UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1999
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number 000-28381
GAMECOM, INC.
(Exact name of Registrant as specified in its Charter)
Texas 93-1207631
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
440 North Center, Arlington, TX 76011
(Address of principal executive offices) (Zip Code)
(817) 265-0440
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE SECURITIES EXCHANGE ACT
OF 1934:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE SECURITIES EXCHANGE ACT
OF 1934:
Common Stock, par value $.005 per share
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. YES |X| NO |_|
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES |_| NO |X|
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at December 31, 1999 was approximately $2,946,257.
The number of shares of Registrant's Common Stock outstanding on December 31,
1999 was 11,822,150.
Revenue for the most recent fiscal year was $5,431.
<PAGE>
Part I
Item 1. 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 Brewery(TM) 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 GameLink(TM), an
interactive entertainment system designed to allow a number of players to
compete with one another in a game via an intranet or the Internet. Since
closing its microbrewery operations GameCom has been devoting substantially all
of its efforts to implementing the 'Net GameLink(TM) product and its operations
have been limited to development, construction and beta-testing of the initial
'Net GameLink(TM) prototype system at J. Gilligan's Bar and Grill in Arlington,
Texas. The Company is not expected to have revenues from its Internet gaming
business until some time in the first quarter of 2000.
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.
'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. 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 GameLink(TM) 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 andsoftware. 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.
<PAGE>
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 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
has produced 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.
<PAGE>
EMPLOYEES
At December 31, 1999 the Company employed 4 persons. The Company considers
relations with its employees to be satisfactory.
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.
Item 2. 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 3. 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
<PAGE>
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.
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 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the last quarter
of the period covered by this report.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder 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.
BID PRICES
YEAR PERIOD HIGH LOW
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
<PAGE>
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
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
As of March 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 6. 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.
In January, 1999, the Company terminated its brewpub/microbrewery restaurant
operations. Future revenues and profits will depend upon various factors,
including market acceptance of `Net GameLink(TM), and 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
<PAGE>
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 GameLink(TM) entertainment concept. The
Company 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 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, 1999 compared to fiscal year ended December 31,
1998.
These two periods are in no way comparable, since the fiscal year ended December
31, 1998 reflects the Company's unsuccessful efforts to develop its
brewpub/microbrewery business, whereas fiscal year 1999 reflects a redirection
of the Company's efforts from the discontinued business to the development of
the Company's 'Net GameLink(TM) System. For the fiscal year ended December 31,
1999 the Company had essentially no revenues. Administrative costs of $409,999
for the fiscal year ended December 31, 1999 compared to $1,002,192 for the
fiscal year ended December 31, 1998 reflect the decision in January, 1999 to
terminate the brewpub/microbrewery operations. The Company recorded a $143,781
gain on the sale of equipment for the fiscal year ended December 31, 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 $41,336 reduction in
interest charges for the fiscal year ended December 31, 1999 reflects that
elimination of bank debt as described above and an agreement by holders of other
indebtedness to accept a one-time issuance of common stock in lieu of accrued
and future interest. The value of such common stock is shown as finance charges
for the applicable periods.
Connect Computer Group, Inc., the firm which has been largely responsible for
development of the Company's kiosk and computer systems ("Connect Computer"),
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
<PAGE>
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. There is considerable 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.
However, the Company has made a charge to its earnings for those services based
on its estimate of the number of shares which will ultimately be issuable for
those services. Subsequent negotiations may result in significant adjustments to
these estimates.
Liquidity and Capital Resources. As of December 31, 1999 the Company's liquidity
position was extremely precarious. The Company had current liabilities of
$1,159,188, including $728,849 in trade payables, most of which were overdue,
short-term notes payable of $380,500, 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 $15,744.
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 fiscal year ended December 31, 1999, the net loss
was $361,880, of which only $84,306 was accounted for by non-cash charges. In
addition, the Company was required to repay bank and other borrowings in the
amount of $285,327, and made capital expenditures of $41,237 resulting in total
cash requirements for the fiscal year of approximately $604,138. To cover most
of these cash requirements, the Company allowed accounts payable and accrued
expenses to increase by $247,530, disposed of assets relating to the closed-down
brewpub operation for a gain of $143,781, and issued additional shares of its
common stock to investors for approximately $135,000.
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 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 year
ended December 31, 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
matured on March 16, 2000. It has been renewed, and now matures on June 14,
2000.
