U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
AMENDMENT NO. 2
---------------------------
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
---------------------------
GAMECOM, INC.
(Name of Small Business Issuer 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)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: (None)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.005 per share
(Title of Class)
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TABLE OF CONTENTS
PART I
Item 1 Description of Business.
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Item 3 Description of Property.
Item 4 Security Ownership of Certain Beneficial Owners and Management.
Item 5 Directors, Executive Officers, Promoters and Control Persons.
Item 6 Executive Compensation.
Item 7 Certain Relationships and Related Transactions.
Item 8 Description of Securities.
PART II
Item 1 Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
Item 2 Legal Proceedings.
Item 3 Changes In and Disagreements With Accountants.
Item 4 Recent Sales of Unregistered Securities.
Item 5 Indemnification of Directors and Officers.
PART F/S
Financial Statements.
PART III
Item 1 Index to Exhibits.
Item 2 Description of Exhibits.
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PART I
ITEM I DESCRIPTION OF BUSINESS
BUSINESS OVERVIEW
GameCom, Inc. (the "Company") was organized in 1996 to operate theme concept
microbrewery restaurants. In 1997, the Company acquired First Brewery of Dallas,
Inc., which operated the former Hubcap Brewery & Kitchen of Dallas, Texas (later
renamed The Schooner BreweryTM brewpub). 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 of 1997, GameCom acquired all rights to `Net GameLinkTM, 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 GameLinkTM product.
In February, 2000, the Company changed its jurisdiction of incorporation from
Nevada to Texas.
The Company maintains its principal office at 440 North Center, Arlington, Texas
76011, and its telephone number is (817) 265-0440.
CLOSED MICROBREWERY OPERATIONS
From 1997 to 1999, the Company operated a brewpub restaurant in Dallas, Texas
under the name The Schooner Brewery (TM). The Company received a number of
awards for the quality of its beer at national and regional competitions. The
Company's plan was to build upon the favorable publicity resulting from these
awards to develop and expand a craft brewing concept that would both serve its
award-winning beer on-premises and sell the beer for off-premises consumption.
The Texas laws governing craft brewing operations are highly restrictive. Under
those laws an operator of a "brewpub" (manufacturer of beer for on-premises sale
and consumption) was prohibited from operating a "microbrewery" (manufacturer of
beer for off-premises distribution and consumption). As a result, the Company
was unable to carry out its plan. In addition, the Dallas West End Historical
District where the Company's restaurant was located was undergoing an economic
decline at the time. The restaurant continued to accumulate net losses, and
management of the Company closed its brewpub operations in early 1999 in favor
of full-time exploitation of the 'Net GameLink(TM) concept. Since that time the
Company's 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 and the Company is not expected to have
revenues from its Internet gaming business until some time in the first quarter
of 2000.
INDUSTRY OVERVIEW
The electronic gaming industry has experienced dramatic changes over the last
several years. Beginning with games played by a single user on his or her own
computer, electronic games have progressed from (i) play by two or more users on
a single computer, to (ii) play by many users over an intranet, to (iii)
simultaneous play by even more users from locations spread throughout
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the world via the Internet. These changes have brought about a rapid increase in
the number of interactive electronic gamers.
Initial efforts to capitalize on the interactive Internet electronic games
market were based on the assumption that players would be willing to pay
directly to participate in these games. Pogo.com began with this business model
but was unable to generate a sufficiently large group of paying customers to
make the model profitable. Recent efforts in this area have instead been based
on the media model, in which users do not pay for the service, but the site
operator sells access to the users to advertisers.
Despite the success of Internet gaming companies, an element has been lost in
the process of moving from the parlor to the individual user's screen -- the
element of direct social interaction. The Company believes that people like to
talk to each other while they play, and a computer screen is no substitute for
face-to-face communication. It has not carried out any marketing studies to
confirm this belief, but both its observations of players during beta-testing of
its system and articles in magazines such as Forbes and USA Today have confirmed
this belief. Virtually all of the Internet gaming providers have created some
means for the players to "chat" as they are playing by typing messages back and
forth. But this is an inadequate substitute for the immediate presence of a live
human being. Typing simply doesn't convey the excitement or nuances of meaning
communicated by the human voice.
In response to the desire of players for direct interaction, at least one
company has constructed several large electronic gaming centers, and has
announced its intention to build many others. Like the arcades frequently seen
in suburban malls, these centers are intended to attract the hard-core
electronic gamer who is seeking to play in a social environment. The Company's
product is targeted at a market similar to that of the large electronic gaming
centers, but is designed for smaller-scale and more widespread use in a
neighborhood setting. The experience of the large electronic gaming centers has
demonstrated that players are willing to pay to access electronic games in the
company of others.
'NET GAMELINK(TM) SYSTEM
In December, 1997, the Company acquired from Adams Bragg & Company, Inc. , a
firm which had been performing public relations services for the Company, all
proprietary rights in the `Net GameLink(TM) system in exchange for 425,000
shares of the Company's common stock. For financial reporting purposes, these
proprietary rights were valued by the Board of Directors at $2,125. At the time
of acquisition, the system was essentially little more than an idea. Over the
next two years, the Company worked in cooperation with Connect Computer Group, a
Texas electronics firm, to develop the hardware and communications configuration
to implement this concept. The services of Connect Computer Group were performed
without any out-of-pocket cash cost to the Company other than the costs of
certain hardware on the basis of an unwritten understanding that if the system
were successfully marketed Connect Computer would receive a significant equity
position in the Company.
The Company's `Net GameLinkTM system is designed for installation at a
relatively modest cost in neighborhood arcade-like gaming centers and social
bars. It consists of computers, a networking system, and specially-designed
networked kiosks that allow the Company's patrons to play interactive 3D games
with either other users at the same location or users at a remote location. The
gamestations feature X86 (Intel central processing unit) compatible 3D-game
hardware and
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software. Customers pay for their use of the system through a plastic debit
card. Each card is prepaid and is credited with a certain amount of playing
time.
Design Goals:
In designing kiosks for its system, the Company's objectives were to
remove the computer look and feel from the game play experience, use
state-of-the-art sound and video systems to further enhance game play, provide
for connection to other kiosks at the same location through an intranet and
connection to kiosks at other locations through the Internet, and provide a
system that would be easy to change and update. In addition, the system had to
be able to run most games on the market, permit easy access to the games by the
user, and prevent the user from obtaining access to the computer's operating
system. Selection of components for the system was based on performance,
reliability, and price, in that order.
Enclosure:
The physical enclosure itself is 3 foot by 3 foot square and over six feet
tall with full length windows on each closed side. The kiosk enclosure is open
on one side and the windows allow the works of the systems to be seen. To
further enhance the open look of the kiosk all enclosures are removed from the
power supply and monitor. Each kiosk has three bays which are arranged
vertically. All computer equipment is mounted in the upper bay. The mid bay is
dedicated to the lighting controller/source and the lower bay holds a sub-woofer
speaker, A/C wiring and un-interruptible power source. The kiosk is made from
high grade particle board and all corners are machined and rounded. Game
controls are mounted on two shelves in the front of the enclosure. The lower
shelf is made of the same board has the enclosure and the top is made of clear
plastic. Two handles provide support for the upper shelf and act as a light for
the lower shelf.
Computer:
The computer system is based on an AMD Athlon(TM) 700 MHz processor. This
is mounted on a Epox mother board with 128 megabytes of RAM (random access
memory). It uses the IDE interface (one of several methods of connecting disk
drives and other components to the computer's mother board) and a 4.5-gigabyte
hard drive. The network connection is supplied by a 3-Com 905b 100baseT card
(the faster of the two types of networking components in common use on IBM PCs).
A Creative Labs 16-megabyte accelerated video card connected to a 21 inch 27 dot
pitch (a measure of resolution) monitor supplies video. A Creative Labs Sound
Blaster Alive sound card is used. The speakers are made by Altec Lansing and
have two small high and mid range enclosures and a bass and sub-bass enclosure.
Lighting:
Lighting is supplied from a 150 watt light generator and distributed
through a fiber optic light pipe array. The light generator has an integral
dichromatic (2-color) filter that causes the light color to shift a few times
each minute. The mounting plates for the motherboard, magnetic card reader, and
joystick are made of a plastic material that allow light to be injected that
creates a glow around the edge. Edge light fiber optic cables are used to light
the inside of the kiosk and also the motherboard mounting plate. Light pipes are
also run to the handles on each side of the lower front shelf.
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User interface:
In its usual configuration, the kiosk provides for input through a
keyboard, a mouse, and a joystick. The keyboard is a standard 101 key Keytronic
black keyboard that is mounted on the lower shelf. The mouse is also black and
is made by Keytronic. The joystick is a force feed back type manufactured by
Microsoft. The joystick connections are external to the enclosure. This allows
the joystick to be changed out for other types of game input devices. A magnetic
card reader authenticates users and deducts the appropriate amount for the
user's playing time. All input devices other than the magnetic card reader are
not hard mounted for the convenience of the user.
System Software:
The operating system software is Microsoft Windows 98. The standard TCP/IP
(a networking protocol) stack is used for network connectivity. The interface
software is written in Micromedia Director, and the user database is written
under MySql (a database programming language) running under Redhat 6.0 LINUX (an
operating system). The games themselves are stored on a LINUX server running
with SAMBA (software for integrating LINUX and Windows computers) supplying the
connectivity to the Windows environment.
Operation:
Each kiosk is a network client of the LINUX server where all games are
stored. When a user swipes his or her card through the card reader, the software
on the kiosk makes a request of the database stored on the server. This database
maintains a record of the amount of time the user has bought and how much he or
she has used. Once the user has been authenticated and the system has verified
his remaining time, the server starts the timing clock for the kiosk and allows
the user to select a game. When the user's time expires the kiosk shuts down the
game. Each kiosk has a full-time connection to the Internet and to the local
network.
Interactivity:
The Company's system provides for interactive play among gamers at a
single location via an intranet or at widely dispersed locations via the
Internet. Because the Company's system is intended to reach players wishing to
play in a social setting, the Company expects that at least initially the
system's capability to allow play among gamers at a single physical location
through an intranet will be more significant than its ability to enable play on
a worldwide basis. However, it seems likely that in the future games will be
developed that permit teams of players at one location to compete against teams
located elsewhere, and the system's Internet connection will permit such play
without any modification to the system.
Installed Games:
Each location will provide access to the user's choice of approximately 10 games
at any time. The games to be offered on the Company's kiosks will not
necessarily be different from those that an electronic gamer could purchase at
his or her local computer store. Many gaming manufacturers are now offering
their games in an interactive format. To a serious gamer, the appeal of the
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Company's system is likely to be the fact that the hardware components will be
faster, bigger, louder, etc. than those he would have available in a home
setting. For the novice, the physical attributes of the system, the stylistic
kiosks, the fiber optic lighting, and the social atmosphere of playing
interactive games on a physically interactive basis through an intranet is
expected to be what he or she finds appealing.
All locations will be accessible through the Company's computer and its home
office, so that a constant evaluation of the popularity of the games available
at a particular location can be continuously monitored. The games installed at
each location will vary to some extent depending upon the amount of playing each
receives as reported by the Company's centralized database. However, there will
be a substantial overlap, since this is required in order to allow interactive
play between widely dispersed locations. The games for the Company's initial
system were selected after discussions with its games software supplier, GT
Interactive Software, a leading games manufacturer/distributor. The Company has
no commitments to that supplier beyond its obligations to pay required royalties
on the games it uses. Present arrangements call for payment of an annual royalty
of $540 per game, and royalties have been paid through mid-July, when the
existing licensing agreements expire. The Company believes that as it becomes
established in multiple locations it will be in a position to achieve a
strategic alliance with one of the leading games manufacturers/distributors
under which the Company would receive payment from the manufacturers/distributor
in exchange for being the exclusive supplier of games to the Company.
The Company's first `Net GameLink(TM) entertainment system was made available
for public play at Who's on First? in New York City on July 16, 1999. On
November 2, 1999, the Company moved this system to J. Gilligan's in Arlington,
Texas to bring it closer to the Company's principal offices. Operations are
presently limited to the initial five-kiosk prototype system at J. Gilligan's.
This system was installed without charge to J. Gilligan's and is expected to
begin generating revenue during the first quarter of 2000 when the Company will
begin charging patrons for play on the system. The Company anticipates delivery
of the first system to be sold to a third party will occur near the end of the
first quarter. Initially, the Company contemplates building the systems to order
with delivery of the completed systems to occur approximately four weeks after
the order. The Company intends to maintain the initial system at J. Gilligan's
as a "test bed" for continued upgrading and improvements to its system.
Hardware and Software Availability:
The Company's kiosks are manufactured to the Company's design and are purchased
from time to time as required. They are presently purchased from a single
supplier, but no specialized equipment or knowledge beyond normal
furniture-manufacturing techniques is required for their construction, and the
Company does not anticipate any difficulty in acquiring these items. The
computer hardware and software used in the system are standard off-the-shelf
items. The computer processors are being furnished to the Company without any
out-of-pocket cost by Advanced Micro Devices, Inc. in exchange for the Company's
publicizing that company as its supplier.
