.74Balance at December 31, 2003
    
    
    218,607
    
    
    $
    .67
    
    
    $0.15to$6.00
    
    
    74,325
    
    
    $
    3.71
 The following table summarizes information about stock options outstanding
at December 31, 2003: Options outstanding
    
    Options exercisableWeighted-Average
    
    Weighted-
    
    
    
    
    
    Weighted-Remaining
    
    Average
    
    
    
    
    
    AverageExercise

    
    Number
    
    Contractual
    
    Exercise
    
    Number
    
    ExercisePrices

    
    Outstanding
    
    Life
    
    Price
    
    Exercisable
    
    Price$
    0.15
    
    
    133,333
    
    
    
    9.75
    
    
    $
    0.15
    
    
    
    133,333
    
    
    $
    0.15$
    0.75
    
    
    66,666
    
    
    
    9.89
    
    
    
    0.75
    
    
    
    20,833
    
    
    
    0.75$
    3.00 to $3.09
    
    
    11,942
    
    
    
    1.20
    
    
    
    3.05
    
    
    
    11,942
    
    
    
    3.05$
    6.00
    
    
    6,666
    
    
    
    5.70
    
    
    
    6.00
    
    
    
    6,666
    
    
    
    6.00$
    0.15 to $6.00

    
    
    218,607
    
    
    
    9.20
    
    
    $
    0.67
    
    
    
    172,774
    
    
    $
    0.65
 6. Income Taxes 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. The temporary
differences principally relate to net operating loss carryforwards and
depreciation. 21




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##### Table of Contents



The Company has net operating loss carryforwards of approximately
$14,740,000 at December 31, 2003 expiring at various times beginning 2008 that
can be used to offset future taxable income, and research and development
credit carryforwards of approximately $101,000 which, if not used, will begin
to expire in 2007. These carryforwards are subject to the limitations of the
Internal Revenue Code Section 382 in the event of certain changes in the equity
ownership of the Company or changes in business. The Company has recorded a full valuation allowance against the net
deferred tax asset due to the uncertainty of realizing the related benefits as
follows at December 31: 2003
    
    2002Deferred income tax assets:Net operating loss carryforwards
    
    $
    5,966,000
    
    
    $
    5,809,800Research and development credit carryforwards
    
    
    101,000
    
    
    
    101,000Less: valuation allowance
    
    
    (6,067,000
    )
    
    
    (5,910,800
    )Net deferred income tax assets
    
    $
    
    
    
    $
    
 The change in the valuation allowance was $156,200 and $412,400 for the
years ended December 31, 2003 and 2002, respectively. Income tax computed at the U.S. federal statutory rate reconciled to the
effective tax rate is as follows for the years ended December 31: 2003
    
    2002Federal statutory tax rate benefits
    
    
    -34.0
    %
    
    
    -35.0
    %State tax, net of federal benefit
    
    
    -6.5
    %
    
    
    -5.0
    %Change in valuation allowance
    
    
    40.5
    %

    
    
    41.0
    %Permanent differences
    
    
    0.0
    %
    
    
    0.1
    %Other
    
    
    0.0
    %
    
    
    -1.1
    %Effective tax rate
    
    
    0.0
    %
    
    
    0.0
    %
 7. Retirement Savings Plan The Company had a pre-tax salary reduction/profit sharing plan under the
provisions of Section 401(k) of the Internal Revenue Code, which covered
employees meeting certain eligibility requirements. In early 2002, the plan
stopped accepting further contributions. On July 29, 2002, the IRS issued a
statement of compliance for changes that had been made to the plan, which
statement allowed the Company to distribute all of the plans assets to its
participants. During 2002, the assets of the plan were distributed to the
participants and the plan was officially terminated. 8. Lease Commitment The Company previously leased its administrative facilities under an
operating lease. The lease required monthly rental payments of $8,571
increasing to $8,914 over the life of the lease, and the Companys pro rata
share of operating expenses. The Company successfully negotiated with the
propertys landlord for a termination of the lease without penalty as of July
1, 2002. The Company currently leases office space on a month-to-month basis from a
company owned by the Companys chairman at a rate of $3,000 per month. 22