<PAGE>
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 GameLink(TM) 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
<PAGE>
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 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 7. Financial Statements
<PAGE>
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, 1999............................................................1
Consolidated Statements of Operations for the years
ended December 31, 1999 and 1998.............................................2
Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended December 31, 1999 and 1998...............................3
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998...................................................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, 1999 and the related statements of operations,
changes in stockholders' equity, and cash flows for the years ended December 31,
1999 and December 31, 1998. 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, 1999, and the results of
their operations and their cash flows for the years ended December 31, 1999 and
December 31, 1998 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,
1999, the Company incurred a net loss of $361,880. 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.
Thomas O. Bailey and Associates, P.C.
Dallas, Texas
April 4, 2000
<PAGE>
GAMECOM, INC.
(Fomerly The Schooner Brewery Incorporated)
Consolidated Balance Sheet
December 31, 1999
ASSETS
Current assets
Cash $ 15,564
Accounts receivable 180
Inventories --
-----------
Total current assets 15,744
Property and equipment
Equipment, furniture and fixtures 94,485
Accumulated depreciation (7,932)
-----------
Net property and equipment 86,553
Other assets
Security deposits 8,989
-----------
Total other assets 8,989
-----------
Total assets $ 111,286
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade payables $ 728,849
Accrued interest 49,839
Notes payable to shareholders 360,500
Short-term notes payable to bank 20,000
-----------
Total current liabilities 1,159,188
Redeemable common stock
Common stock to redeem, 1,505,399 shares
at par $.005 7,527
Shareholders' equity
Capital stock 50,000,000 shares authorized
par value $.005; 10,316,751
issued and outstanding, 51,583
Paid-in capital 1,230,459
Retained earnings (2,337,471)
-----------
Total shareholders' equity (1,055,429)
-----------
Total liabilities and shareholder equity $ 111,286
===========
<PAGE>
GAMECOM, INC.
(Formerly The Schooner Brewery Incorporated)
Consolidated Statement of Operations
For the Years Ended December 31,
1999 1998 1997
---- ---- ----
Revenues
Restaurant sales 5,431 $ 469,357 $ 361,074
Other -- (7,500) 9,500
------------ ----------- -----------
Total revenues 5,431 461,857 370,574
Cost of sales
Food, beer, wine and merchandise (2,893) 182,334 126,505
Salaries and labor 27,365 268,826 161,574
------------ ----------- -----------
Total cost of sales 24,472 451,160 288,079
------------ ----------- -----------
Gross profit (19,041) 10,697 82,495
General and administrative expense
Administrative cost 409,999 1,002,192 604,409
Interest 16,065 57,401 12,776
Financing charges 55,200 153,250 --
Depreciation and amortization 5,356 51,122 28,830
Impairment of assets -- 132,545 --
Gain on sale of assets (143,781) -- --
------------ ----------- -----------
342,839 1,396,510 646,015
------------ ----------- -----------
Net loss $ (361,880) $(1,385,813) $ (563,520)
============ =========== ===========
Per share amounts:
Net loss per share $ (0.038) $ (0.164) $ (0.095)
============ =========== ===========
Average outstanding shares 9,581,072 8,435,721 5,923,784
============ =========== ===========
<PAGE>
GAMECOM, INC.
(Formerly The Schooner Brewery Incorporated)
Consolidated Statement of Stockholders' Equity
For the Periods From December 31, 1997 through December 31, 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 $ 381,294 $ (589,777) $ (177,435)
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 3,065 150,185 -- 153,250
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
Loss for the year ended December 31, 1998 -- -- -- (1,385,814) (1,385,814)
---------- ----------- ----------- ----------- -----------
Balance December 31, 1998 8,282,703 $ 41,413 $ 989,179 $(1,975,591) $ (944,999)
---------- ----------- ----------- ----------- -----------
Stock issued as incentive for loans 240,000 1,200 54,000 -- 55,200
Stock issued in compensation for services 125,000 625 4,375 -- 5,000
Sales of stock 1,369,048 6,845 128,155 -- 135,000
Contribution of capital for services -- -- 18,750 -- 18,750
Exercise of stock options 300,000 1,500 36,000 -- 37,500
Loss for the year ended December 31, 1999 -- -- -- (361,880) (361,880)
---------- ----------- ----------- ----------- -----------
Balance December 31, 1999 10,316,751 $ 51,583 $ 1,230,459 $(2,337,471) $(1,055,429)
========== =========== =========== =========== ===========
</TABLE>
<PAGE>
GAMECOM, INC.