Sources of Revenue:
The Company intends to provide its interactive electronic gaming service through
a combination of Company-owned centers and through third parties such as social
bars, which will purchase the system on the basis of a fixed initial fee and a
continuing royalty. In addition, the Company
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expects revenue to be generated through the sale of advertising to companies who
wish to reach the Company's demographic market. The Company anticipates that the
cost of a system to third parties will be in the range of $5,500 to $6,500 per
kiosk, including the server for each location. The Company anticipates a royalty
based on the amount spent by patrons to actually play on the system equal to 40%
of revenues and a royalty on the advertising generated by the system at each
location equal to 50% of the advertising revenue paid to the operator.
COMPETITION
Competition in this industry is based primarily on the ability to deliver an
exciting and realistic gaming experience beyond what the gamer would experience
on his or her home computer through such items as 3-D imaging, sound and sense
of motion. At the present time, price is less of a factor because of the limited
number of competitors in the field. Accessibility is also a factor. The Company
believes that its primary competition will be the large gaming centers being
established by companies such as GameWorks. GameWorks was established by Sega
Enterprises, Universal Studios, Inc. and DreamWorks SKG and was designed under
the guidance of Steven Spielberg. GameWorks has far greater financial and
technical resources than the Company and has created an entire establishment
devoted to various forms of gaming, including virtual reality games. So far as
the Company is aware, GameWorks is the only such competitor at the present time.
The Company will not be able to compete with GameWorks in technology or size of
facility. Instead it intends to compete by providing more but smaller facilities
that will be readily accessible in the gamer's immediate neighborhood, with the
companionship of the gamer's neighbors, rather than requiring substantial travel
to game among strangers. Whereas GameWorks' facilities are designed to serve as
a destination in and of themselves, the Company's systems will be located in
third-party social establishments where the system may or may not be the main
attraction for the establishment's particular patrons. In that respect, the
systems will be somewhat like the games systems one sometimes sees installed in
theater lobbies, where the use is incidental to the patron's primary reason for
coming to the establishment.
MARKETING
Until such time as the Company is in a position to raise significant amounts of
additional capital, its capacity for producing `NetGamelink(TM) systems will be
severely limited, and its marketing efforts will be consistent with its
production capacity. Initial marketing efforts are expected to consist of
follow-ups by the Company's Director of Sales directed toward a limited number
of individual and chain casual restaurant/bars, some of which have learned of
the Company's system by observing it when it was installed at Who's on First in
New York or later at J. Gilligan's Bar & Grill in Arlington, Texas. The Company
is in the process of producing a promotional video of the system for
distribution to potential customers, and also promotes the system by means of
live streaming video on the Company's web site, showing actual real-time use of
the Company's system by patrons at J. Gilligan's. Longer range plans include,
subject to the availability of the necessary funds, an advertising campaign in
leading restaurant/food industry publications. The Company intends to add
additional marketing staff as required.
EMPLOYEES
At September 30, 1999 the Company employed 4 persons. The Company considers
relations with its employees to be satisfactory.
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TRADEMARKS
The Company has filed for federal registration of its "'Net GameLink(TM)"
trademark, and a patent application is pending for its network-enabled gaming
kiosk. There can be no assurance that a patent will issue on this application,
or that if the patent is issued it will be sufficiently broad to provide
meaningful protection. The time required to obtain a patent depends upon a
number of factors, including the extent to which the Company is required to
negotiate with the patent office as to the breadth of the patent ultimately to
be issued. The Company anticipates that if the patent does issue it will not
issue until some time in 2001.
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. Until March of 1997 when the Company acquired,
and July 1, 1997 when the Company began operating, the former Hubcap Brewery &
Kitchen in Dallas, Texas, the Company had no operations or revenues and its
activities were devoted solely to development. However, since the acquisition
was accounted for as a pooling of interests, the results of operations of Hubcap
Brewery & Kitchen were carried forward into the Company's financial statements
and accordingly the 1997 financial statements reflect a full year of operations
of that business.
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 GameLinkTM, and 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 not received
any revenue to date from either royalties from operations of systems it owns or
the sale of its systems to others. It expects to receive the first revenue from
operations of its own system during the first quarter of 2000, and to receive
the first revenue from a sale of the system to a third party near the end of the
first quarter of 2000.
There can be no assurances that the Company will successfully implement its
expansion plans, including the `Net GameLinkTM entertainment concept. The
Company also faces all of the risks, expenses, and difficulties frequently
encountered in connection with the expansion and 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
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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.
Fiscal year ended December 31, 1998 compared to fiscal year ended December 31,
1997.
The Company had no revenues from the date of inception through July 1, 1997,
when it began operating the former Hubcap Brewery & Kitchen, through its
wholly-owned Texas subsidiary corporation, First Brewery of Dallas, Inc.
However, as noted above, results for the year reflect operations of the acquired
Company prior to the acquisition. Prior to July 1, 1997, the Company had
received $391,351.00 in paid-in capital, and had incurred $237,478.54 in
start-up, consulting, and legal expenses associated with the formation of the
Company and its development activities.
For the 12 months ended December 31, 1998, the Company, through its wholly-owned
subsidiary, First Brewery of Dallas, Inc., had a net loss of $1,203,645,
compared to a loss of $582,770 for the 12 months ended December 31, 1997. First
Brewery of Dallas, Inc. ceased operations on January 10, 1999. Increases in
revenues and the related increases in costs of sales from the 1997 to the 1998
fiscal years generally reflect the Company's moderate degree of success in
expanding its restaurant operations. However, as the 1998 fiscal year drew to a
close revenues were declining due, at least in part, to an overall economic
decline in the geographic area where the restaurant operations were located. In
addition, it became clear to the Company's management that Texas's liquor
control laws were such that the Company would not be able to obtain approval for
the microbrewery operations which it regarded as the key to achieving profitable
operations. Probably the most significant items in the Statement of Operations
for the two years are the increase in interest expense from $12,776 in fiscal
1997 to $39,026 in fiscal 1998, reflecting an increased level of borrowing,
primarily from shareholders, the $132,545 provision taken in fiscal 1998 for
impairment of assets, reflecting the determination to shut down the
brewpub/microbrewery activities, and the increase in general and administrative
expenses from $610,829 in 1997 to $902,194 in 1998. Out of the approximately
$300,000 increase, $200,000 was attributable to consulting services in
connection with development of the Company's `NetGameLink(TM) product, for which
payment was made in the Company's Common Stock. Interest expense is expected to
be substantially lower for the immediate future as a result of the forgiveness
of certain debt in connection with termination of the Company's
brewpub/microbrewery operations in January, 1999 as described below, and the
one-time issuance of stock in lieu of future interest as described under
"Certain Transactions."
Nine months ended September 30, 1999 compared to nine months ended September 30,
1998.
These two periods are in no way comparable, since the nine months ended
September 30, 1998 reflect the Company's unsuccessful efforts to develop its
brewpub/microbrewery business, whereas the corresponding nine months of 1999
reflect a redirection of the Company's efforts from the discontinued business to
the development of the Company's `Net GameLinkTM System. For the first nine
months of 1999, the Company had essentially no revenues. Administrative costs of
$272,130 for the nine months ended September 30, 1999 compared to $612,508 for
the nine months ended September 30, 1998 reflect the decision in January, 1999
to terminate the brewpub/microbrewery operations. The Company recorded a $67,849
gain on the sale of
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equipment for the nine months ended September 30, 1999. This gain reflects the
fact that, as described below, the guarantors of the Company's bank debt secured
by that equipment forgave approximately $65,000 in indebtedness when they
acquired the bank's security interest in that equipment upon payment of that
indebtedness, and later disposed of the equipment to reimburse themselves for a
portion of these payments. The $21,333 reduction in interest charges for the
nine months ended September 30, 1999 reflects an agreement by holders of that
indebtedness to accept a one-time issuance of common stock in lieu of accrued
and future interest.
Connect Computer Group, Inc., the firm which has been largely responsible for
development of the Company's kiosk and computer systems ("Connect Computer"),
has 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 will be issued a
significant equity position in the Company, the amount of which is yet to be
determined. If marketing of the product is not successful, Connect Computer will
not be entitled to any shares for its efforts. The parties have not explicitly
agreed upon any method for determining whether marketing of the product has been
successful. Because all the uncertainty as to both the standards for determining
whether any shares are issuable and the number of shares, if any, which may
ultimately be issued for these services, the Company is not able to assign an
appropriate charge to earnings for such services and accordingly has not made
any charge to its earnings for those services to date. However, the Company is
proceeding on the assumption that it will be obligated to honor this oral
commitment and expects that it will be able to reach agreement with Connect
Computer through negotiations as to both whether marketing the product has been
successful and the appropriate amount of equity to be issued to Connect Computer
for its assistance. At that time an appropriate charge to earnings will be made.
Liquidity and Capital Resources. As of September 30, 1999 the Company's
liquidity position was extremely precarious. The Company had current liabilities
of $908,780, including $524,111 in trade payables, most of which were overdue,
short-term notes payable of $360,500, all 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 $4,709.
To date the Company and First Brewery of Dallas I, Ltd., the predecessor to
First Brewery of Dallas, Inc., the Company's wholly-owned Texas subsidiary
corporation, met their capital requirements through capital contributions, loans
from principal shareholders and officers, bank borrowings, and certain private
placement offerings. For the nine months ended September 30, 1999, the net loss
was $225,287, of which only $3,038 was accounted for by non-cash adjustments for
depreciation and amortization. In addition, the Company was required to repay
bank and other borrowings in the amount of $189,860, resulting in total cash
requirements for the nine months of approximately $412,109. To cover most of
these cash requirements, the Company allowed accounts payable and accrued
expenses to increase by $135,497, disposed of assets relating to the closed-down
brewpub operation for $127,374, issued additional shares of its common stock to
investors for approximately $110,000, and accepted a capital contribution of the
value of certain employees' services for $18,750.
At the time the operations of First Brewery of Dallas, Inc. were terminated, all
of that subsidiary's assets were pledged to secure indebtedness to SecurityBank
of Arlington, Texas. That indebtedness had been personally guaranteed by the
Company's directors and by another individual. Upon termination of the
brewpub/microbrewery operations the guarantors were
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required to repay that indebtedness to the bank, and upon such payment the bank
assigned the Company's notes and the related security to the guarantors. The
guarantors accepted the security in full satisfaction of the debt and
subsequently disposed of the assets securing the indebtedness to third parties
at a loss. The effect of these transactions is included in the $143,781 gain on
sale of assets for the 9 months ended September 30, 1999.
In December, 1999, the Company borrowed $20,000 on an unsecured basis from a
bank. This loan was guaranteed by the Company's Chief Executive Officer and
matures on March 16, 2000.
It is anticipated that the Company will place First Brewery of Dallas, Inc. into
voluntary liquidation under Chapter 7 of the Bankruptcy Act. Upon the
anticipated conclusion of that proceeding, the Company's consolidated balance
sheet will be improved by the elimination of $524,111 in trade payables, as
those amounts are owed solely by the subsidiary. It would not affect the
Company's debt service requirements, as all interest-bearing debt is owed by the
parent company, and not the subsidiary.
Even with the expected elimination of the First Brewery indebtedness, the
Company will be unable to continue its operations or to commercially exploit its
`Net GameLinkTM product in the absence of substantial additional financing.
Based on the interest-bearing indebtedness presently outstanding, the Company's
annual debt service requirements without taking into account any payments of
principal are approximately $16,700. The Company is registering its outstanding
common stock under the Securities Exchange Act of 1934 with a view toward making
its equity securities more attractive to potential investors, and present plans
call for the Company to seek additional financing through a private offering in
the first or second quarter of 2000. The Company intends to pay approximately
one-half of its interest-bearing debt pro rata in mid-spring. This would reduce
the Company's annual debt service requirements by one-half. At the present time
it has not completed any arrangements to obtain additional financing and there
can be no assurance that it will be able to raise the necessary funds. In that
connection, the Company intends to place its First Brewery of Dallas, Inc.
subsidiary into voluntary bankruptcy. The Company is unable to predict the
effect of the anticipated bankruptcy on its ability to raise additional funds to
develop its gaming operations, but efforts to raise these funds could be
adversely affected by the bankruptcy. If the Company is unable to raise
additional funds, holders of its debt (all of whom are stockholders except for a
bank lender of $20,000) would be in a position to shut down the Company's
operations.
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. Until such time as the Company is able to 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 may 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.
