SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001 or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-28381
Texas 93-1207631
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization) 76011
440 North Center, Arlington, TX (Zip Code)
(Address of principal executive offices)
(817) 265-0440
(Registrant's telephone number, including area code)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes |X| No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 13,292,095 shares of the
Company's Common Stock, $.005 par value, were outstanding as of May 10, 2001.
ITEM I - FINANCIAL STATEMENTS
GAMECOM, INC.
Consolidated Balance Sheet
March 31, 2001 (Unaudited)
March 31,
2001
ASSETS (Unaudited)
-----------
Current assets
Cash $ 5,844
Property and equipment
Equipment, furniture and fixtures 113,464
Accumulated depreciation (34,052)
-----------
Net property and equipment 79,412
-----------
Total assets $ 85,256
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade payables $ 387,617
Accrued interest 65,185
Notes payable to shareholders 360,500
Short-term notes payable to bank 275,000
-----------
Total current liabilities 1,088,302
Redeemable common stock
Common stock to redeem, 778,291 shares
at par $.005
3,891
Shareholders' equity
Capital stock 50,000,000 shares authorized
par value $.005; 11,772,997 and 10,316,600
issued and outstanding respectively 66,407
Paid-in capital 1,684,565
Retained earnings (2,757,909)
-----------
Total shareholders' equity (1,006,937)
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Total liabilities and shareholder equity $ 85,256
===========
The accompanying notes are an integral part of this financial statement
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GAMECOM, INC.
Consolidated Statement of Operations
For the Quarters Ended March 31, 2001 and 2000
(Unaudited)
2001 2000
----------- -----------
Revenues
Game royalties 113 --
General and administrative expense
Administrative cost 150,505 65,113
Interest 14,556 4,795
Financing charges 60,000 17,500
Depreciation and amortization 5,224 7,027
----------- -----------
230,285 94,435
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Net loss (230,172) (94,435)
=========== ===========
Per share amounts:
Net loss per share $ (0.017) $ (0.008)
=========== ===========
Average outstanding shares 13,444,234 11,922,150
=========== ===========
The accompanying notes are an integral part of this financial statement
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GAMECOM, INC.
Consolidated Statements of Cash Flows
For the Quarters Ended March 31, 2001 and 2000
(Unaudited)
2001 2000
---- ----
Cash flows from operating activities
Net loss $(230,172) $ (94,435)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 5,224 7,027
Financing fees 60,000 17,500
Stock issued as compensation 50,500 --
(Increase) decrease in:
Prepaid and other assets -- 8,989
Increase (decrease) in:
Accounts payable and accrued expense (29,157) 49,293
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Net cash provided by operating activities (85,291) (11,626)
Cash flows from investing activities
Capital expenditures -- (1,512)
--------- ---------
Net cash used by investing activities -- (1,512)
Cash flow from financing activities
Short-term notes payable 60,000 --
Increase in capital stock and paid-in capital 25,000 --
--------- ---------
Net cash provided by financing activities 85,000 --
Net increase in cash and cash equivalents (291) (13,138)
Cash and cash equivalents beginning of period 6,135 15,564
--------- ---------
Cash and cash equivalents end of period $ 5,844 $ 2,426
========= =========
Interest paid during the quarter $ 3,400 $ 431
========= =========
Income taxes paid during the quarter $ -- $ --
========= =========
The accompanying notes are an integral part of this financial statement
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GAMECOM, INC.
Notes to Financial Statements
For the Quarters Ended March 31, 2001 and 2000
Note 1 Reference to Notes to Financial Statements dated December 31, 2000
The notes to the Financial Statements dated December 31, 2000 should be read in
conjunction with these financial statements. These financial statements include
all adjustments that are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion contains certain forward-looking statements that are
subject to business and economic risks and uncertainties, and the Company's
actual results could differ materially from those forward-looking statements.
The following discussion regarding the financial statements of the Company
should be read in conjunction with the financial statements and notes thereto.
Overview. The Company was capitalized in 1996 to develop, own, and operate theme
brewpub/microbrewery restaurants. In July of 1997 the Company began operating,
the former Hubcap Brewery & Kitchen in Dallas, Texas.
In January, 1999, the Company terminated its brewpub/microbrewery restaurant
operations. Future revenues and profits will depend upon various factors,
including market acceptance of 'Net GameLink(TM) and, assuming the acquisition
of Ferris as described below is completed, on the success of Ferris's product
lines and on general economic conditions. The Company's present sole source of
revenue is the future sale of 'Net GameLink(TM) systems and from associated
royalties. The Company has to date received only nominal revenue from its
beta-test system installed at J. Gilligan's in Arlington.