(Formerly The Schooner Brewery Incorporated)
Consolidated Statements of Cash Flows
For the Years Ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (361,880) $(1,385,813) $ (563,520)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 5,356 51,122 28,830
Impairment of assets 132,545
Gain on sale of assets (143,781)
Services and fees paid with stock 23,750 446,000 --
Financing fees 55,200 153,250 --
Stock options issued as compensation -- -- 6,250
(Increase) decrease in:
Accounts receivable-trade 1,367 483 2,908
Prepaid and other assets 3,044 7,317 (10,024)
Increase (decrease) in:
Accounts payable and accrued expense 247,530 240,973 205,198
----------- ----------- -----------
Net cash provided by operating activities (169,414) (354,123) (330,358)
Cash flows from investing activities
Sale of capital assets -- --
Capital expenditures (41,237) -- (15,193)
----------- ----------- -----------
Net cash used by investing activities (41,237) -- (15,193)
Cash flow from financing activities
Short-term notes payable 85,547 313,374 76,962
Increase in capital stock and paid-in capital 135,000 15,000 289,100
----------- ----------- -----------
Net cash provided by financing activities 220,547 328,374 366,062
Net increase in cash and cash equivalents 9,896 (25,749) 20,511
Cash and cash equivalents beginning of period 5,666 31,415 10,904
----------- ----------- -----------
Cash and cash equivalents end of period $ 15,562 $ 5,666 $ 31,415
=========== =========== ===========
Interest paid during the year $ 9,040 $ 19,701 $ 7,932
=========== =========== ===========
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.
<PAGE>
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. This number does not include any shares called for by
the penalty provisions of certain of the Company's notes since, based on the
opinion of legal counsel, these penalty provisions are unenforeceable. See Note
5.
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.
Common Stock Issued for Services
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. The measurement date for determining such value is the date an
agreement is reached for issuance of the shares, and the number of shares issued
is based on the market value of such shares on such date.
<PAGE>
Common Stock Issued as Incentive for Loans
From time to time the Company has obtained non-interest bearing loans or
guarantees of bank loans from individuals. As incentive for these loans the
Company issued some of its common stock and recorded as expense the market value
of the stock. These issuances were as follows:
Market Value
Date Amount Lent Shares Issued of Shares
3/98 $ 50,000 120,000 $ 30,000
9/98 $123,000 493,000 $123,250
1/99 $ 88,500 240,000 $ 55,200
1/00 $ 20,000 100,000 $ 37,500
Charges in amounts equal to the fair market value of the shares issued for such
loans or guarantees are included in the Statement of Operations for the
applicable periods as "Financing Charges." These loans were made pursuant to
subscription agreements with the individual lenders, and were not available to
other note holders.
Contingentcies
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. There is considerable 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 those services. However, the Company has made
a charge to its earnings for those services based on its estimate of the number
of shares which will ultimately be issuable for those services and the fair
market value of the Company's shares as of December 31, 1999. Subsequent
negotiations may result in significant adjustments to these estimates.
NOTE 2 GOING CONCERN
<PAGE>
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 3,860,000 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. Although the Company was the
surviving entity in this transaction, the acquisition was accounted for as a
purchase of the Company by First. Since Schooner's assets consisted solely of
cash, no goodwill was recorded in connection with the transaction. 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
<PAGE>
Notes payable at December 31, 1998 consisted of the following:
Note payable to bank due June 14, 2000 with interest at 9% $ 20,000
Notes payable to stockholders due on demand, interest at 12% $ 25,000
Notes payable to stockholders due June 10, 1998, interest at 12% 100,000
Notes payable to stockholders due from August 1 through December 2, 172,000
1998 with no interest
Notes payable to stockholders due in February and March 1999
Without interest 63,500
--------
$380,500
The notes due to 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 2,800,000 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.
However, there has not been any litigation between the Company and the holder of
the note as to this issue, and in the absence of a court decision directly
applicable to the parties, there remains at least some risk that the opinion of
counsel could be wrong. Should the holder of the note prevail in any such
litigation, the shares issuable under the penalty provisions would result in
this holder's becoming the Company's largest single shareholder. Further,
depending upon how long it took to resolve the issue, an adverse decision could
result in such holder's becoming a controlling shareholder of the Company.
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 provided.
NOTE 6 STOCKHOLDERS' EQUITY
Common Stock
<PAGE>
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, 1999 was 11,822,150. There were 1,505,399 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, 1999 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
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 $375,011. 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 $1,950,849.
NOTE 8 LEASES
The Company leases its restaurant space under a lease agreement, which expired
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
<PAGE>
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 Link(TM) 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.
<PAGE>
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 1,199,000 at December 31, 1999.
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 or 1999 because no grants were made in
those years.
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.