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##### Table of Contents



Rent expense, excluding operating expenses, was $11,389 and $51,425 for
the years ended December 31, 2003 and 2002, respectively. 9. Significant Customers Revenues to two customers were 62% and 37% of total revenues in 2002. 10. Subsequent Events In November 2003, the Company began a second private placement which ended
in March 2004 (the Offering). A majority of the sales of the Companys
common stock occurred after December 31, 2004. 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
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. Also in March 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. The agreement calls for the Company to make a $250,000 cash payment
to MET and to issue 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. 
 Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure None. 
 Item 8A. 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 December
31, 2003, 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. 23




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##### Table of Contents



PART III 
 Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act Ronald E. Eibensteiner, 52, joined the Company as Chairman of the
Companys board of directors in May 1996. He is President of Wyncrest Capital,
Inc. and has been a seed investor in several early-stage technology companies.
He was a cofounder of Diametrics Medical, Inc., a manufacturer of blood gas
diagnostic systems; cofounder of OnHealth Network Company, a web-based
publisher of health and wellness information, which was later purchased by
WebMD; director of BigCharts, Inc., a leading provider of financial internet
content, until its sale to MarketWatch.com in June 1999; and was Chairman of
Prodea Software Corporation, a data-warehousing software company, until its
sale to Platinum Technology, Inc., in January 1996. In 1983, Mr. Eibensteiner
cofounded Arden Medical Systems and served as its Chief Financial Officer until
its sale to Johnson & Johnson in 1987. Mr. Eibensteiner holds a Bachelor of
Science degree in Political Science from the University of Minnesota. Russell Mix, 47, has served as a director of the Company since November
2003. Mr. Mix is currently CEO and Director of Prolific Publishing, Inc., a
developer and publisher of computer software for the entertainment markets such
as game consoles, gambling games and screensavers. Prior to that, Mr. Mix was
Senior Vice President, General Counsel, Secretary and Director for Casino Data
Systems, Inc. (CDS). He was a member of the executive management team which
led CDS from inception to more than 500 employees in four years, with business
operations in more than 20 jurisdictions and offices in four states. He served
as counsel to CDS and was instrumental in taking the company public in April
1993. He also led corporate and banking teams in two subsequent offerings
(February 1994 and March 1996) which cumulatively raised in excess of $90
million for CDS and $15 million for selling shareholders. Mr. Mix has a JD
from McGeorge School of Law, University of the Pacific and while in private
practice, concentrating in gaming and corporate law. Brian D. Niebur, 40, has served as Chief Financial Officer and a Director
of the Company since February 2003. Mr. Niebur has been employed part time by
Entrx Corporation (NASDAQ: ENTX) as its treasurer and chief financial officer
since February 2002. Entrx Corporation is primarily engaged in providing
industrial insulation services through its California subsidiary, Metalclad
Insulation Corporation. In addition, since July 2000, and also on a part-time
basis, Mr. Niebur has acted as a vice president and controller for Wyncrest
Capital, Inc. in Minneapolis, Minnesota, a privately held venture capital firm.
From August 1997 until July 2000, Mr. Niebur was the controller for Vital
Images, Inc., a developer and marketer of medical visualization and analysis
software. Mr. Niebur was the vice president and controller of IVI Publishing,
Inc, from September 1993 until August 1997. IVI Publishing, Inc. was an
electronic publisher of health and medical information. Mr. Niebur has passed
the certified public accounting examination. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Companys officers, directors and persons considered to be beneficial
owners of more than ten percent of a registered class of the Companys equity
securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and Nasdaq. Officers, directors and
greater-than-ten-percent shareholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file. Based on
a review of the copies of such forms furnished to the Company, or written
representations that no applicable filings were required, the Company believes
that all such filings were filed on a timely basis for the fiscal year 2003,
except for late filings made by Russell Mix, a director of the Company, and
Wayne Mills a ten-percent shareholder of the Company. Code of Ethics Because the Company has no operating business generating revenue, and has
only a few people involved in the administration of the Companys affairs, it
has not adopted a code of ethics applicable to its principal executive or
accounting officers. 24