On January 10, 2001, the Company executed a letter of intent to acquire Virtual
Technologies, Inc. d/b/a Global VR, in a stock-for-stock transaction under which
Global VR's shareholders would acquire controlling interest in the Company. No
definitive contract was executed, and the letter of intent was terminated on
April 6, 2001.
On April 18, 2001, the Company executed a letter of intent to acquire Ferris
Productions, Inc., in a stock-for-stock transaction under which Ferris'
shareholders would acquire controlling interest in the Company. The acquisition
would provide the Company with a wider array of products within the Company's
industry, an experienced management team, an existing revenue stream, and
established distribution channels. A definitive contract between the Company and
Ferris was executed on May 3, 2001. Both companies are presently in a due
diligence phase; however, there can be no assurance that the acquisition will in
fact be consummated, as the transaction is contingent upon the Company's
approval of a pending financial audit of Ferris, and approval of the transaction
by the shareholders of both the Company and Ferris. Upon completion of the
audit, a proxy statement will be prepared and filed with the Securities and
Exchange Commission, and subsequently submitted to the companies' shareholders.
It is expected that the proxy statement will be forwarded to the shareholders in
June of 2001, but there is no assurance that this timetable will hold.
There can be no assurances that the Company will successfully implement its
expansion plans, including the 'Net GameLink(TM) entertainment concept. The
Company faces all of the risks, expenses, and difficulties frequently
encountered in connection with the expansion and
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development of a new business. These include limited working capital and the
need to devote a substantial amount of management's time to raising capital
rather than development of the business, difficulties in maintaining delivery
schedules if and when volume increases, the need to develop support arrangements
for systems at widely dispersed physical locations, the need to control
operating and general and administrative expenses and the need to spend
substantial amounts on initial advertising to develop an awareness of the
Company and its products. In addition, the Company's Chief Executive Officer is
a practicing attorney with no training or prior experience in managing or
overseeing a public company.
Results of Operations.
Quarter ended March 31, 2001 compared to Quarter ended March 31, 2000.
For the quarter ended March 31, 2001 the Company received only nominal revenues
as a result late in the year of beginning to charge royalties for the Company's
testing system installed at J. Gilligan's. It had no revenue for the quarter
ended March 31, 2000. Administrative costs of $150,505 for the quarter ended
March 31, 2001 compared to $65,113 for the quarter ended March 31, 2000 reflect
primarily additional costs incurred during 2001 in connection with due diligence
investigation of Global VR and other activities relating to that proposed
acquisition, which did not occur and fees paid in stock to consultants. The
increase in interest charges from $4,795 for the quarter ended March 31, 2000 to
$14,556 for the quarter ended March 31, 2001 reflects an increase in the level
of the Company's bank borrowings. These bank borrowings were guaranteed by
officers and directors of the Company, who received common stock in payment for
their guarantees. The value of such common stock ($17,500 for the quarter ended
March 31, 2000 and $60,000 for the quarter ended March 31, 2001) is shown as
finance charges for the applicable periods. The decrease in depreciation and
amortization from $7,027 in the quarter ended March 31, 2000 to $5,224 in the
quarter ended March 31, 2001 is a result of adjustment of accounting estimates.
Connect Computer Group, Inc., the firm which has been largely responsible for
development of the Company's kiosk and computer systems ("Connect Computer"),
performed its development work on the basis of an oral understanding or
"gentleman's agreement" with the Company's Chief Executive Officer that if the
Company is successful in marketing the product Connect Computer would be issued
a significant equity position in the Company. On February 1, 2001, the Company
satisfied this obligation by issuing 75,000 shares of its common stock to
Connect Computer.
Liquidity and Capital Resources. As of March 31, 2001 the Company's liquidity
position was extremely precarious. The Company had current liabilities of
$1,088,302, including $387,617 in trade payables, most of which were overdue,
short-term notes payable of $635,500, some of which were either demand
indebtedness or were payable at an earlier date and were in default, and related
accrued interest on the notes. Current assets available to meet those
liabilities were only $5,844. On June 5, 2000, the Company announced that it
had entered into a subscription agreement for up to a $15,000,000.00 sale of
common stock and warrants under a private equity line contract with Swartz
Private Equity, L.L.C. ("Swartz"), an institutional private equity fund. This
financing allows the Company to issue common stock and warrants at the Company's
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discretion as often as monthly as funds are needed in amounts based upon certain
market conditions. The pricing of each common stock sale is based upon current
market prices at the time of each draw, and the Company may set a floor price
for the shares each month at the Company's discretion. The Company's SB-2
registration statement for the Swartz private equity line became effective with
the Securities and Exchange Commission on August 10, 2000. The Company made its
first draw on the Swartz equity line during the month of October, 2000.