1999 1998 1997
Options beginning of year 1,499,000 800,000 --
Number of options granted -- 699,000 800,000
---------- ---------- ----------
<PAGE>
Options exercised during year 300,000 -- --
---------- ---------- ----------
Options forfeited during year -- -- --
---------- ---------- ----------
Options outstanding end of year 1,199,000 1,499,000 800,000
---------- ---------- ----------
Options exercisable at end of year -- 300,000 300,000
========== ========== ==========
Weighted average exercise price per
share outstanding and exercisable $ .005 $ .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: 1999 1998 1997
---- ---- ----
As reported $361,880 $1,203,643 $ 582,770
Pro forma $361,880 $1,203,643 $ 591,520
Net per common share:
As reported $ (0.033) $ .143 $ .097
Pro forma $ (0.033) $ .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
dividend yield of 0%; expected
<PAGE>
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.
<PAGE>
NOTE 14 SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental cash flow information is provided for interest,
Income taxes paid and for non-cash transactions:
For the year ended
December 31,
1999 1998
---- ----
Interest paid 16,065 57,401
Income taxes paid -- --
Non-cash transactions:
Service compensated with stock 21,250 243,750
Compensation paid in options 36,000 --
Notes exchanged for equipment 70,270 --
NOTE 15 REVISED FINANCIAL STATEMENTS
Subsequent to the completion of the 1998 audit and the issuance of the 1998
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 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>
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 9. Directors and Executive Officers of the Registrant; Compliance With
Section 16(a) of the Exchange Act.
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.
Name Age Positions Date became director
or executive officer
L. Kelly Jones 46 Chief Executive Officer March 26, 1997
and Chairman of the
Board of Directors
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
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.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 of the Securities Exchange Act of 1934, as amended ("Section 16"),
requires that reports of beneficial ownership of capital stock and changes in
such ownership be filed with the Securities and Exchange Commission (the "SEC")
by Section 16 "reporting persons," including directors, certain officers,
holders of more than 10% of the outstanding Common Stock and certain trusts of
which reporting persons are trustees. The Company is required to disclose in
this Annual Report on Form 10-K each reporting person whom it knows to have
failed to file any required reports under Section 16 on a timely basis during
the fiscal year ended December 31, 1999 or prior fiscal years.
The Company's Registration Statement on Form 10-SB became effective on February
4, 2000, and accordingly no such reports were required during the fiscal year
ended December 31, 1999.
SIGNIFICANT EMPLOYEES
In addition to the officers and directors identified above, the following
employees play a significant role in the Company's operations.
<PAGE>
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 10. 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.
<TABLE>
<CAPTION>
Restricted Securities
Other Annual Stock Underlying
Name and Principal Position Year Salary Bonus Compensation Awards Options/SARs
<S> <C> <C> <C> <C> <C> <C>
L. Kelly Jones, Chief Executive 1999 -- -- -- -- --
Officer and Chairman of the Board
of Directors
1998 -- -- -- -- 833,000(1)
1997 -- -- -- -- --
John F. Aleckner, Jr., President 1999 -- -- -- -- --
and Director
1998 -- -- -- -- 333,000(2)
1997 -- -- -- -- --
W. James Poynter, Vice-President 1999 -- -- -- -- --
and Director
1998 -- -- -- -- 333,000(2)
1997 -- -- -- -- --
Kimberly Biggs, Secretary and 1999 -- -- -- -- --
Treasurer
1998 -- -- -- -- --
1997 -- -- -- -- --
</TABLE>
<PAGE>
(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 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
<PAGE>
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 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 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 28, 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.
<PAGE>
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
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
<PAGE>
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 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.
In addition, there is a possibility, which management regards as remote, that
the Company may be required to issue a substantial number of additional shares
to the holder of one of its notes under the penalty provisions of that note. See
Item 7, note 5 - Convertible Promissory Notes/Promissory Notes. Since those
shares would be issued for no additional consideration, any such issuance could
cause significant dilution in the book value per share of shares presently
outstanding.
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.
Item 12. 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.
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.
<PAGE>
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 14. Exhibits and Reports on Form 8K
The Company has not filed any reports on Form 8-K during the last quarter of the
period covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
GAMECOM, INC.
(Registrant)
By: /s/ L. Kelly Jones
---------------------------------------
L. Kelly Jones, Chief Executive Officer
Dated April 5, 2000
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ L. Kelly Jones Chief Executive Officer, Chief April 5, 2000
- ------------------------ Financial Officer and Director
L. Kelly Jones
/s/ John F. Aleckner, Jr. Director April 5, 2000
- ------------------------
John F. Aleckner, Jr.
/s/ James Poynter Director April 5, 2000
- ------------------------
W. James Poynter
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