Shareholder to buy assets of bankrupt LV gaming firm

Grace Leong

Thursday, Feb. 15, 2001 | 11:02 a.m.

The trustee for bankrupt Spintek Gaming Technologies Inc. of Las Vegas has agreed to sell the bankruptcy estate's gaming assets to its largest creditor for more than $1 million.

Malcom C. Davenport V, Spintek's primary shareholder who said he has loaned $5.738 million to the firm, had sought to foreclose on its gaming patents after its November bankruptcy filing.

He said the patents were collateral for the loans.

Spintek Gaming Technologies and its subsidiaries Spintek Gaming Inc. and Spinteknology Inc. filed for Chapter 7 bankruptcy -- which typically involves the liquidation of a company and its assets -- as a result of "substantial cash needs" following a failed attempt to arrange financing.

Timothy Cory, Spintek's trustee, who earlier disputed Davenport's claims, sought court approval Feb. 8 to authorize his sale of the gaming assets to Davenport, which he said is in the best interest of the estate and creditors. He said the company's 33 workers were laid off before the bankruptcy filing.

A hearing on the sale is scheduled for March 15.

"There was some dispute over how much is owed to Davenport and secured by the intellectual property as well as the value of that property, but the trustee, after investigating Davenport's claims, decided that selling the assets to him was the best way to make the most money for the estate," said Thomas Fell, one of Davenport's attorneys.

Cory added: "It's difficult to sell Spintek's merchandise and technology because it's highly specialized. The only businesses that would want to buy Spintek's assets are (gaming) component makers, and that's a limited population."

Spintek Gaming Technologies reported assets of $2,510 and liabilities of $5.74 million, while Spinteknology Inc., which owns the gaming equipment, inventory and intellectual property, listed assets of $4.43 million and liabilities of $7.64 million. No assets or liabilities were provided for Spintek Gaming Inc.

Court documents say Davenport agreed to pay $150,000 cash for Spinteknology's equipment and inventory and "a ($1 million) credit bid and cancellation of secured debt for the intellectual property," which includes patents, unpatented inventions and technology rights.

"Davenport is using $1 million of the $5.738 million to buy the intellectual property, and the end result is the debt is reduced to $4.738 million," Fell said. "The only hope he has to get the loan back is to acquire the collateral and find a way to sell or license it."

Gregory Garman, another Davenport attorney, agreed. "He's going to take a significant hit. The intellectual property is worth less than $2 million and his loan is collaterized against the intellectual property only."

Davenport and his family trust also agreed to subordinate any debt they hold in the Spintek companies until after the creditors are paid. But his claims will not be subordinate to those of the companies' shareholders.

Cory said the court will consider higher bids from third parties for the assets, though Davenport could raise his bid for them.

Davenport, Spintek's main financing source, said he purchased equity positions and provided loans totalling about $10 million over several years to the Spintek companies, which "as start up companies, ... required great infusions of capital in order to meet their cash flow needs."

He said in court papers he met with potential buyers including Park Place Entertainment Corp. of Las Vegas in "an aggressive effort (three months prior to the Spintek companies' bankruptcy filing) to market the companies and its assets including the intellectual property, accounts receivable and inventory." But the informal offers he received never totalled more than $2 million.

The switch by more casinos to coinless slot machines also contributed to Spintek's demise.

"Spintek said its market has been adversely affected by the switch of more casinos to coinless machines," Cory said. "But there's still a large market for such devices, for instance, in foreign markets. But for whatever reasons, Spintek hasn't been able to get sufficient sales fast enough to stay in business."

Spintek Gaming Technologies is a publicly traded company that primarily markets "AccuSystem," which tracks slot machine coin hopper levels.

Separately, Cory sought court approval last week to reject Spintek's outstanding leases with several parties including Spintek's landlord, Spencer Airport Center LLC.

Spencer, which said it is owed rents totalling $33,020 for two properties at 1857 Helm Drive and 1854 Pama Lane leased to Spintek, sought court approval Feb. 8 to enforce an order Spencer won on Dec. 20 that allows it to offset the unpaid rents against a $83,482 security deposit.

Spintek is also terminating its lease with Advance Acceptance Corp./All Lines Leasing, Alarm Co. Inc., First Security Leasing Co. and Skipco Inc./Business Credit Leasing.