However, it has not made any draws under that line since March of 2001, because
the price and volume of trading in the Company's shares has been too low to make
that source of financing attractive. To date the Company has met its capital
requirements through capital contributions, loans from principal shareholders
and officers, bank borrowings, and certain private placement offerings. For the
fiscal year ended December 31, 2000, the net loss from operations was $230,172 .
After taking account of the non-cash items included in that loss, the Company's
cash requirements were $85,291. To cover these cash requirements, the Company
issued additional shares of its common stock to investors for approximately
$31,000 and, increased its bank borrowings by $35,000 and its borrowing from
shareholders by $25,000.
Plan of Operations
The opinions of the Company's independent auditor for each of the last two
fiscal years expressed substantial doubt as to the Company's ability to continue
as a going concern. Based on the unaudited results and the projected results
furnished to the Company by Ferris, we anticipate that if the acquisition is
completed, and if our due diligence confirms the information we have been
furnished, we should achieve profitability within the next 12 months. It should
be noted, however, that to achieve those results we will need to get additional
financing for working capital and other purposes. If the proposed acquisition is
not completed the outlook is much less favorable. In that case, until such time
as the Company is able to draw upon the Swartz equity line in a significant
manner or obtain additional financing, it plans to limit its operations by
conducting marketing efforts primarily on the basis of person-to-person contact
with those who have previously expressed an interest in its system and limiting
expansion of its operations to delivery of systems as permitted by
internally-generated cash flow. This may require that the Company accept orders
for new systems only on the basis of a down payment sufficient to cover the
costs of manufacture of the system, which may in turn make it difficult to
market additional systems. Further, the expression of uncertainty as to the
Company's ability to continue as a going concern might itself adversely affect
the Company's liquidity and cash flow, since vendors who might otherwise have
been willing to extend credit may instead insist upon pre-payment or payment on
a C.O.D basis.
The Company began to receive limited revenue from its beta-test system at J.
Gilligan's during the early portion of the third quarter of 2000. However, these
revenues are not expected to be sufficient to carry out any substantial
advertising and marketing. If the proposed acquisition is not completed the
Company will be unable to carry out substantial advertising and marketing
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until the Swartz private equity line becomes available to the Company in
significant amounts through increases in the price and/or volume of trading in
its shares, and until the Company begins to receive significant revenue from the
sale of its 'Net GameLink(TM) systems, which revenue is expected to begin in
material amounts during the second quarter of 2001.
The Company will need to have in place in the near future a qualified chief
operating officer. Although the Ferris acquisition would bring the Company an
experienced management team, there is no assurance that the Ferris acquisition
will be consummated. The Company does not presently intend to hire other
salaried key management personnel during the next 12 months, although additional
employees may become necessary. All of the Company's non-executive employees are
presently being compensated at market rates. However, the Company's senior
management (CEO, president, vice president, and secretary) are serving without
compensation, and the Company expects this will continue to be the case
indefinitely until the Company's interest-bearing debt has been substantially
reduced. If the Company is not able to raise the necessary funds to expand sales
beyond those that may be generated by person-to-person contact, it will be
forced to terminate its operations entirely.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The Company and Ferris are defendants in a lawsuit brought by Entertainment
Technologies & Programs, Inc. ("ETPI") in the 215th Judicial District Court of
Harris County, Texas. ETPI and Ferris had entered into a letter of intent
relating to a proposed acquisition of Ferris by ETPI. Ferris terminated that
letter of intent and entered into a letter if intent with the Company under
which Ferris would merge with the Company. ETPI claims that Ferris's termination
of the letter of intent was a breach of contract and that the Company tortiously
interfered with ETPI's letter of intent. ETPI is asking for a temporary
injunction to block the Company's merger with Ferris and for damages of $10
million. Management believes that the suit is entirely without merit and intends
to vigorously defend it.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Agreement of Merger with Ferris Productions, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GAMECOM, INC.
(Registrant)
Date: May 14, 2001
/s/ L. Kelly Jones
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L. Kelly Jones
Chief Executive Officer and Chief Financial
Officer
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