As indicated above, the Company expects to begin receiving revenues from
operation of its present system at J. Gilligan's during the first quarter of
2000. However, these revenues are not expected to be sufficient to carry out any
substantial advertising and marketing. The Company intends to seek financing
through a private offering as promptly as practicable after its registration
becomes effective, and if it is successful to apply a substantial portion of the
proceeds toward marketing its systems. The Company will attempt to raise
$500,000 to $1 million
<PAGE>
in that offering, which, together with anticipated revenues, should be
sufficient for operations for the next 12 months. The Company is currently in
discussions with several investment banking firms concerning the proposed
financing. Management is optimistic that the required financing can be obtained,
but cannot offer any assurance that this will be the case. Based on discussions
to date, it appears that the Company may be required to accept terms calling for
the issuance of its common stock or securities convertible into its common stock
from time to time as funds are made available, at a discount from the then
current market prices of the common stock. The Company may also be required
promptly to register the common stock for sale under the Securities Act of 1933.
In addition, it may be required to accept so-called "toxic" conversion features
or warrants under which the exercise or conversion price fluctuates based on a
percentage discount from the market price of the Company's stock at the time of
conversion or exercise. Sale of common stock pursuant to any such required
registration may itself adversely affect the market price of the Company's
common stock, and may, if coupled with a "toxic" warrant or conversion feature,
further depress the price of the stock and require the issuance of shares
representing a higher percentage of the Company's total outstanding stock than
would be the case if the shares are sold or converted at a fixed price.
The Company will need to hire a qualified chief operating officer, and there is
no assurance that it will be able to obtain one. It does not intend to hire any
other employees during the next 12 months. At the present time, all officers and
employees of the Company are serving without compensation except for Mr.
Olivares, and the Company expects that this will continue to be the case until
it has raised additional financing. 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.
ITEM 3 - DESCRIPTION OF PROPERTY
The Company's executive offices are located in Arlington, Texas, at the offices
of Jones & Cannon, P.C. See "Certain Relationships and Related Transactions."
Although the Company has not been charged rent for its office space, there is no
assurance that these offices will remain sufficient for the Company's use, or
that the gratis nature of this relationship will continue.
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 3, 2000, certain information with
respect to the Company's equity securities believed by the Company to be owned
of record or beneficially by (i) each Director of the Company; (ii) each person
who owns beneficially more than 5% of each class of the Company's outstanding
equity securities; and (iii) all Directors and Executive Officers as a group.
Shareholders' Name and Address Number of Shares Owned Percent
L. Kelly Jones 1,866,980 (1) 15.6
440 North Center
Arlington, Texas 76011
Jim Poynter 737,260 (2) 6.2
City Center Tower II
301 Commerce Street
Suite 1205
Fort Worth, Texas 76102
<PAGE>
Kimberly Biggs 42,460 (3) 0.4
2414 Green Willow Court
Arlington, Texas 76001
John Aleckner 347,400 (4) 2.9
1901 Rockcliff Court
Arlington, Texas 76012
All Officers and Directors
As a Group (4 Persons) 2,994,100 (1)(2)(3)(4) 25.1
- ----------------------------------------------
(1) Excludes incentive conditional options to purchase 833,000 shares of
Common Stock for $4,165.00, which are not exercisable within 60 days.
(2) Excludes incentive conditional option to purchase 333,000 shares of Common
Stock for $1,665.00 which is not exercisable within 60 days. The Company
is obligated to redeem 287,531 of these shares for a nominal amount, which
would reduce Mr. Poynter's ownership to 3.9%.
(3) The Company is obligated to redeem 16,559 of these shares for a nominal
amount, which would reduce Ms. Biggs's ownership to 0.22%.
(4) Excludes incentive conditional option to purchase 333,000 shares of
restricted Common Stock for $1665.00 which is not exercisable within 60
days.
The beneficial owners of securities listed above have sole investment and voting
power with respect to such shares. Beneficial ownership is determined in
accordance with the rules of the Commission and generally includes voting or
investment power with respect to securities. Shares of stock subject to options
or warrants currently exercisable, or exercisable within 60 days, are deemed
outstanding for purposes of computing the percentage of the person holding such
options or warrants, but are not deemed outstanding for purposes of computing
the percentage of any other person.
In addition to the shareholders listed above, Connect Computer Group, Inc., the
firm which has been largely responsible for development of the Company's kiosk
and computer systems ("Connect Computer"), has 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 will be issued a significant equity position in the
Company, the amount of which is yet to be determined. The parties have not
explicitly agreed upon any method for determining whether marketing of the
product has been successful, and the agreement may not be sufficiently definite
to be an enforceable contract. However, the Company
<PAGE>
is proceeding on the assumption that it will be obligated to honor this oral
commitment and expects that it will be able to reach agreement with Connect
Computer through negotiations as to both whether marketing the product has been
successful and the appropriate amount of equity to be issued to Connect Computer
for its assistance.
ITEM 5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names and ages of the current directors and
executive officers of the Company, the principal offices and positions with the
Company held by each person, and the date such person became a director or
executive officer of the Company.
<TABLE>
<CAPTION>
Date became director or
Name Age Positions executive officer
- ---- --- --------- -----------------------
<S> <C> <C> <C>
L. Kelly Jones 46 Chief Executive Officer and Chairman of
the Board of Directors March 26, 1997
John F. Aleckner, Jr. 54 President and Director March 26, 1997
W. James Poynter 44 Vice-President and Director March 26, 1997
Kimberly Biggs 33 Secretary and Treasurer March 26, 1997
</TABLE>
The members of the Company's board of directors are elected annually and hold
office until their successors are elected and qualified. The Company's officers
are chosen by and serve at the pleasure of its board of directors. Each of the
officers and directors have positions of responsibility with businesses other
than the Company and will devote only such time as they believe necessary on the
business of the Company.
There are no family relationships between any of the directors and executive
officers. There was no arrangement or understanding between any executive
officer and any other person pursuant to which any person was selected as an
executive officer.
L. Kelly Jones has since 1980 been a member of the law firm Jones & Cannon, a
firm which he founded and which provides legal services to the Company. Mr.
Jones is certified in the area of commercial real estate law by the Texas Board
of Legal Specialization and is the author of an article, "Texas Mechanics' and
Materialmen's Lien Laws: A Guide Through the Maze," which appeared in the Texas
Bar Journal in March of 1985. Mr. Jones' areas of practice include corporate,
construction, real estate, municipal law, and commercial litigation. Mr. Jones
served from 1985 through 1989 on the Arlington City Council, and on the Stephen
F. Austin State University Board of Regents from 1987 through 1993, where he was
chairman from 1991 through 1993. He holds a J.D. from the University of Texas
and a B.A. in Political Science from Stephen F. Austin State University
<PAGE>
John F. Aleckner, Jr. is a private investor. He was elected President of the
Company as of December 14, 1999. From 1983 to 1989 Mr. Aleckner was
vice-president and a shareholder of Research Polymers International Corporation,
a compounder of specialty plastic materials which was acquired by another
Company in 1987. From 1984 to 1998, he was vice-president of marketing and sales
and a principal shareholder in UVTEC, Inc., a marketer of specialty plastic
compounds which was, prior to the sale of Research Polymers, affiliated through
common stock ownership with Research Polymers, and which acted as a broker in
connection with purchases by Research Polymers and other companies. From 1971 to
1983 he was employed by Ciba-Geigy Corporation in various sales capacities. He
holds a B.S. in chemistry from Case Institute of Technology
W. James Poynter has been engaged in the real estate brokerage and construction
business since 1979. He is the president of Tenant Realty Advisors, Inc., a
subsidiary of the Poynter Scifres Company group. Tenant Realty Advisors, Inc. is
a national tenant representation firm, representing office tenants in securing
new office locations throughout the United States. He holds a B.A. from the
University of Pennsylvania's Wharton School of Business
Kimberly Biggs has for the last 10 years been legal administrator of the
Arlington law firm of Jones & Cannon (which provides legal services for the
Company) as legal administrator, a position which she holds to this date.
SIGNIFICANT EMPLOYEES
In addition to the officers and directors identified above, the following
employees play a significant role in the Company's operations.
Rey Cardino, age 39, serves as Director of Sales for the Company. Mr. Cardino
was employed by the Hubcap Brewery & Kitchen from prior to its opening until the
operation was closed in early 1999, at which time he was the general manager of
its restaurant. Prior to that time he was employed by TGI Friday.
Jose Olivares, age 32, serves as Director of Technical Support for the Company.
Prior to taking the position he was the principal brewer of the Company's
microbrewery operations.
ITEM 6 EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows certain compensation information for
services rendered in all capacities during each of the prior three (3) fiscal
years. No bonuses or stock options were granted and no additional compensation
was paid or deferred.
<PAGE>
<TABLE>
<CAPTION>
Securities
Other Under-lying
Annual Restricted Options/
Compen- Stock
Name and Principal Position Year Salary Bonus sation Awards SARs
- --------------------------- ---- ------ ----- ------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
L. Kelly Jones, Chief 1998 - - - - 833,000 (1)
Executive Officer and
Chairman of the Board of
Directors
1997 - - - - -
1996 - - - - -
John F. Aleckner, Jr., 1998 333,000 (2)
President and Director
1997 -
1996 -
W. James Poynter, Vice- 1998 - - - - 333,000 (2)
President and Director
1997 - - - - -
1996 - - - - -
Kimberly Biggs, Secretary and 1998 - - - - -
Treasurer
1997 - - - - -
1996 - - - - -
</TABLE>
(1) These options, incentive in nature, provide that Mr. Jones may purchase
(i) 111,000 shares at par value subject to the condition precedent that
the Company's shares are trading at $1.50 per share, (ii) 361,000 shares
at par value subject to the condition precedent that the Company's shares
are trading at $3.00 per share, (iii) 111,000 shares at par value subject
to the condition precedent that the Company's shares are publicly trading
at $4.50 per share, and (iv) the balance of 250,000 shares at par value
subject to the condition precedent that the Company's shares are publicly
trading at $5.00 per share. These incentive stock options were granted to
Mr. Jones by the Company's board of directors (Mr. Jones abstaining) on
December 12, 1997 and on December 14, 1998.
(2) Messrs. Poynter and Aleckner each hold an option for 333,000 shares in the
Company's Common Stock. These options, incentive in nature, provide that
Messrs. Poynter and Aleckner may purchaser (i) 111,000 shares at par value
subject to the condition precedent that the Company's shares are trading
at $1.50 per share, (ii) 111,000 shares at par value subject to the
condition precedent that the Company's shares are trading at $3.00 per
<PAGE>
share, and (iii) the balance of 111,000 shares at par value subject to the
condition precedent that the Company's shares are publicly trading at
$4.50 per share. These incentive stock options were granted to Messrs.
Poynter and Aleckner by the Company's board of directors (Messrs. Poynter
and Aleckner abstaining on the grant of their stock option) on December
14, 1998.
2000 INCENTIVE STOCK OPTION PLAN
In February, 2000, the Board of Directors adopted, and a majority of the
stockholders approved, the Company's 2000 Incentive Stock Option Plan, subject
to approval of stockholders at the next annual meeting. The purpose of the plan
is to enable the Company to attract, retain and motivate key employees who are
important to the success and growth of the Company's business, and to create a
long-term mutuality of interest between the stockholders of the Company and
those key employees by granting them options to purchase the Company's Common
Stock. Options granted under the plan may be either incentive stock options or
non-statutory options. The Plan is to be administered either directly by the
Board, or by a committee consisting of two or more outside directors (the
"Committee"). Under the plan, options may be granted to key employees of the
Company. The option price is to be fixed by the Committee at the time the option
is granted. If the option is intended to to be an incentive stock option, the
purchase price is to be not less than 100% of the fair market value of the
Common Stock at the time the option is granted, or, if the person to whom the
option is granted is the owner of 10% or more of the Company's Common Stock,
110% of such fair market value. The Committee is to specify when and on what
terms the options granted to key employees are to become exercisable. However,
no option may be exercisable after the expiration of 10 years from the date of
grant or five years from the date of grant in the case of incentive stock
options granted to a holder of 10% or more of the Company's common stock. In the
case of incentive stock options, the aggregate fair market value of the shares
with respect to which the options are exercisable for the first time during any
calendar year may not exceed $100,000 unless this limitation has ceased to be in
effect under Section 422 of the Internal Revenue code. In the event of a change
of control of the Company, all outstanding options become immediately
exercisable in full. In the event of an employee's death, or following the
employee's retirement at or after age 65 or before age 65 with the consent of
the Committee, outstanding options may be exercised for a period of one year
from the applicable date of death or retirement. If the employee's employment is
terminated for reasons other than death or retirement, the options remain
exercisable for a period of three months after such termination unless
termination was for cause, in which case all outstanding options are immediately
canceled. 1,500,000 shares of Common Stock have been initially authorized for
issuance under the Plan. Under the Plan, eligible individuals may, at the
discretion of the Committee, be granted options to purchase shares of Common
Stock. However, no eligible individuals may be granted options for more than
500,000 shares in any calendar year. The option price and number of shares
covered by an option will be adjusted proportionately in the event of a stock
split, stock dividend, etc., and the Committee is authorized to make other
adjustments to take into consideration any other event which it determines to be
appropriate to avoid distortion of the operation of the Plan. In the event of a
merger or consolidation, option holders will be entitled to acquire the number
and class of shares of the surviving corporation which they would have been
entitled to receive after the merger or consolidation if they had been the
holders of the number of shares covered by the
<PAGE>
options. If the Company is not the surviving entity in a merger and
consolidation, the Committee may in its discretion terminate all outstanding
options, and in that event option holders will have 20 days from the time they
received notice of termination to exercise all their outstanding options. The
Plan terminates 10 years from its effective date unless terminated earlier by
the Board of Directors or the stockholders. Proceeds of the sale of shares
subject to options under the Plan are to be added to the general funds of the
Company and used for its general corporate purposes. The Company has not granted
any options under the Plan.