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##### Table of Contents



Audit Committee Financial Expert The Board maintains an audit committee which has one financial expert, whose
name is Mr. Russell Mix. Mr Mixs relevant experience qualifying him as a
financial expert is that he currently serves as the Chief Executive Officer and
Chief Financial Officer of Prolific Publishing, Inc. Mr. Mix also has
experience as a financial analyst and holds an undergraduate degree in finance.
Mr. Mix qualifies as an independent director under NASD listing standards
(NASD Marketplace Rule 4200(a)(15)). 
 Item 10. Executive Compensation The following table sets forth the total compensation paid by the Company
during its last three fiscal years to the persons who served as President and
Chief Executive Officer of the Company and each other executive officer of the
Company whose total annual base salary plus bonus compensation for the most
recent fiscal year exceeded $100,000 (all of whom are the Named Executive
Officers). SUMMARY COMPENSATION TABLE Long-TermCompensationAnnual Compensation
    
    AwardsSecuritiesOther Annual
    
    UnderlyingSalary
    
    Bonus
    
    Compensation
    
    OptionsName and Principal Position
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    (#)Ronald E. Eibensteiner, President
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    and CEO (1)
    
    
    2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Paul Lidsky, President and CEO (2)
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2002
    
    
    
    147,836
    
    
    
    
    
    
    
    4,050
    
    
    
    2001
    
    
    
    187,500
    
    
    
    
    
    
    
    8,456
    
    
    
    
 (1) Mr. Eibensteiner was appointed President and Chief Executive Officer on
February 6, 2003 and has not received any salary. Mr. Eibensteiner has been
Chairman of the Company since May 1996. (2) Mr. Lidsky was appointed President and Chief Executive Officer on September
2, 1997 and resigned as President and Chief Executive Officer on February 6,
2003. OPTION GRANTS DURING 2003 FISCAL YEAR The following table sets forth the options that were granted to the Named
Executive Officers during the Companys last fiscal year which ended December
31, 2003. Number of
    
    Percent ofSecurities
    
    Total Options/Underlying
    
    Granted to
    
    Exercise orOptions
    
    Employees in
    
    Base Price
    
    ExpirationName
    
    Granted (#)
    
    Fiscal Year
    
    ($/Share)
    
    DateRonald E. Eibensteiner
    
    
    0
    
    
    
    0
    
    
    
    
    Paul F. Lidsky
    
    
    0
    
    
    
    0
    
    
    
    
    
 25




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##### Table of Contents



OPTION EXERCISES DURING FISCAL 2003
AND FISCAL YEAR-END OPTION VALUES The following table provides certain information regarding the exercise of
stock options to purchase shares of the Companys common stock by the Named
Executive Officers during the year ended December 31, 2003, and the fiscal
year-end value of unexercised stock options held by such Named Executive
Officers. Number
    
    
    
    
    
    Number ofof
    
    
    
    
    
    Unexercised
    
    Value of UnexercisedShares
    
    
    
    
    
    Options at
    
    In-the-Money OptionsAcquired
    
    Value
    
    Fiscal Year End
    
    at Fiscal Year End ($)On
    
    Realized
    
    (exercisable /
    
    (exercisable /Name

    
    Exercise
    
    ($)
    
    unexercisable)
    
    unexercisable)Ronald E. Eibensteiner
    
    
    0
    
    
    
    0
    
    
    
    - / -
    
    
    $
    0 / $0Paul F. Lidsky
    
    
    0
    
    
    
    0
    
    
    
    - / -
    
    
    $
    0 / $0
 Director Compensation Directors do not presently receive any compensation from the Company for
attending board of directors or committee meetings, although the Company does
reimburse directors for expenses incurred in attending such meetings. Currently, each nonemployee director receives an option to purchase 16,666
shares of the Companys common stock upon such directors initial election or
appointment to the board of directors. No further options have been granted to
a nonemployee director upon a directors subsequent reelection to the board of
directors by the shareholders. The options vest in the following manner:
1,666 shares upon initial election or appointment; 5,000 shares upon first
reelection to the board by the shareholders; 5,000 shares upon second
reelection to the board by the shareholders; 5,000 shares upon third reelection
to the board by the shareholders. The exercise price of the options is equal
to the fair market value of the Companys common stock on the date the
nonemployee director is initially elected or appointed to the Companys board. In September 2003, the Company granted a director an option for 133,333
shares of the Companys common stock. The options vested immediately and had
an exercise price of $.15 per share. This grant was done in lieu of the option
grant described above for a directors initial election or appointment to the
Companys board of directors. In November 2003, the Company granted a director an option for 83,333
shares of the Companys common stock, at an exercise price of $.75 per share,
as an inducement for him joining the Companys board of directors. 16,667 of
these options are contingent upon the Companys shareholders approving an
increase in the amount of shares available under the Companys 1999 Stock
Option Plan. This grant was done in lieu of the option grant described above
for a directors initial election or appointment to the Companys board of
directors. 
 Item 11. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information with respect to
beneficial ownership of the Companys common stock as of the February 11, 2004
by: (i) each director of the Company, (ii) each executive officer of the
Company named in the Summary Compensation Table, (iii) all directors and
executive officers of the Company as a group, and (iv) each person or entity
known by the Company to own 26




