UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ______________________
Commission File Number 000-28381
GAMECOM, INC.
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(Exact name of registrant as specified in its charter)
Texas 93-1207631
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
440 North Center, Arlington, Texas 76011
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(Address of principal executive offices) (Zip Code)
(817) 265-0440
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(Registrant's telephone number, including area code)
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
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 XXX NO _____
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As of August 1, 2001, the Registrant had outstanding 13,683,978 shares
of common stock, par value $.005 per share.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheet as of June 30, 2001
and December 31, 2000
Consolidated Statement of Operations for the
three months and six months ended June 30,
2001 and 2000
Consolidated Statement of Changes in Stockholders'
Deficit for the six months ended June 30, 2001
Consolidated Statement of Cash Flows for the six
months ended June 30, 2001 and 2000
Selected Notes to Financial Statements
GAMECOM, INC.
CONSOLIDATED BALANCE SHEET
June 30, 2001 and December 31, 2000
June 30, December 31,
2001 2000
ASSETS (Unaudited) (Note)
----------- ------------
Current assets:
Cash and cash equivalents $ - $ 6,135
---------- ----------
Total current assets - 6,135
Property and equipment, net 74,187 84,636
---------- ----------
Total assets $ 74,187 $ 90,771
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Book overdraft $ 14,098 $ -
Accounts payable, trade 380,729 361,617
Accrued interest payable 68,885 62,028
Notes payable to stockholders 360,500 410,500
Short-term notes payable to banks 275,000 215,000
---------- ----------
Total current liabilities 1,099,212 1,049,145
Redeemable common stock, 778,291 and 1,505,399
shares, respectively, at par $.005 per share 3,891 3,891
Stockholders' deficit:
Common stock, par value $0.005; 50,000,000 shares authorized; 13,591,345 and
12,390,091 shares issued and outstanding,
respectively 67,957 61,951
Additional paid-in capital 1,749,669 1,503,521
Accumulated deficit (2,846,542) (2,527,737)
---------- ----------
Total stockholders' deficit (1,028,916) (962,265)
---------- ----------
Total liabilities and stockholders'
deficit $ 74,187 $ 90,771
========== ==========
Note: The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. See accompany notes.
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GAMECOM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
for the three months and six months
ended June 30, 2001 and 2000
----------
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------- -------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Revenue:
Game royalties $ 72 $ - $ 185 $ -
Expenses:
General and administrative
expenses 71,766 98,738 212,447 163,851
Interest expense 21,539 4,873 36,095 9,668
Financing charges - 6,000 60,000 23,500
Depreciation expense 5,224 7,027 10,448 14,054
---------- ---------- ---------- ----------
Total expenses 98,529 116,638 318,989 211,073
---------- ---------- ---------- ----------
Loss before extraordinary
item (98,457) (116,638) (318,805) (211,073)
Extraordinary item:
Gain from extinguishment
of debt - 403,601 - 403,601
---------- ---------- ---------- ----------
Net income (loss) $ (98,457) $ 286,963 $ (318,805) $ 192,528
========== ========== ========== ==========
Basic and dilutive net income
(loss) per common share
before extraordinary item $ (0.01) $ (0.01) $ (0.02) $ (0.02)
Extraordinary item - 0.03 - 0.03
---------- ---------- ---------- ----------
Basic and dilutive net income
(loss) per common share $ (0.01) $ 0.02 $ (0.02) $ 0.01
========== ========== ========== ==========
Weighted average number of
common shares outstanding 13,465,367 11,826,836 12,992,590 11,824,755
========== ========== ========== ==========
See accompanying notes.
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GAMECOM, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
for the six months ended June 30, 2001
----------
(Unaudited)
Common Stock Additional
------------ Paid-In Accumulated
Shares Amount Capital Deficit Total
------ ------ ---------- ----------- -----
Balance at December 31,
2000 12,390,091 $ 61,951 $1,503,521 $(2,527,737) $ (962,265)
Common stock issued for
services 293,970 1,470 57,284 - 58,754
Common stock issued for
interest 57,000 285 13,115 - 13,400
Common stock issued for
financing fees 255,320 1,276 58,724 - 60,000
Common stock issued for
cash 125,000 625 24,375 - 25,000
Common stock issued as re-
payment of notes payable
to stockholders 469,965 2,350 92,650 - 95,000
Net loss - - - (318,805) (318,805)
---------- ---------- ---------- ----------- -----------
Balance at June 30, 2001 13,591,346 $ 67,957 $1,749,669 $(2,846,542) $(1,028,916)
========== ========== ========== =========== ===========
See accompanying notes.