COMPENSATION OF DIRECTORS
No Director receives or has received any compensation from the Company for
service as a member of the Board of Directors.
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Jones, the president of the Company, is also president of Jones & Cannon, a
Texas professional corporation, which has provided legal services to the Company
and which may continue to provide legal services to the Company in the future.
During the fiscal year ended December 31, 1998 the Company incurred legal fees
of $66,331 to that firm. The Company currently owes Jones & Cannon an amount in
excess of $83,550 for legal services rendered. Jones & Cannon has also been
providing the limited amount of office space required by the Company and certain
clerical and other services required for the Company's operations without charge
under an oral agreement with Mr. Jones.
In December, 1997, the Company agreed to redeem at par value an aggregate of
1,505,399 shares of the Common Stock held by the ten former shareholders of
First Brewery of Dallas, Inc., a company the Company had acquired in April,
1997. The aggregate redemption price was to have been $7,527.02. That redemption
was to have occurred no later than March 31, 1998. However, the Company did not
have sufficient funds to honor this commitment and is currently in default under
the agreement. Messrs. Jones, Poynter, and Aleckner and Ms. Biggs were among
those whose shares were to have been redeemed. In February, 2000, the Company
and Messrs. Jones and Aleckner agreed that the shares that were to have been
redeemed from those two individuals would not be redeemed. The Company
anticipates that the remaining shares will be redeemed during the first quarter
of 2000.
During the period from July, 1997 through May, 1998 Mr. Jones, the president of
the Company, lent the Company an aggregate of $90,000 for use as operating
capital. Of this amount, $65,000 was subsequently eliminated when Mr. Jones
accepted in full satisfaction of that debt certain equipment securing bank debt
which Mr. Jones had guaranteed, leaving a balance of $25,000. This indebtedness
is evidenced by an unsecured demand promissory note at an annual interest rate
of 12% per annum.
ITEM 8 - DESCRIPTION OF SECURITIES
<PAGE>
The Company changed its jurisdiction of incorporation from Nevada to Texas in
February, 2000. The Company's Articles of Incorporation, as in effect following
the change, authorize the issuance of 50 million shares of Common Stock, of a
par value of $.005 per share, of which 11,922,150 shares were issued and
outstanding as of January 31, 2000, and 2,000,000 shares of Preferred Stock, par
value $0.005 per share, none of which has been issued.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote for each share on all
matters to be voted on by the shareholders. Holders of Common Stock have no
cumulative voting rights. Holders of shares of Common Stock are entitled to
share ratably in dividends, if any, as may be declared, from time to time by the
Board of Directors in its discretion, from funds legally available therefor. In
the event of a liquidation, dissolution, or winding up of the Company, the
holders of shares of Common Stock are entitled to share pro rata all assets
remaining after payment in full of all liabilities. Holders of Common Stock have
no preemptive rights to purchase the Company's common stock. There are no
conversion rights or redemption or sinking fund provisions with respect to the
common stock.
The Company's common stock is covered by the Securities and Exchange
Commission's penny stock rules, which include a rule that imposes additional
sales practice requirements on broker-dealers who sell such securities to
persons other than established customers and accredited investors, generally
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouses. For transactions covered by the rule, the broker-dealer must
make a special suitability determination for the purchaser and transaction prior
to the sale. Consequently, the rule may affect the ability of broker-dealers to
sell the Company's securities and may also affect the availability ability of
purchasers of the Company's stock to sell their shares in the secondary market.
It may also cause fewer brokers to be willing to make a market in the Company's
common stock and it may affect the level of news coverage the Company receives.
PREFERRED STOCK
The Company is authorized to issue 2,000,000 shares of Preferred Stock with such
voting rights, designations, preferences, limitations and relative rights as may
be determined by the Board of Directors. Although the Company has no current
plans to issue any shares of Preferred Stock, the issuance of Preferred Stock or
of rights to purchase Preferred Stock could be used to discourage an unsolicited
acquisition proposal. In addition, the possible issuance of Preferred Stock
could discourage a proxy contest, make more difficult the acquisition of a
substantial block of the Company's Common Stock, or limit the price that
investors might be willing to pay in the future for shares of the Company's
Common Stock
The Company believes that the Preferred Stock will provide the Company with
increased flexibility in structuring possible future financing and acquisitions,
and in meeting other corporate needs that might arise. Having such authorized
shares available for issuance will allow the Company to issue shares of
Preferred Stock without the expense and delay of a special stockholders'
meeting. The authorized shares of Preferred Stock, as well as shares of Common
Stock, will be available for issuance without further action by stockholders,
unless such action is required by applicable law or the rules of any stock
exchange on which the Company's securities may be listed.
<PAGE>
CERTAIN ANTI-TAKEOVER PROVISIONS
Under the Company's Articles of Incorporation, the power to alter, amend,
suspend or repeal the Company's bylaws requires the affirmative vote of not less
than a majority of the "Continuing Directors" of the Company. A Continuing
Director is a member of the Board who is not an affiliate or associate of a
holder of 10% or more of the Company's voting stock ("Related Person") and who
was a member of the Board of Directors immediately prior to the time the 10% or
more holder became the beneficial owner of 10% or more of such voting stock. The
Articles of Incorporation also require that shareholder votes be taken only at a
meeting, and prohibit action by written consent.
In addition, the Company may not effect a "Business Combination" in which a
Related Person has an interest without the vote of at least 80% of its voting
stock (voting as a single class) including the vote of not less than 50% of the
outstanding shares of voting stock not beneficially owned by the Related Person.
The additional voting requirements described in this paragraph does not apply if
the Board of Directors by a vote of not less than a majority of the Continuing
Directors then holding office expressly approves in advance of the acquisition
of shares that resulted in the Related Person's becoming such, or approves the
Business Combination before the Related Person became a Related Person. Those
requirements also do not apply if certain conditions are met, including among
other things, that the cash or fair market value of property received by holders
in the Business Combination is not less than the highest price per share paid by
the Related Person in acquiring any of its shares, and the Related Person does
not receive the benefit of any loans, advances, guarantees or other financial
assistance or tax advantages provided by the Company except proportionately as a
shareholder, and that the transaction be covered by a fairness opinion of a
reputable investment banking firm if deemed advisable by a majority of the
Continuing Directors. The term "Business Combination" includes among other
things a merger, consolidation or share exchange involving the Company or a
subsidiary, a sale, mortgage or other disposition of a substantial part of the
Company's assets, the issuance of additional securities, a reclassification
which would increase the voting power of a Related Person or a liquidation or
dissolution of the Company. These provisions might discourage an unsolicited
acquisition proposal that could be favorable to stockholders. They could also
discourage a proxy contest, make more difficult the acquisition of a substantial
block of the Company's Common Stock or limit the price that investors might be
willing to pay in the future for shares of the Company's Common Stock.
The Company is also subject to Article 13 of the Texas Business Corporation Act.
That Article prohibits the Company from engaging in a business combination with
an affiliated shareholder, generally defined as a person holding 20% or more of
the Company's outstanding voting stock, during the three-year period immediately
following the affiliated shareholder's share acquisition date, unless the
business combination or acquisition by the affiliated shareholder was approved
by
o the Company's Board of Directors before the affiliated shareholder's
share acquisition date, or
o two-thirds of the holders of the outstanding voting shares of the
Company not beneficially owned by the affiliated shareholder at a
meeting of shareholders and not by written consent, called for that
purpose not less than six months after the affiliated shareholder's
share acquisition date.
Transfer Agent. Continental Stock Transfer, Inc. of New York is the Company's
transfer agent.
CONVERTIBLE PROMISSORY NOTES/PROMISSORY NOTES
The Company has outstanding $100,000 in principal amount of its Convertible
Promissory Notes. These notes bear interest at the rate of 12 percent per annum,
call for monthly payments of interest, and mature May 10, 1998 (the "Convertible
Promissory Notes"). The holder of each Convertible Promissory Note has a
non-assignable option to purchase 7,500 shares of Common Stock at par value.
Alternatively, each holder has the right to convert his Convertible Promissory
Note at the rate of 1.25 shares of Common Stock for each $1.00 in principal
amount of notes.
The Company has outstanding $25,000 in principal amount of a promissory note due
to L. Kelly Jones upon demand. This note bears interest at the rate of 12
percent per annum.
The Company has outstanding $235,500 in principal amount of promissory notes
payable to other shareholders, all of which are in default. These notes provide
for an initial issuance of shares of common stock in lieu of interest, all of
<PAGE>
which (913,000 shares) have been issued. Accordingly, no additional interest is
accruing on these notes. However, $103,500 in principal amount of such
promissory notes provide for a per diem issuance of common stock as a penalty
for late payment. To date, the per diem issuance would be in excess of 2,000,000
shares of the Company's Common Stock. The Company has received an opinion from
counsel, Richard L. Wright, P.C., that the penalty provisions are unenforceable
as illegal usury under applicable Texas law. The Company believes that upon full
payment of these promissory notes along with non-usurious monetary interest,
this matter of additional shares for late payment by the Company will be
amicably resolved between the Company and the holder of these promissory notes.
However no assurance can be given in that regard.
<PAGE>
PART II
ITEM I - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
MARKET INFORMATTON
The Company's Common Stock is quoted under the symbol "GAMZ" on the OTC
Electronic Bulletin Board. The following table sets forth the high and low bid
prices for shares of the Company Common Stock for the periods noted, as reported
by the OTC Electronic Bulletin Board. Quotations are on an as-adjusted basis to
reflect a 1 for 5 reverse split effected in 1997 and reflect inter dealer
prices, without retail markup, mark down or commission and may not represent
actual transactions.
<TABLE>
<CAPTION>
BID PRICES
YEAR PERIOD HIGH LOW
<S> <C> <C> <C>
1997 First Quarter $0.50 $0.50
Second Quarter 0.25 0.25
Third Quarter 1.25 0.25
Fourth Quarter 1.25 0.25
1998 First Quarter 1.25 0.25
Second Quarter 2.25 0.25
Third Quarter 0.50 0.25
Fourth Quarter 0.875 0.375
1999 First Quarter 0.6875 0.09375
Second Quarter 1.0313 0.26
Third Quarter 1.2188 0.09
Fourth Quarter 0.70 0.065
</TABLE>
The Company's common stock was not quoted on the OTC Bulletin Board during the
first quarter of 1997. As of March 20, 2000 the reported bid price for the
Company's common stock was $0.82 per share.
SHAREHOLDERS
<PAGE>
As of January 21, 2000, the Company had 11,922,150 shares of Common Stock
outstanding held by 103 shareholders of record.
DIVIDENDS
The Company has not paid cash dividends on its Common Stock in the past and does
not anticipate doing so in the foreseeable future.
ITEM 2 - LEGAL PROCEEDINGS
The Company's First Brewery of Dallas, Inc. subsidiary is a defendant in a
proceeding commenced June 14, 1999 in the County Court at Law Number Two,
Tarrant County, Texas by Ben Strong individually and d/b/a Benco & Associates.
This litigation arose out of the construction of a brewpub which First Brewery
acquired from its predecessor in interest, and alleges that the transaction in
which First Brewery of Dallas, Inc. acquired the assets of the predecessor in
interest constituted a fraudulent conveyance. The amount sought is approximately
$58,000. The Company believes that this claim is without merit, and anticipates
that it will be eliminated in any event through the filing of a Chapter 7
bankruptcy proceeding by First Brewery of Dallas, Inc.
The Company's First Brewery of Dallas, Inc. subsidiary is a defendant in a
proceeding commenced June 30, 1999 in the County Court at Law Number Three,
Dallas County, Texas by Alliant Foodservice, Inc. seeking to recover
approximately $19,000 allegedly owed for foodstuffs furnished to the subsidiary.
The Company anticipates that this claim will be eliminated through the filing of
a Chapter 7 bankruptcy proceeding by First Brewery of Dallas, Inc.