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##### Table of Contents



beneficially more than five percent (5%)
of the Companys common stock. Unless otherwise indicated, the address of each
beneficial owner is 800 Nicollet Mall, Suite 2690, Minneapolis, Minnesota
55402. Number ofShares
    
    Percent ofBeneficially
    
    OutstandingName and Address of Shareholder
    
    Owned (1)
    
    Shares (1)Paul F. Lidsky (2)
    
    
    12,400
    
    
    
    *Ronald E. Eibensteiner (3)
U S Bancorp Building
800 Nicollet Mall, Suite 2690
Minneapolis, MN 55402
    
    
    1,762,333
    
    
    
    20.4
    %Brian Niebur (4)
800 Nicollet Mall, Suite 2690
Minneapolis, MN 55402
    
    
    166,666
    
    
    
    1.9
    %Russell Mix (5)
1400 West Burbank Blvd.
Burbank, CA 91506
    
    
    20,833
    
    
    
    *All current executive officers and
directors as a group (three persons)(4)
    
    
    1,949,832
    
    
    
    22.7
    %Perkins Capital Management, Inc. (6)
730 East Lake Street
Wayzata, MN 55391-1769
    
    
    2,565,220
    
    
    
    30.4
    %D. Bradley Olah (7)
5950 County Road 101
Plymouth, MN 55446
    
    
    1,531,665
    
    
    
    18.1
    %Wayne W. Mills (8)
5020 Blake Rd. S.
Edina, MN 55436
    
    
    896,000
    
    
    
    10.6
    %Morgan Street Partners, LLC (9)
800 Nicollet Mall, Suite 2690
Minneapolis, MN 55402
    
    
    1,452,333
    
    
    
    16.9
    %
   *
    less than 1 percent (1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes general voting power and/or
investment power with respect to securities. Shares of common stock subject to
options or warrants currently exercisable or exercisable within 60 days of the
record rate are deemed outstanding for computing the beneficial ownership
percentage of the person holding such options or warrants but are not deemed
outstanding for computing the beneficial ownership percentage of any other
person. Except as indicated by footnote, the persons named in the table above
have the sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them. (2) Includes 66 shares of common stock held indirectly by Mr. Lidsky. (3) Includes the following: (i) 143,333 shares held by Wyncrest Capital,
Inc., a corporation that is wholly owned by Mr. Eibensteiner; (ii) 66,666
shares issuable upon conversion of Series A Preferred Stock; and (iii)
1,452,333 shares (which includes 133,333 shares issuable upon conversion of
Series A Preferred Stock) held by Morgan Street Partners, LLC, of which Mr.
Eibensteiner is the sole executive officer. 27




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##### Table of Contents



Mrs. Eibensteiner also holds 92,666 shares in her IRA. Mr. Eibensteiner disclaims beneficial ownership
of the shares held in the IRA for the benefit of his spouse and these shares
are not included in the totals on page 2 and are noted here for information
only. (4) Includes 133,333 shares which Mr. Niebur may purchase under currently
exercisable options for Spectres common stock. (5) Includes 20,833 shares which Mr. Mix may purchase under currently
exercisable options for Spectres common stock. (6) As disclosed in a Schedule 13G/A filed on February 4, 2004, Perkins
Capital Management, Inc. has sole power to vote or direct the vote for 799,000
shares and sole power to dispose of or direct the disposition of all shares
listed in the table as beneficially owned by it. (7) As disclosed in a Form 4 filed on February 9, 2004 and includes
166,666 shares owned by Mr. Olahs spouse. (8) As determined through conversations with Mr. Mills. (9) As disclosed in a Schedule 13D/A filed on January 22, 2004, Morgan
Street Partners, LLC has sole power to vote or direct the vote for and sole
power to dispose of or direct the disposition of all shares listed in the table
as beneficially owned by it. Morgan Street Partners, LLC, is a limited
liability company, which is owned by Mr. Eibensteiners spouse and daughter,
beneficially owns 1,452,333 shares, of which 133,333 shares are issuable upon
conversion of Series A Preferred Stock. Equity Compensation Plan Information Number of securitiesremaining available forfuture issuance underNumber of Securities to
    