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GAMECOM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended June 30, 2001 and 2000
----------
(Unaudited)
Six Months Ended
June 30,
-------------------------------
2001 2000
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Cash flows from operating activities:
Net income (loss) $ (318,805) $ 192,528
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 10,448 14,054
Stock issued as financing fees 60,000 23,500
Stock issued as compensation for services
and interest 72,154 -
Increase (decrease) in prepaid and other
assets - 9,169
Increase (decrease) in accounts payable
and accrued expenses 25,970 (269,390)
---------- ----------
Net cash used in operating activities (150,233) (30,139)
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Cash flows from investing activities:
Capital expenditures - (5,866)
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Net cash used in investing activities - (5,866)
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Cash flows from financing activities:
Proceeds from short-term notes payable 60,000 16,667
Proceeds from notes payable to stockholders 45,000 -
Increase in book overdraft 14,098 -
Proceeds from issuance of common stock 25,000 16,667
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Net cash provided by financing activities 144,098 33,334
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Net decrease in cash and cash equivalents (6,135) (2,671)
Cash and cash equivalents at beginning of
period 6,135 15,564
---------- ----------
Cash and cash equivalents at end of period $ - $ 12,893
========== ==========
Non-cash investing and financing activities:
Interest paid $ 15,840 $ 431
========== ==========
Income taxes paid $ - $ -
========== ==========
Common stock issued as repayment of notes
payable to stockholders $ 95,000 $ -
========== ==========
See accompanying notes.
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GAMECOM, INC.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited interim financial statements have been
prepared in accordance with generally accepted accounting principles and
the rules of the U.S. Securities and Exchange Commission, and should be
read in conjunction with the audited financial statements and notes
thereto for the year ended December 31, 2000. They do not include all
information and footnotes required by generally accepted accounting
principles for complete financial statements. However, except as
disclosed herein, there has been no material change in the information
disclosed in the notes to the financial statements for the year ended
December 31, 2000 included in the Company's Form 10-KSB filed with the
Securities and Exchange Commission. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of financial position and the results
of operations for the interim periods presented have been included.
Operating results for the interim periods are not necessarily indicative
of the results that may be expected for the respective full year.
2. Notes Payable to Banks
During the six months ended June 30, 2001, the Company entered into a
$60,000 note agreement with a bank. The note bears interest at 9% and is
due monthly. The principal balance outstanding of $60,000 is due November
2001. The note is guaranteed by certain directors of the Company.
3. Notes Payable to Stockholders
During the six months ended June 30, 2001, the Company borrowed an
additional $45,000 from certain stockholders of the Company. These notes
are non-interest bearing and are due on demand.
During the six months ended June 30, 2001, the Company repaid certain
notes payable to stockholders in the amount of $95,000 through the
issuance of its common stock.
Continued
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GAMECOM, INC.
NOTES TO FINANCIAL STATEMENTS
4. Litigation
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 of intent with the Company under which Ferris would merge with
the Company. ETPI claims that Ferris' termination of the letter of intent
was a breach of contract and that the Company tortuously interfered with
ETPI's letter of intent. ETPI is asking for damages of $10 million.
Management believes that the suit is entirely without merit and intends
to vigorously defend it.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The statements contained in this Report that are not historical are
forward-looking statements, including statements regarding the Company's
expectations, intentions, beliefs or strategies regarding the future.
Forward-looking statements include the Company's statements regarding liquidity,
anticipated cash needs and availability and anticipated expense levels. All
forward-looking statements included in this Report are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statement. It is important to note
that the Company's actual results could differ materially from those in such
forward-looking statements. Additionally, the following discussion and analysis
should be read in conjunction with the financial statements and notes thereto
appearing elsewhere in this Report.