In January, 1999, the Company commenced an action in the 141st District Court of
Tarrant County, Texas, against Robert Elton Bragg, III, the Company's former
president. The suit alleges, among other things, that Mr. Bragg, while President
of the Company, misappropriated its funds by paying himself consulting fees
although no meaningful services were performed for the Company, and that he
threatened, without justification, to rescind the March 1997 stock for stock
transaction pursuant to which the Company acquired its brewpub/microbrewery
operations. It seeks, among other things, (i) a declaratory judgment that the
March, 1997 agreement, is a valid and binding agreement, (ii) an injunction
prohibiting Bragg from selling his shares in the Company, and (iii) damages for
misappropriation of the Company's funds. As permitted under Texas law, the
Company has not specified in its complaint the amount of damages sought from Mr.
Bragg.
<PAGE>
In November, 1999, the Company commenced an action against Kelly Hart and Mitch
Geller d/b/a Nu-Design in the 348th District Court of Tarrant County, Texas.
This suit alleges that Nu-Design repeatedly failed to provide software for which
the Company had contracted for its `Net GameLink(TM) system, that the Company
was forced to obtain a substitute for the promised software from a third party,
and that after learning of the Company's purchase of the replacement software
the defendants wrongfully withheld assets of the Company. As permitted under
Texas law, the Company seeks damages of an as yet unspecified amount.
ITEM 3 - CHANGES IN AND DISAGREEMENTS WTTH ACCOUNTANTS
Inapplicable
ITEM 4 - RECENT SALES OF UNREGISTERED SECURITIES
Upon its organization in January, 1996, the Company issued 2,100,000 of its
Common Stock to its promoters and a limited number of third party investors at a
purchase price of $0.02 per share for an aggregate purchase price of $42,000.
This sale was made in reliance upon the exemption contained in Section 4(2) of
the Securities Act of 1933, as amended (the "Act").
In May of 1996, the Company sold 400,000 units at a price of $0.125 per unit to
a number of individual investors who were not previously affiliated or
associated with the Company for an aggregate purchase price of $50,000. Each
unit consisted of one share of Common Stock and two warrants, each warrant
authorizing the holder to buy one share of the Company's Common Stock at the
purchase price of $0.50. This sale was made in reliance upon the exemption
contained in Rule 504 of Regulation D under the Act.
In March of 1997, the Company sold 633,000 shares of the Company's Common Stock
at a price of $.01 per share to 14 individual investors not previously
associated or affiliated with the Company, for an aggregate purchase price of
$63,300. This sale was made in reliance on the exemption contained in Rule 504
of Regulation D under the Act .
In March of 1997, the Company issued 3,860,000 shares of its Common Stock to 10
shareholders of First Brewery of Dallas, Inc., then operating the Hubcap Brewery
& Kitchen of Dallas, Texas, in exchange for all of the outstanding shares of
that corporation. Based on the price at which the Company's shares had most
recently been sold to an unrelated investor, the Company believes that the fair
market value of the shares issued in this transaction was $38,600. The shares
were issued in reliance upon the private offering exemption contained in Section
4(2) of the Act.
In conjunction with the stock-for-stock swap discussed in the preceding
paragraph, the Company redeemed 193,000 shares of its Common Stock from Adams
Bragg & Company, Inc. in exchange for a Gateway computer valued at $2,000.
In September of 1997 the Company issued 490,102 shares of its Common Stock at
$0.50 per share for an aggregate purchase price of $245,051 upon exercise of the
warrants originally issued in 1996. The shares were issued in reliance upon the
private offering exemption contained in Section 4(2) of the Act.
In December of 1997, the Company issued 425,000 shares of its Common Stock to
Adams Bragg & Company, Inc., in exchange for its proprietary rights in the 'Net
GameLinkTM idea, which was valued by the Company's Board of Directors at $2,125.
The shares were issued in reliance upon
<PAGE>
the private offering exemption contained in Section 4(2) of the Act.
Between December, 1997 and February, 1998, the Company issued $100,000 in
principal amount of its convertible subordinated notes to certain of its
existing shareholders and one additional sophisticated investor. These notes
were issued in reliance upon the private offering exemption contained in Section
4(2) of the Act.
In March of 1998, the Company issued 120,000 shares of its Common Stock to
certain of its existing shareholders as additional consideration for a loan
in the aggregate amount of $50,000. Management believes that the fair market
value of the 120,000 shares issued in lieu of interest was approximately
$15,000. The shares were issued in reliance upon the private offering exemption
contained in Section 4(2) of the Act.
In May of 1998, the Company issued 300,000 shares of its Common Stock to Net
Gameport, Inc., an accredited investor, in payment for financial and public
relations consulting services valued at $75,000. These notes were issued in
reliance upon the private offering exemptions contained in Section 4(2) and the
accredited investor exemption contained in Section 4(6) of the Act.
In June of 1998, the Company issued 300,000 shares of its Common Stock to
Capital & Media Partners, Inc. in payment for financial and public relations
consulting services valued at $150,000. These shares were issued in reliance
upon the private offering exemption contained in Section 4(2) and the accredited
investor exemption contained in Section 4(6) of the Act.
In September of 1998, the Company issued $123,000 in principal amount of
promissory notes to existing shareholders and issued 493,000 shares of its
Common Stock in lieu of future interest on such notes. Management believes that
the fair market value of the 493,000 shares issued in lieu of interest was
approximately $61,625. These notes and shares were issued in reliance upon the
private offering exemption contained in Section 4(2) of the Act.
In November of 1998, the Company issued 60,000 shares of its Common Stock to a
current shareholder who was an accredited investor at $0.25 per share for an
aggregate purchase price of $15,000. These shares were issued in reliance upon
the private offering exemption contained in Section 4(2) and the accredited
investor exemption contained in Section 4(6) of the Act.
In December of 1998, the Company issued 800,000 shares of its Common Stock to an
individual accredited investor in payment for shareholder relations and
strategic planning services valued at $200,000. These shares were issued in
reliance upon the private offering exemption contained in Section 4(2) and the
accredited investor exemption contained in Section 4(6) of the Act.
In January of 1999, the Company issued issued $88,500 in principal amount of
promissory notes to existing shareholders and issued 240,000 shares of its
Common Stock in lieu of future interest on such notes. Management believes that
the fair market value of the 240,000 shares issued in lieu of interest was
approximately $27,600. These notes and shares were issued in reliance upon the
private offering exemption contained in Section 4(2) of the Act.
In January of 1999, the Company issued 300,000 shares of its Common Stock to its
Chief Executive Officer and two employees at $0.005 per share upon the exercise
of stock options for an aggregate of $1,500. The shares were issued in reliance
upon the private offering exemption contained in Section 4(2) of the Act.
In April of 1999, the Company issued in aggregate of 1,000,000 shares of its
Common Stock to two investors at $0.06 per share for an aggregate of $60,000,
and an additional 100,000 shares also valued at $0.06 per share for an aggregate
of $6,000, to the law firm handling the transaction and a financial services
firm in payment for their services in connection with the transaction. The
<PAGE>
shares were issued in reliance upon the limited offering exemption of Rule 504
under the Act.
In July, 1999, the Company issued 119,048 shares of its Common Stock at $0.42
per share for an aggregate of $50,000. These shares were sold to one individual
who had been directly involved in development of the Company's game machine and
was thoroughly familiar with its business, and were issued in reliance upon the
private offering exemption contained in Section 4(2) of the Act.
In October of 1999, the Company issued 250,000 shares of its Common Stock to an
accredited investor at $0.10 per share for an aggregate of $25,000. Also in
October of 1999, the Company issued 25,000 shares of its common stock in partial
payment of legal fees incurred in connection with registration of its Common
Stock under the Securities Exchange Act of 1934. Management believes that the
fair market value of the 25,000 shares issued in payment of the legal fee was
approximately $1,250. These shares were issued in reliance upon the private
offering exemption contained in Section 4(2) and the accredited investor
exemption contained in Section 4(6) of the Act.
In January of 2000, the Company issued 100,000 shares of its Common Stock to its
Chief Executive Officer as compensation for his guaranty of an unsecured bank
loan to the Company in the amount of $20,000. Management believes that the fair
market value of the shares was approximately $17,500. These shares were issued
in reliance upon the private offering exemption contained in Section 4(2) of the
Act.
ITEM 5 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation generally limit the personal liability of
directors for monetary damages for any act or omission in their capacities as
directors to the fullest extent permitted by law. In addition, the Company's
bylaws provide that the Company shall indemnify and advance or reimburse
reasonable expenses incurred by, directors, officers, employees or agents of the
Company, to the fullest extent that a Company may grant indemnification to a
director under the Texas Business Corp. Act, and may indemnify such persons to
such further extent as permitted by law.
PART F/S
FINANCIAL STATEMENTS
<PAGE>
GAMECOM, INC.
CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years ended December 31, 1998 and 1997 and the
Nine Months ended September 30, 1999 and 1998 (Unaudited)
GAMECOM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Financial Statements of GameCom, Inc. and subsidiary:
Consolidated statement of Financial Condition as of
December 31, 1998 and December 31, 1997, and
September 30, 1999 (Unaudited)..............................................1
Consolidated Statements of Operations for the years
ended December 31, 1998 and 1997 and nine months ended
September 30, 1999 and 1998 (Unaudited).....................................2
Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended December 31, 1998 and 1997 and the nine
months ended September 30, 1999 (Unaudited).................................3
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997 and nine months ended
September 30, 1999 and 1998 (Unaudited).....................................4
Notes to Consolidated Financial Statements...................................5
<PAGE>
INDEPENDENT AUDITORS REPORTS
Thomas O. Bailey
and Associates, PC
Certified Public Accountants
Report of Independent Public Accountants
To the Shareholders of The Schooner Brewery Incorporated
We have audited the accompanying balance sheet of The Schooner Brewery
Incorporated as of December 31, 1998 and the related statement of operations,
changes in stockholders' equity, and cash flows for the year 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 audit.
We conducted our audits in accordance with generally accepted auditing
standards. These 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, revised as described
in Note 15, present fairly, in all material respects, the financial position of
The Schooner Brewery Incorporated as of December 31, 1998 and the results of
their operations and their cash flows in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. During the year ended December 31,
1998, the Company incurred a net loss of $1,203,645. Future working capital
requirements are dependent on the Company's ability to restore and maintain
profitable operations, to restructure it's financing arrangements, and to
continue it's present short-term financing, or obtain alternative financing as
required. It is not possible to predict the outcome of future operations or
whether the necessary alternative financing may be arranged, if needed. Those
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/Thomas O. Bailey and Associates, P.C.
Dallas, Texas
June 17, 1999, except for Note 15 as to which the date is March 20, 2000.
<PAGE>
Thomas O. Bailey
and Associates, PC
Certified Public Accountants
Report of Independent Public Accountants
To the Shareholders of The Schooner Brewery Incorporated
We have audited the accompanying balance sheet of The Schooner Brewery
Incorporated as of December 31, 1997 and the related statement of operations,
changes in stockholders' equity, and cash flows for the year 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 audit.
We conducted our audits in accordance with generally accepted auditing
standards. These 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 audit provides 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 The Schooner Brewery
Incorporated as of December 31, 1997 and the results of their operations and
their cash flows in conformity with generally accepted accounting principles.
<PAGE>
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. During the year ended December 31,
1997 the Company incurred a net loss of $576,520. Future working capital
requirements are dependent on the Company's ability to restore and maintain
profitable operations, to restructure its financing arrangements, and to
continue its present short-term financing, or obtain alternative financing as
required. It is not possible to predict the outcome of future operations or
whether the necessary alternative financing may be arranged, if needed. Those
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/Thomas O. Bailey and Associates, P.C.
Certified Public Accountants
Dallas, Texas
September 11, 1998
<PAGE>
GAMECOM, INC.
(Fomerly The Schooner Brewery Incorporated)
Consolidated Balance Sheet
<TABLE>
<CAPTION>
(Unaudited)
December 31, September 30,
-------------
1998 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets
Cash $ 5,666 $ 4,529 $ 16,427
Accounts receivable 1,547 180 6,999
Inventories -- -- --
----------- ----------- -----------
Total current assets 7,213 4,709 23,426
Property and equipment
Equipment, furniture and fixtures 473,324 91,150 605,868
Accumulated depreciation (348,526) (5,614) (467,215)
----------- ----------- -----------
Net property and equipment 124,798 85,536 138,653
Other assets
Organization cost 38,490 -- 41,697
Security deposits 12,033 8,989 12,033
----------- ----------- -----------
Total other assets 50,523 8,989 53,730
----------- ----------- -----------
Total assets $ 182,534 $ 99,234 $ 215,809
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade payables $ 388,344 $ 524,111 $ 374,634
Accrued interest 24,439 24,169 18,177
Notes payable to shareholders 444,041 360,500 365,811
Short-term notes payable to bank 106,319 -- 116,398
----------- ----------- -----------
Total current liabilities 963,143 908,780 875,020
Redeemable common stock
Common stock to redeem, 1,505,399 shares
at par $.005 7,527 7,527 7,527
Shareholders' equity
Capital stock 50,000,000 shares authorized
par value $.005; 8,282,703, 10,041,751 and
7,422,703 issued and outstanding respectively, 41,413 50,208 37,113
Paid-in capital 997,819 1,185,374 780,869
Retained earnings (1,827,368) (2,052,655) (1,484,720)
----------- ----------- -----------
Total shareholders' equity (788,136) (817,073) (666,738)
----------- ----------- -----------
Total liabilities and shareholder equity $ 182,534 $ 99,234 $ 215,809
=========== =========== ===========
</TABLE>
<PAGE>
GAMECOM, INC.