    Weighted-average
    
    equity compensationbe issued upon exercise
    
    exercise price of
    
    plans (excludingof outstanding options,
    
    outstanding options,
    
    securities reflected inPlan Category
    
    warrants and rights
    
    warrants and rights
    
    column (a))(a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    
    206,665
    
    
    $
    0.44
    
    
    noneEquity compensation
plans not approved
by security holders
    
    
    86,267
    
    
    $
    3.85
    
    
    noneTotal
    
    
    292,932
    
    
    $
    1.44
    
    
    none
 
 Item 12. Certain Relationships and Related Transactions The Company paid $60,942 for rent, consulting services and overhead
expenses to a corporation owned 100% by the chairman of the board and that also
employs another director of the Company. 28




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##### Table of Contents



Item 13. Exhibits and Reports on Form 8-K (a) Exhibits Number
    
    Description3.1
    
    Articles of Incorporation 13.2
    
    Bylaws 13.3
    
    Amendment of Amended and Restated Articles of Incorporation3.4
    
    Articles of Merger4.1
    
    Certificate of Designation for Series A Preferred Stock210.1
    
    Asset Purchase Agreement by and between Spectre Gaming, Inc. and
CallVision, Inc., dated June 28, 2002231.1
    
    Rule 13a-14(a) Certification of Chief Executive Officer.31.2
    
    Rule 13a-14(a) Certification of Chief Financial Officer.32.
    
    Section 1350 Certification.
   1
    
    Incorporated by reference to the Companys Registration
Statement on Form SB-2 (File No. 33-90084C) filed March 7, 1995.2
    
    Incorporated by reference to Exhibits filed with Registrants
2001 Form 10-K. (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K with the SEC on March 10,
2004. 
 Item 14. Principal Accountant Fees and Services The Board of Directors of the Company selected Virchow, Krause & Company,

LLP (Virchow Krause), certified public accountants with offices in
Minneapolis, Minnesota, to audit the Companys financial statements for the
years ended December 31, 2003 and 2002. The following table details the fees
paid to Virchow Krause for the years ended December 31, 2003 and 2002. 2003
    
    2002Audit Fees
    
    $
    9,575
    
    
    
    21,980Audit-Related Fees
    
    
    11,754
    (1)
    
    
    1,625
    (2)Tax Fees
    
    
    5,560
    
    
    
    175All Other Fees
    
    
    
    
    
    
    Total
    
    $
    26,889
    
    
    $
    23,780
  (1)
    
    Fees related to audit of potential acquisition(2)
    
    Fees related to review and response of SEC comment letter The policy of the Companys audit committee is to review and preapprove
both audit and non-audit services to be provided by the independent auditors
(other than with de minimisexceptions permitted by the Sarbanes-Oxley Act of
2002). This duty may be delegated to one or more designated members of the
audit committee with any such approval reported to the committee at its next
regularly scheduled meeting. Approval of non-audit services shall be disclosed
to investors in periodic reports required by section 13(a) of the Securities
Exchange Act of 1934. Approximately 100% of the fees paid to Virchow Krause
were pre-approved by the board of directors in-lieu of an audit committee. 29




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No Services in connection with appraisal or valuation services, fairness
opinions or contribution-in-kind reports were rendered by Virchow Krause.
Furthermore, no work of Virchow Krause with respect to its services rendered to
the Company was performed by anyone other than Virchow Krause. 30




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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.By:
    /s/ Brian D. NieburBrian D. NieburChief Financial Officer
Date: March 24, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signatures
    
    Title
    
    Date/s/ Ronald E. Eibensteiner
    
    Chief Executive Officer and Director
   (Principal Executive Officer)
    
    March 24, 2004/s/ Brian D. Niebur
    
    Chief Financial Officer and Director
   (Principal Financial and Accounting Officer)
    
    March 24, 2004/s/ Russell Mix
    
    Director
    
    March 24, 2004
 31