10QSB 1 b313173_10qsb.txt 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 --------------------------- 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. ------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Texas 93-1207631 ------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 440 North Center, Arlington, Texas 76011 ------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (817) 265-0440 ------------------------------------------------------------------------- (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 _____ ----- 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. -1- 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. -2- 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. -4- 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 ---------- ---------- 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) ---------- ---------- Cash flows from investing activities: Capital expenditures - (5,866) ---------- ---------- Net cash used in investing activities - (5,866) ---------- ---------- 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 ---------- ---------- Net cash provided by financing activities 144,098 33,334 ---------- ---------- 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. -5- 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 -6- 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. -7- 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 -8- 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 -9- 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 -10- 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. -11- 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 ----------------------- ---------------------------------- L. Kelly Jones Chief Executive Officer and Chief Financial Officer -12-