(Formerly The Schooner Brewery Incorporated)
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Nine Month Ended
Year Ended December 31, September 30,
------------------------ ------------------------
1998 1997 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Restaurant sales $ 469,357 $ 361,074 $ 5,431 $ 357,675
Other (7,500) 9,500 -- --
------------ ------------ ------------ ------------
Total revenues 461,857 370,574 5,431 357,675
Cost of sales
Food, beer, wine and merchandise 182,334 126,505 (2,893) 125,561
Salaries and labor 268,826 161,574 27,365 194,440
------------ ------------ ------------ ------------
Total cost of sales 451,160 288,079 24,472 320,001
------------ ------------ ------------ ------------
Gross profit 10,697 82,495 (19,041) 37,674
General and administrative expense
Administrative cost 902,194 610,829 272,130 612,508
Interest 39,026 12,776 8,770 30,103
Financing charges 76,625 -- 27,600 76,625
Depreciation and amortization 63,952 41,660 3,038 46,888
Impairment of assets 132,545 -- -- 132,545
Gain on sale of assets -- -- (143,781) --
------------ ------------ ------------ ------------
1,214,342 665,265 167,757 898,669
------------ ------------ ------------ ------------
Loss from operations (1,203,645) (582,770) (186,798) (860,995)
Cummulative effect of change in accounting principle -- -- (38,489) --
------------ ------------ ------------ ------------
Net loss $ (1,203,645) $ (582,770) $ (225,287) $ (860,995)
============ ============ ============ ============
Per share amounts:
Loss from operations per share $ (0.143) $ (0.098) $ (0.017) $ (0.105)
============ ============ ============ ============
Loss from cummulative effect of change $ -- $ -- $ (0.004) $ --
============ ============ ============ ============
Net loss per share $ (0.143) $ (0.098) $ (0.021) $ (0.105)
============ ============ ============ ============
Average outstanding shares 8,435,721 5,923,784 10,838,550 8,165,542
============ ============ ============ ============
</TABLE>
<PAGE>
GAMECOM, INC.
(Formerly The Schooner Brewery Incorporated)
Consolidated Statement of Stockholders' Equity
For the Periods From December 31, 1997 through September 30, 1999
<TABLE>
<CAPTION>
Shares of Additional Total
Common Common Paid-in Accumulated Stockholders'
Stock Stock Capital Deficit Equity
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1997 6,209,703 $ 31,048 $ 466,559 $ (623,725) $ (126,118)
Stock issued for consulting services 600,000 3,000 222,000 -- 225,000
Contribution of capital for services -- -- 18,750 -- 18,750
Stock issued for loan incentives 613,000 3,065 73,560 -- 76,625
Loss for the nine months ended
September 30, 1998 -- -- -- (860,995) (860,995)
---------- ----------- ----------- ----------- -----------
Balance at September 30, 1998 7,422,703 37,113 780,869 (1,484,720) (666,738)
---------- ----------- ----------- ----------- -----------
Stock issued in compensation for services 800,000 4,000 196,000 -- 200,000
Sale of stock 60,000 300 14,700 -- 15,000
Contribution of capital for services -- -- 6,250 -- 6,250
Net loss for the three months ended
December 31, 1998 -- -- -- (342,648) (342,648)
---------- ----------- ----------- ----------- -----------
Balance December 31, 1998 8,282,703 $ 41,413 $ 997,819 $(1,827,368) $ (788,136)
---------- ----------- ----------- ----------- -----------
Stock issued as incentive for loans 240,000 1,200 26,400 -- 27,600
Stock issued in compensation for services 100,000 500 2,000 -- 2,500
Sales of stock 1,119,048 5,595 104,405 -- 110,000
Contribution of capital for services -- -- 18,750 -- 18,750
Exercise of stock options 300,000 1,500 36,000 -- 37,500
Loss for the nine months ended September 30, 1999 -- -- -- (225,287) (225,287)
---------- ----------- ----------- ----------- -----------
Balance September 30, 1999 10,041,751 $ 50,208 $ 1,185,374 $(2,052,655) $ (817,073)
========== =========== =========== =========== ===========
</TABLE>
<PAGE>
GAMECOM, INC.
(Formerly The Schooner Brewery Incorporated)
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Nine Month Ended
Year Ended December 31, September 30,
------------------------ ------------------------
1998 1997 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $(1,203,645) $ (582,770) $ (225,287) $ (860,995)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 63,951 28,830 3,038 169,811
Impairment of assets 132,545
Gain on sale of assets (143,781)
Services and fess paid with stock 446,000 -- 21,250 243,750
Financing fees 76,625 -- 27,600 76,625
Stock options issued as compensation -- 6,250
(Increase) decrease in:
Accounts receivable-trade 483 2,908 1,367 (4,969)
Prepaid and other assets 7,317 (10,024) 41,534 16,938
Increase (decrease) in:
Accounts payable and accrued expense 122,601 205,198 135,497 102,626
----------- ----------- ----------- -----------
Net cash provided by operating activities (354,123) (349,608) (138,782) (256,214)
Cash flows from investing activities
Sale of capital assets -- -- -- --
Capital expenditures -- (15,193) (37,902) (2,078)
----------- ----------- ----------- -----------
Net cash used by investing activities -- (15,193) (37,902) (2,078)
Cash flow from financing activities
Short-term notes payable 313,374 76,962 65,547 243,304
Increase in capital stock and paid-in capital 15,000 308,350 110,000 --
----------- ----------- ----------- -----------
Net cash provided by financing activities 328,374 385,312 175,547 243,304
Net increase in cash and cash equivalents (25,749) 20,511 (1,137) (14,988)
Cash and cash equivalents beginning of period 31,415 10,904 5,666 31,415
----------- ----------- ----------- -----------
Cash and cash equivalents end of period $ 5,666 $ 31,415 $ 4,529 $ 16,427
=========== =========== =========== ===========
Interest paid during the year $ 19,701 $ 7,932 $ 9,040 $ 11,926
=========== =========== =========== ===========
Income taxes paid during the year $ -- $ -- $ -- $ --
=========== =========== =========== ===========
</TABLE>
<PAGE>
THE SCHOONER BREWERY INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
Principal Business Activity
The Schooner Brewery Incorporated operates a restaurant and brewpub through it's
wholly owned subsidiary, First Brewery of Dallas, Inc.
Principals of Consolidation
The accompanying consolidated financial statements include the accounts of the
parent company, The Schooner Brewery Incorporated ("Company") and its subsidiary
after elimination of significant intercompany accounts and transactions.
Concentration of Credit Risk
The Company maintains deposits within federally insured limits. Statement of
Financial Accounting Standards No. 105 identifies these items as concentration
of credit risk requiring disclosure, regardless of the degree of risk. The risk
is managed by maintaining all deposits in high quality financial institutions.
Use of Estimates in Preparation of Financial Statements
The preparation of the accompanying financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that directly affect the results of reported assets,
liabilities, revenues and expenses. Actual results may differ from these
estimates.
Fair Value of Financial Instruments
The fair value of all reported assets and liabilities which represent financial
instruments (none of which are held for trading purposes) approximate the
carrying value of such amounts.
Inventories
Inventories are stated at the lower of cost or market.
Cash Flow Presentation
For purposes of the Statement of Cash Flows, cash equivalents include time
deposits, certificates of deposits and all liquid debt instruments with original
maturates of three months or less.
Earnings Per Share
Primary earnings per share amounts are computed based upon the weighted average
number of shares actually outstanding. The number of shares used in the
computation was 8,271,554.
Property, Equipment and Depreciation
Property and equipment are valued at cost. Maintenance and repair costs are
charged to expenses as incurred. Gains and losses on disposition of property and
equipment are reflected in income. Depreciation is computed on the straight-
line method for financial reporting purposes, based on the estimated useful
lives of the assets.
Revenue Recognition and Accounts Receivable
Sales are made for cash or they are charged to credit cards. The credit card
sales are recorded as accounts receivable and collected within the following
two-week period. Revenues are recognized at the point sales are made.
Intangibles
Intangibles consist of cost incurred in the organization of the Company and are
amortized over five years. For the current year amortization expense was
$12,830.
Common Stock Issued for Services
<PAGE>
The Company has in the past issued stock for service to non-employees on a
negotiated basis where the value of the services is recorded and stock issued
based upon the agreed number of shares issued for the value of the services
performed.
Common Stock Issued as Incentive for Loans
From time to time the Company has obtained non-interest bearing loans from
individuals. As incentive for these loans the Company issued some of its common
stock and recorded as expense the price of the stock, reduced by 50% due to the
restricted provisions of the stock. The number of shares issued in this regard
in 1998 was 613,000 shares; a charge to expense in the amount of $76,625 is
included in the Statement of Operations as "Financing Charges."
Contingentcies
The Company has a "gentlemen's agreement" with an organization developing the
kiosk and computer system for the Company's new line of business. This agreement
provides that the organization doing the development will be issued a
"significant" equity position upon the Company's successful marketing the
product. The amount of such payment in stock is to be determined upon the
condition precedent of the success of the marketing of the product and cannot be
quantified at this time. No provision for this agreement has been made in the
financial statements but will be recorded when the specific condition is met.
NOTE 2 GOING CONCERN
As shown in the accompanying financial statements the Company has incurred
losses from operations and has a deficit working capital. The Company's current
net operating revenues are not sufficient to provide adequate cash flow required
to pay all of the Company's administrative expenses. For this reason the Company
must rely on short-term borrowing and equity financing. The Company's subsidiary
ceased operations of its business on January 10, 1999, the effect of which
eliminates sources of cash flow from operations. Because the subsidiary was
generating negative cash flow Management closed those operations to mitigate
further deterioration. Until the new operations begin the Company must rely on
public and private funding to meet any of its cash flow requirements. Management
has begun efforts for a new line of business. The Company plans to make a public
offering of its common stock and expects to obtain funds through private
offering of its securities. The Company expects to begin receiving revenues from
its new operations in the first quarter of the year 2000.
NOTE 3 IMPAIRMENT OF ASSETS
Operation of the Company's brewpub and restaurant, its only operation, was
discontinued in early 1999 and was being phased out in 1998. For the year 1998
the Company identified certain assets that were impaired as the result of the
discontining operations. A provision for the impairment of related equipment and
other fixed assets that would be impaired is shown as a separate item in the
Statement of Operations. The provision for the loss was provided based on an
assessments of all of the Company's operating assets and the likelihood that the
carrying value of certain of those assets could not be realized. In the
subsequent period other equipment and fixed assets not included in the impaired
assets were sold at a gain.
NOTE 4 ACQUISITION OF SUBSIDIARY
In March 1997 the Company acquired all of the outstanding stock of First Brewery
of Dallas, Inc. ("First") by exchanging 19,300,000 shares of the Company's
common capital stock for all of the outstanding capital stock of First, whereby
First became the wholly-owned subsidiary of the Company. This transaction was
accounted for as a "Pooling of Interest." Prior to the pooling the Company had
recorded a net loss for the current year of approximately $175,000. Prior to the
acquisition by the Company, First had acquired the interest of all of the
partners in First Brewery of Dallas I, Ltd., a limited partnership, by issuing
its capital stock in exchange for all of the partners' interest in the
partnership. The partnership had operated a restaurant and brewpub in the West
End district of Dallas, Texas since June 1994. On March 13, 1997, First acquired
all of the assets of the partnership in exchange for 49,500 shares of common
stock of First. The transaction between First Brewery of Dallas, Inc. and First
Brewery of Dallas, Ltd. was accounted for as a reorganization.
NOTE 5 NOTES PAYABLE
Notes payable at December 31, 1998 consisted of the following:
Note payable to bank due March 1, 1999 with interest at 9.5% $ 56,319
Note payable to bank due March 19, 1999 with interest at 11% 50,000
Note payable to stockholder due on demand with interest at 8% 118,541
Notes payable to stockholders due June 10, 1998, interest at 12% 100,000
<PAGE>
Notes payable to stockholders due from August 1through
December 2, 1998 with no interest 162,000
Notes payable to stockholders due in February and March 1999
Without interest 63,500
---------
$550,360
---------
<PAGE>
The notes due from stockholders due in dates through December 31, 1998 were in
default at December 31, 1998. The notes due to stockholders due in 1999 have
subsequently become in default. Notes payable to stockholders in the amount of
$100,000 were issued by the Company in increments of $10,000 having a maturity
date of May 10, 1998. The holder of each of these Convertible Promissory Notes
has a non-assignable option to purchase 7,500 shares of Common Stock at par
value. Alternately, each holder has the right to convert their Convertible
Promissory Note to equity in the form of 12,500 shares of Common Stock. None of
the notes have been converted.