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. As a result of several
factors, including relatively strict laws that apply to craft brewers in Texas,
GameCom found it difficult to develop this initial business, and closed down its
microbrewery operations in early 1999.
In December 1997, GameCom acquired all rights to `Net GameLink (TM), an
interactive entertainment system designed to allow a number of players to
compete with one another in a game via an intranet or the Internet. Since
closing its microbrewery operations, GameCom has been devoting substantially all
of its efforts to implementing the "Net GameLink (TM) product and its operations
have been limited to development, construction and beta-testing of the initial
"Net GameLink (TM) prototype system at J. Gilligan's Bar and Grill in Arlington,
Texas. 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' 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
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Ferris was executed on May 3, 2001. However, there can be no assurance that the
acquisition will in fact be consummated, as the transaction is contingent upon
the approval of the transaction by the shareholders of both the Company and
Ferris. A proxy statement has been filed with the Securities and Exchange
Commission, and will be subsequently submitted to the companies' shareholders.
It is expected that the proxy statement will be forwarded to the shareholders in
August 2001, with a tentative shareholders' meeting set for September 14, 2001.
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 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
Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000
For the three months ended June 30, 2001 the Company received only nominal
revenues resulting from royalties earned on the Company's testing system
installed at J. Gilligan's. It had no revenue for the three months ended June
30, 2000. General and administrative costs of $71,766 for the three months ended
June 30, 2001 compared to $98,738 for the three months ended June 30, 2000
reflect primarily additional costs incurred during 2000 in connection with fees
paid in stock to consultants. The increase in interest charges from $4,873 for
the three months ended June 30, 2000 to $21,539 for the three months ended June
30, 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 ($6,000 for the three months ended June 30, 2000 and $-0- for the
three months ended June 30, 2001) is shown as financing charges for the
applicable periods.
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000
For the six months ended June 30, 2001 the Company received only nominal
revenues resulting from royalties earned on the Company's testing system
installed at J. Gilligan's. It had no revenue for the six months ended June 30,
2000. General and administrative costs of $212,447 for the six months ended June
30, 2001 compared to $163,851 for the six months ended June 30, 2000 reflect
primarily additional costs incurred during 2001 in connection with the due
diligence investigation of Global VR and other activities related to that
proposed acquisition, which did not occur. The increase in interest charges from
$9,668 for the six months ended June 30, 2000 to $36,095 for the six months
ended June 30, 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
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common stock ($23,500 for the six months ended June 30, 2000 and $60,000 for the
six months ended June 30, 2001) is shown as financing charges for the applicable
periods.
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 June 30, 2001 the Company's liquidity position was extremely precarious.
The Company had current liabilities of $1,099,212, including $380,729 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. As of June 30, 2001
there were no current assets available to meet those liabilities. On June 5,
2000, the Company announced that it had entered into a subscription agreement
for up to a $15,000,000 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 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 October 2000.
However, it has not made any draws under the equity line since March 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 six months ended June 30, 2001, the net loss from operations
was $(318,805). After taking into account the non-cash items included in that
loss, the Company's cash requirements were $150,233. To cover these cash
requirements, the Company issued additional shares of its common stock to
investors for approximately $25,000, increased its bank borrowings by $60,000
and its borrowings from shareholders by $45,000, drew down its remaining cash of
approximately $6,100 and incurred a bank overdraft of approximately $14,100.
Plan of Operations
The opinion 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 due diligence performed and the projected results
furnished to the Company by Ferris, we anticipate that if
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the acquisition of Ferris 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 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.
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.
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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 of intent with the Company under
which Ferris would merge with the Company. ETPI claims that Ferris' termination
of the letter of intent was a breach of contract and that the Company tortuously
interfered with ETPI's letter of intent. ETPI is asking for damages of $10
million. Management believes that the suit is entirely without merit and intends
to vigorously defend it.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
SIGNATURES
Pursuant to the requirements of the Securities and 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.
Date: August 13, 2001 /s/ L. Kelly Jones
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L. Kelly Jones
Chief Executive Officer and Chief
Financial Officer
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