Of the $235,500 payable without interest as described above, $103,500 in
principal amount provides for a per diem issuance of common Stock as a penalty
for late payments. As of December 31, 1999, the per diem issuance would be in
excess of 2,000,000 shares of the Company's Common Stock. The Company has
received an opinion from counsel that the penalty provisions are unenforceable
as illegal usury under applicable Texas law. According to legal counsel there is
no likelihood of a sustainable assessment of the per diem late penalty.
Therefore, in accordance with SFAS No. 5, no provision for such charges has been
made,
NOTE 6 STOCKHOLDERS' EQUITY
Common Stock
The Company's authorized number of Common Shares that can be issued is
50,000,000 shares with a par value of $.005. The number of shares outstanding at
December 31, 1998 was 8,282,703. There were 1,105,399 common shares redeemable
for the total amount of $7,527. The Company's board of directors adopted a
resolution on December 12, 1997 to redeem 1,505,399 shares of the Common Stock
from certain shareholders to be redeemed from the proceeds of a subsequent stock
offering no later than March 31, 1998. At December 31, 1998 none of the stock
has been redeemed.
Redeemable Common Stock
In December 1997, the ten former shareholders of First Brewery of Dallas, Inc.,
acquired by the Company in March, 1997, collectively agreed with the Company's
Board of Directors that a dilution of their collective equity interest was in
the best interest of the Company. Therefore, the Company adopted a resolution on
December 12, 1997 to redeem 1,505,399 shares of the Common Stock from the ten
shareholders, at par value, $.005, with the consideration for such redemption to
be paid pro rata to such shareholders no later that March 31, 1998, presumably
out of the proceeds of a future equity offering. None of the shares have been
redeemed but can be redeemed at the Company's option. The total number of shares
and the redemption liability is reflected in the balance sheet under,
"Redeemable Common Stock."
NOTE 7 INCOME TAXES
<PAGE>
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires an asset and liability approach
for accounting for income taxes. Deferred income taxes arise from temporary
differences between financial and tax basis of certain assets and liabilities. A
valuation allowance has been established in the amount of $186,430. It is not
likely that the allowance will be realized; consequently the allowance has been
fully reserved. The Company's net operating loss carryforward is $1,157,649.
NOTE 8 LEASES
The Company leases its restaurant space under a lease agreement, which expires
October 1, 1999. During the year ended December 31, 1998, the Company paid
$130,960 under the lease agreement.
NOTE 9 OFFICER AND DIRECTOR COMPENSATION
No director receives or has received any compensation from the Company for
service as a member of the Board of Directors. None of the officers have
received any compensation for service from the Company. However, based on the
time spent by one officer expense was recorded based on the estimated
compensation and that amount was credited to paid-in captial as a contribution
to capital.
NOTE 10 RELATED PARTY TRANSACTIONS
On December 12, 1997, by unanimous consent, the Board of Directors approved
borrowing up to $100,000 from certain stockholders. The promissory notes provide
that the notes be secured by the 'Net Game LinkTM system to be installed at the
Company's restaurant. The holders of said notes shall, for each $10,000 of
notes, in addition to the payment of principal and interest, be entitled to
7,500 shares of the Company's common stock at par value at maturity. Prior to
maturity, the holders of the promissory notes shall have the right to convert
their notes to equity in the amount of 12,500 shares of the Company's restricted
common stock. Thereafter, by unanimous consent, the Board of Directors approved
additional borrowings from certain shareholders, in the aggregate sum of
$162,000. In lieu of interest, the Company issued to such shareholders
restricted shares of the Company's common stock.
NOTE 11 STOCK OPTION PLANS
In 1995 the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ["SFAS"] No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 is effective for fiscal years beginning after
December 31, 1995 and requires companies to use recognized option pricing to
estimate the fair value of stock-based compensation, including stock options.
The Statement requires additional disclosure based on the fair value based
method of accounting for an employee stock option and encourages, but does not
require, companies to recognize the value of these option grants as additional
compensation using methodology of SFAS No. 123. The Company has elected to
continue recognizing expense as prescribed by APB Opinion No.25, "Accounting for
Stock Issued to Employees," as allowed under FASB No. 123 rather than
recognizing compensation expense as calculated under SFAS No. 123.
Incentive Stock Options [Non-Compensation]
These options, incentive in nature, provide that Mr. Jones may purchase (i)
111,000 shares at par value subject to the condition precedent that the
Company's shares are trading at $1.50 per share, (ii) 361,000 shares at par
value subject to the condition precedent that the Company's shares are trading
at $3.00 per share, (iii) 111,000 shares at par value subject to the condition
precedent that the Company's shares are publicly trading at $4.50 per share, and
(iv) the balance of 250,000 shares at par value subject to the condition
precedent that the Company's shares are publicly trading at $5.00 per share.
These incentive stock options were granted to Mr. Jones by the Company's board
of directors (Mr. Jones abstaining) on December 12, 1997 and on December 14,
1998.
Messrs. Poynter and Aleckner each hold an option for 333,000 shares in the
Company's Common Stock.These options, incentive in nature, provide that Messrs.
Poynter and Aleckner may purchaser (i) 111,000 shares at par value subject to
the condition precedent that the Company's shares are trading at $1.50 per
share, (ii) 111,000 shares at par value subject to the condition precedent that
the Company's shares are trading at $3.00 per share, and (iii) the balance of
111,000 shares at par value subject to the condition precedent that the
Company's shares are publicly trading at $4.50 per share. These incentive stock
options were granted to Messrs. Poynter and Aleckner by the Company's board of
directors (Messrs.Poynter and Aleckner abstaining on the grant of their stock
option) on December 14, 1998.
Outstanding options were 1,499,000 and 750,000 respectively at December 31 1998
and 1997.
Accounting for the measurement date of these options occurs when the various
stock prices are realized.
Stock Based compensation Plan
The Company has one stock-based compensation plan as noted below. With regard to
its stock option plan, the Company applies APB No. 25 in accounting for such
plans and accordingly no compensation cost has been recognized. Had compensation
expense been determined based on fair value at the grant date for stock options
consistent with SFAS No. 123 the Company's net income and net income per common
share would not have changed for 1998 because no grants were made in 1998.
<PAGE>
On December 12, 1997, by unanimous consent of the Board of Directors, restricted
options to purchase 50,000 shares of the Company's common stock were issued to
certain key personnel of the Company at an exercise price of $.005 per share
conditioned upon the continued employment of the employee the share price at the
measurement date, December 12, 1997 was $.125 based on the restricted nature of
the stock. The Company recorded compensation expense in the amount of $6,250 in
their revised 1997 financial statements. The shares are non-transferable and may
be redeemed at $.005 per share by the Company in the event the holder shall
cease for any reason to be employed by the Company.
1998 1997
---------- ----------
Options beginning of year 800,000 --
Number of options granted 699,000 800,000
---------- ----------
Options exercised during year -- --
Options forfeited during year -- --
Options outstanding end of year 1,499,000 800,000
========== ==========
Options exercisable at end of year 50,000 50,000
========== ==========
Weighted average exercise price per
share outstanding and exercisable $ .005 $ .005
========== ==========
Weighted average grant date fair value $ -- $ .30
========== ==========
- --------------------------------------------------------------------------------
Had compensation expense been determined based on the fair value at the grant
dates for the stock option grants consistent with the method of SFAS No.123, the
Company's net income per common share would have been reduced to the pro forma
amounts indicated below:
Net loss: 1998 1997
-------------- --------------
As reported $ 1,203,643 $ 582,770
Pro forma $ 1,203,643 $ 591,520
Net per common share:
As reported $ .143 $ .097
Pro forma $ .143 $ .099
Calculated in accordance with the Black-Scholes option pricing model, using the
Following assumptions; expected volatility computed using as of the date of the
Grant the prior years average of the Common Stock which averaged 5%; expected
<PAGE>
dividend yield of 0%; expected option term of two years and risk free rate of
6%. The Company believes that there is no significant income tax effect.
NOTE 12 LEGAL PROCEEDINGS
On February 27, 1998 a judgment was rendered against First Brewery of Dallas I,
Ltd. the partnership all of which interest was acquired by First Brewery of
Dallas, Inc. The Company believes this judgment will be liquidated through
bankruptcy proceedings of the subsidiary.
The Company's First Brewery of Dallas, Inc. subsidiary is a defendant in a
proceeding commenced June 14, 1999 in Tarrant County, Texas by Ben Strong
individually and d/b/a Benco & Associates. This litigation arose out of the
construction of a brewpub which First
Brewery acquired from its predecessor in interest, and alleges that the
transaction in which first Brewery of Dallas, Inc. acquired the assets of the
predecessor in interest constituted a fraudulent conveyance. The amount sought
is approximately $58,000. The Company believes that this claim is without merit,
and anticipates that it will be eliminated in any event through the filing of a
bankruptcy proceeding by First Brewery of Dallas, Inc.
NOTE 13 REVERSE STOCK SPLIT
In a Special Meeting of the Board of Directors on June 30, 1997 and pursuant to
the action of taken by the shareholders owning a majority of the issued and
outstanding shares of the Company's common stock the Company gave effect to a
reverse stock split of one share for five shares of the Company's common stock.
Before the stock split the Company had 34,965,000 shares of stock outstanding;
immediately after the stock split the Company had outstanding 6,993,000 shares
of common stock.
NOTE 14 SUBSEQUENT EVENTS
Based on the decision of the Board of Directors the Company is redirecting its
efforts in the interactive Internet entertainment business. On February 10, 1999
the Company amended its articles of incorporation changing the name of the
Company to "GameCom, Inc."
On June 18, 1999, the judgment debtor mentioned above in Note 9, "Legal
Proceedings", served the Company with a lawsuit. As the lawsuit is against First
Brewery of Dallas, Inc., the general partner of the party defendant in the
previous judgment, management is of the opinion that this lawsuit provides no
greater exposure to the Company than that reflected by the judgment discussed
above.
NOTE 15 REVISED FINANCIAL STATEMENTS
Subsequent to the completion of the audit and the issuance of the audit report
it was determined that additional transactions had occurred where common stock
of the Company was issued for consulting and other services. The financial
statements have been revised to reflect these transactions which were recorded
based on the value of the services performed and
<PAGE>
the price of the stock at the time of the services. In addition the revised
financial statements have omitted reference to discontinued operations because
the Company did not discontinue a segment of its business as described in APB
No.30, rather all of the Company's prior operations ceased in January 1999. The
financial statements have also been revised to show separately the Redeemable
Common Shares outside the equity disclosure. The Company also revised its
presentation of its financial statements for 1997 to reflect the compensation
expense recorded in connection with the grant of stock options.
<PAGE>
PART III
ITEM I - INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
NO
(3.1) *Articles of Incorporation of The Schooner Brewery Incorporated
(3.2) *Certificate of Amendment of Articles of Incorporation of The Schooner
Brewery Incorporated dated February 14, 1997
(3.3) *Certificate of Amendment of Articles of Incorporation of The Schooner
Brewery Incorporated filed February 10, 1999
(3.4) *Bylaws
(3.5) *Plan of Merger between GameCom, Inc., a Nevada corporation and GameCom,
Inc., a Texas corporation
(3.6) *Articles of Incorporation of GameCom, Inc., a Texas corporation
(3.7) *Bylaws of GameCom, Inc.
(4.1) *Form of Subordinated Notes
(4.2) *Form of Convertible Subordinated Notes
<PAGE>
(4.3) *Form of Convertible Subordinated Notes providing for penalty payable in
shares
(10) *2000 Incentive Stock Option Plan
(10.1) Form of License Agreement for games
(21) *List of Subsidiaries
(27) Financial Data Schedule
*Previously filed
ITEM 2 - DESCRIPTION OF EXHIBITS
Not applicable
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant has caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: March 21, 2000 GAMECOM, INC.
By: /s/ L. Kelly Jones
------------------
L. Kelly Jones
Chief Executive Officer and Chief
Financial Officer
SITE LICENSE AGREEMENT
This agreement is made of the___day of___, 1999, by and between GT
Interactive Software Corp. ("GT"), a Delaware corporation located at 417 Fifth
Avenue, New York, NY 10016 and_____("Licensee"), a____corporation located
at____.
RECITALS
A. GT has certain exclusive rights to the computer software program
entitled____(the "Game").
B. Licensee desires to obtain a non-exclusive license to copy, install and
use the Game on multiple computers located at the Site (as that term is defined
below).
In consideration of the covenants set forth below and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. GRANT OF RIGHTS:
a. GT grants Licensee a non-exclusive, non-transferable license to
install and use the Game in executable form only, on up to___(10)___workstations
located at the site/s specified in Exhibit A (the "Site"), and to use the
associated written documentation provided by GT (the "Documentation").
b. Licensee shall have the right to copy the Game only to the extent
necessary to exercise its rights under this agreement, and for backup and
archival purposes. Licensee shall reproduce GT's end-user licensee agreement,
copyright notices and other proprietary notices on all copies of the Game, and
all copies shall be subject to the terms, conditions and obligations of this
agreement.
c. Licensee may copy the Documentation to the extent necessary to
exercise its rights under this agreement. Licensee shall reproduce GT's
copyright notices and other proprietary notices on all copies of the
Documentation, and all copies shall be subject to all terms, conditions and
obligations of this agreement.
d. In the event that Licensee wishes to promote the Game in
connection with the Site, Licensee shall submit all promotional materials to GT
for GT's prior written approval, which shall be granted in GT's sole discretion.
Licensee acknowledges that GT's approval may be contingent upon the approval of
underlying rights holders. GT's failure to approve or comment in writing on any
materials submitted to it for approval within thirty (30) days after receipt of
those materials shall be deemed its rejection. Licensee shall have no right to
advertise, publicize or promote the Game without the prior written approval of
GT
2. RESERVATION OF RIGHTS:
a. Licensee acknowledges that any rights granted to it by GT under
this agreement are subject to the rights granted to GT by the Developer and are
limited by any and all restrictions contained in the agreement between GT and
Developer for the Game. All rights not specifically granted to Licensee by this
agreement are expressly reserved by GT. Licensee may not sublicense any of the
rights granted to it under this agreement. The Game shall only be used as
expressly set forth in this agreement. Without limiting the foregoing, Licensee
shall have no right to sell or distribute any copy of the Game or to decompile,
reverse engineer, disassemble, alter, edit, change, add to or delete from the
Master Disk, the Game or the Documentation or permit others to do any of the
foregoing or otherwise exploit those materials by any means not expressly
authorized under this agreement (each, an "Unauthorized Use"). In the event of
an
<PAGE>
Unauthorized Use, this agreement shall immediately terminate in accordance
with Section 11(b).
b. GT reserves the right at any time prior to the expiration
of the Term (as defined below) to discontinue developing, producing, licensing
or distributing the Game (the "Discontinued Game"). GT shall notify Licensee (a
"Discontinuance Notice) as soon as practicable in the event the game becomes a
Discontinued Game. In that event, the terms of Section 11(d) shall apply.
3. OWNERSHIP
a. Licensee acknowledges that the Game, the Documentation
(collectively, "GT Materials"), and all copies of the GT Materials made by
Licensee under this agreement are the exclusive property of either GT or the
developer of the Game (the "Developer"), as applicable, and that title to the GT
Materials shall at all times remain with GT or the Developer, as applicable.
Licensee further acknowledges that it has no rights in the GT Materials and that
all rights which it may have with respect to the use and display of the GT
Materials are as expressly granted pursuant to the terms of this agreement.
b. Licensee will take all steps necessary to protect the Game and
the Documentation from any use, reproduction, publication, disclosure or
distribution, except as otherwise specifically set forth in this agreement.
c. Licensee shall not remove, alter, cover or distort any copyright
notice, trademark or other proprietary rights notice placed by GT in or on the
Game or the Documentation and shall ensure that such notices are reproduced on
all authorized copies of the Game and the Documentation made by Licensee.
4. DELIVERABLES: Within thirty (30) days of execution of this agreement,
GT shall deliver to Licensee one (1) copy of the Game on computer disk (the
"Master Disk") and one (1) copy of the Documentation for use by Licensee
pursuant to this agreement. Licensee shall bear all costs of copying and
distributing the Game and the Documentation for its use within the Site.
5. FINANCIAL OBLIGATIONS:
a. In consideration of the rights granted to Licensee under this
agreement, Licensee shall pay GT a license fee of ($540.00) on execution of this
agreement.
b. If Licensee shall be required to pay any taxes as a result of the
exploitation of the rights granted under this agreement, other than income taxes
which may be levied against GT from any payments made to GT under the terms of
this agreement, Licensee shall be solely responsible for paying those taxes and
promptly furnish GT with tax receipts certifying the fact that those taxes have
been duly paid.
6. CONFIDENTIALITY: The parties acknowledge that, during the term of this
agreement, each party will have access to, and may become acquainted with,
certain confidential information relating to merchandising, distribution and
financial arrangements of the other party. Both parties agree that they shall
not, until the later of the expiration of this agreement or such time as the
information is made public, either directly or indirectly, by the party
originally responsible for disclosing the information to the other party, make
known to any person, firm or corporation other than a party to this agreement,
any of the foregoing information. The foregoing obligations shall not apply to
any information which is required to be disclosed in the context of an
administrative, regulatory or judicial process or review nor to disclosure of
the contents of this agreement to any affected Developer. GT shall be entitled
to seek injunctive or other equitable relief without the necessity of posting a
bond, to prevent the breach or threatened breach of the provisions of this
section, and to secure its enforcement.
<PAGE>
7. REPRESENTATIONS AND WARRANTIES:
a. Licensee represents and warrants to GT that (i) is a corporation
duly organized and existing under the laws of the state of_____; (ii) it has a
full right, power, legal capacity and authority to enter into this agreement, to
carry out its terms, and to receive the rights, licenses and privileges granted
by this agreement; (iii) GT shall not be required to make any payments of any
nature except as otherwise expressly set forth in this agreement; (iv) it has
not and will not assign, transfer, lease, convey or grant a security interest in
or otherwise similarly dispose of the Game or the Documentation; (v) it shall
use its best efforts to protect GT's and the Developer's intellectual property
rights in the Game and the Documentation against infringement by third-parties;
(vi) it has sufficient resources, equipment and expertise to copy, install and
make the Game available for use within the Site in accordance with the terms of
this agreement; (vii) it shall not copy, install for use or grant any
third-party the right to copy, install, use or otherwise exploit the Game or the
Documentation, except as otherwise set forth in this agreement or as expressly
agreed to in writing by GT; and (vii) the making of this agreement and the
copying, installation, and use of the Game and the Documentation by Licensee
shall not infringe upon or violate any laws or regulations of the Territory; or
any agreement, right or obligation existing or which shall exist between
Licensee or any other person, firm or corporation; or any rights of any third
party. Licensee hereby indemnifies and holds harmless GT from and against any
damages arising out of any breach by Licensee of the terms of this agreement,
its representations or warranties.
b. GT represents and warrants to Licensee that (i) it is a
corporation duly organized and existing under the laws of the state of Delaware;
and (ii) it has the full right, power, legal capacity and authority to enter
into this agreement, to carry out its terms and to grant the rights granted.
8. LIMITATION OF LIABILITY: EXCEPT AS EXPRESSLY SET FORTH OTHERWISE AND TO
THE EXTENT NOT PROHIBITED BY APPLICABLE LAW, GT DISCLAIMS ALL WARRANTIES,
EXPRESS, IMPLIED OR OTHERWISE, ARISING OUT OF OR RELATING TO THE GAME, THE
DOCUMENTATION, OR ANY USE OF THEM, INCLUDING (WITHOUT LIMITATION) ANY WARRANTY
WHATSOEVER AS TO THEIR FITNESS FOR A PARTICULAR USE OR THEIR MERCHANTABILITY. GT
SHALL IN NO EVENT BE RESPONSIBLE FOR LOSSES OF ANY KIND OF RESULTING FROM THE
USE OF THOSE MATERIALS INCLUDING (WITHOUT LIMITATION) ANY LIABILITY FOR ANY
INJURIES, LOSSES, EXPENSES OR DAMAGES, CAUSED BY ANY DEFICIENCY, DEFECT, ERROR
OR MALFUNCTION. IN NO EVENT SHALL GT BE LIABLE FOR ANY INDIRECT, SPECIAL,
INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) EVEN IF
GT KNOWS OR SHOULD HAVE KNOWN OF THE POSSIBILITY OF THOSE DAMAGES, INJURIES,
EXPENSES OR LOSSES.
9. TERM: Unless earlier terminated as provided in this agreement, this
agreement shall commence as of the date first set forth above and shall remain
in force and effect for one (1) year from that date ("Initial Term"). The
Initial Term may be extended for additional, consecutive six (6) month periods
by mutual agreement of the parties, to be confirmed in writing thirty (30) days
prior to the expiration of the then-current term. The Initial Term and any
extensions, shall be referred to as the "Term."
10. MASTER DISK: Licensee shall handle, store and safeguard the Master
Disk so as to prevent an Unauthorized Use. Upon termination or earlier
expiration of this agreement or within thirty (30) days following receipt of a
Discontinuance Notice as set forth in Section 2(b), Licensee shall immediately
return the Master Disk and the Documentation to GT at the address set forth
above.
11. TERMINATION:
<PAGE>
a. Except as expressly set forth in this agreement, if Licensee
breaches the terms of this agreement and fails to cure that breach, if curable
within thirty (30) days of receipt of written notice, without limiting any of
its other rights and remedies, GT shall have the right, in its sole discretion,
to terminate this agreement and any and all rights granted to Licensee under it.
b. This agreement shall immediately terminate, without the right to
cure and without notice from GT to Licensee, in the event of an Unauthorized Use
as set forth in Section 2(a). Without limiting any of the other rights and
remedies, GT shall have the right to collect from Licensee the greater of (i)
the value received, exchanged, bartered or otherwise realized by Licensee or any
Licensee affiliates from the Unauthorized Use, as reasonably determined by GT;
or (ii) the greatest amount GT charges distributors or resellers for the Game,
multiplied by the total number of Unauthorized Uses. The foregoing sums shall be
due and payable to GT within three (3) days after the date of the Unauthorized
Use or discovery by GT. Payment at any time after that date shall be made
immediately upon request for payment by GT, plus all costs and expenses of GT
(including reasonable attorneys' and auditors' fees and expenses) incurred in
determining the existence and extent of Unauthorized Use and in collecting the
foregoing sums.
c. This agreement shall immediately terminate, on notice from GT to
Licensee, without the right to cure, upon the occurrence of any of the
following: (i) if Licensee shall file a petition in bankruptcy or make an
assignment for the benefit of creditors or if any bankruptcy proceeding or
assignment for the benefit of creditors shall be commenced against Licensee and
not dismissed within sixty (60) days after the date of its commencement; (ii)
the insolvency of the other party; or (iii) the sale by Licensee of a
substantial portion of its business.
d. In the event the Game becomes a Discontinued Game as set forth in
Section 2(b), this agreement shall terminate subject to the following: Licensee
shall cease copying and installing the Game within the Site within thirty (30)
days following receipt of a Discontinuance Notice; however, Licensee shall
immediately cease those activities if, in the Discontinuance Notice, GT states
that it no longer has the necessary rights from the Developer of the
Discontinued Game.
12. MISCELLANEOUS: Sections 2, 3, 6, 7, 8,10, 11 and 12 shall survive the
expiration of the Term or earlier termination of this agreement. The enforcement
by either party of its rights under this agreement shall not derogate the rights
which the other party may have at law or equity. This agreement sets forth the
entire understanding between the parties with respect to its subject matter and
may only be amended by the parties in writing. The parties acknowledge that
nothing contained in this agreement shall be deemed to imply that any
intellectual property rights shall be transferred or ceded to Licensee or
end-users. This agreement may not be assigned by Licensee, nor the duties of it
delegated, without the prior written consent of GT. No waiver of any default or
breach of this agreement by either party shall be deemed a waiver of any other
breach or default. This agreement shall be interpreted under the laws of the
state of New York, including the federal courts located there. If any provision
shall be held to be illegal, void or unenforceable, this agreement shall remain
in effect and be interpreted without it. Headings used in this agreement are for
convenience only and shall have no legal effect in its interpretation. Where
appropriate in context, the conjunctive shall include the disjunctive, any shall
include all, unless shall include until and vice versa.
By your countersignature below, you agree to the terms and conditions of
this agreement.
Sincerely,
Harry M. Rubin
President International Division
Accepted and agreed:
<PAGE>
- ----------------------------
- ----------------------------
Name:
Title:
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<ARTICLE> 5
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,529
<SECURITIES> 0
<RECEIVABLES> 180
<ALLOWANCES> 0
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<CURRENT-ASSETS> 4,709
<PP&E> 91,150
<DEPRECIATION> 5,618
<TOTAL-ASSETS> 99,234
<CURRENT-LIABILITIES> 908,780
<BONDS> 0
0
0
<COMMON> 50,208
<OTHER-SE> (867,281)
<TOTAL-LIABILITY-AND-EQUITY> 99,234
<SALES> 5,431
<TOTAL-REVENUES> 5,431
<CGS> (2,893)
<TOTAL-COSTS> 27,365
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,770
<INCOME-PRETAX> (225,287)
<INCOME-TAX> 0
<INCOME-CONTINUING> (225,287)
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<EXTRAORDINARY> 0
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<NET-INCOME> (225,287)
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