-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DLDqNu884OuKRKoJERhLAIflvpTt2TTT+0lVKy/vJh6NMba+jg6ACCpYMigAMJK2 Gv8cJw0w9yjU8w98S/LIkg== 0001005477-01-502002.txt : 20020410 0001005477-01-502002.hdr.sgml : 20020410 ACCESSION NUMBER: 0001005477-01-502002 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GAMECOM INC CENTRAL INDEX KEY: 0001085243 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 931207631 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-28381 FILM NUMBER: 1790351 BUSINESS ADDRESS: STREET 1: 440 NORTH CENTER CITY: ARLINGTON STATE: TX ZIP: 76011 BUSINESS PHONE: 8172650440 MAIL ADDRESS: STREET 1: 440 NORTH CENTER CITY: ARLINGTON STATE: TX ZIP: 76011 10QSB 1 d01-35180.txt FORM 10-QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 ------------------ or |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ______________________ Commission File Number 000-28381 - -------------------------------------------------------------------------------- GAMECOM, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Texas 93-1207631 - ------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 440 North Center, Arlington, Texas 76011 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (817) 265-0440 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Check whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO |_| As of September 30, 2001, the Registrant had outstanding 32,699,812 shares of common stock, par value $.005 per share. PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Consolidated Balance Sheet as of September 30, 2001 and December 31, 2000 Consolidated Statement of Operations for the three months and nine months ended September 30, 2001 and 2000 Consolidated Statement of Changes in Stockholders' Deficit for the nine months ended September 30, 2001 Consolidated Statement of Cash Flows for the nine months ended September 30, 2001 and 2000 Selected Notes to Financial Statements -2- GAMECOM, INC. CONSOLIDATED BALANCE SHEET September 30, 2001 and December 31, 2000
September 30, December 31, 2001 2000 ASSETS (Unaudited) (Note) ----------- ----------- Current assets: Cash and cash equivalents $ -- $ 6,135 Accounts receivable, net 129,707 159,922 Deferred expenses -- 38,887 Note receivable -- 33,471 ----------- ----------- Total current assets 129,707 238,415 Property and equipment, net 900,116 1,316,325 Note receivable-related party 67,885 102,782 Intangible assets, net 61,446 82,618 Other assets 74,074 -- ----------- ----------- Total assets $ 1,233,228 $ 1,740,140 =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current maturities of notes payable $ 1,107,059 $ 604,133 Current portion of obligations under product financing arrangements 3,607,780 1,043,789 Book overdraft 27,027 5,574 Accounts payable, trade 915,979 737,057 Accrued interest payable 138,451 89,940 Notes payable to stockholders 630,531 533,031 Deferred revenue 43,750 88,000 ----------- ----------- Total current liabilities 6,470,577 3,101,524 Notes payable, net of current maturities -- 538,667 Obligations under product financing arrangements, net of current portion 516,663 2,330,667 ----------- ----------- Total liabilities 6,987,240 5,970,858 ----------- ----------- Redeemable common stock, 778,291 shares, at par $.005 per share 3,891 3,891 Stockholders' deficit: Common stock, par value $0.005; 100,000,000 shares authorized; 32,699,812 and 30,462,380 shares issued and outstanding, respectively 163,499 152,312 Additional paid-in capital 2,172,750 1,695,533 Accumulated deficit (8,094,152) (6,082,454) ----------- ----------- Total stockholders' deficit (5,757,903) (4,234,609) ----------- ----------- Total liabilities and stockholders' deficit $ 1,233,228 $ 1,740,140 =========== ===========
Note: The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes. -3- GAMECOM, INC. CONSOLIDATED STATEMENT OF OPERATIONS for the three months and nine months ended September 30, 2001 and 2000 ---------- (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------- ------------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Revenue: Theme parks and arcades $ 889,622 $ 901,904 $ 1,442,679 $ 1,595,712 Custom applications and other 52,050 186,615 871,111 889,461 ------------ ------------ ------------ ------------ Total revenue 941,672 1,088,519 2,313,790 2,485,173 Cost of sales and services 226,732 204,113 892,175 891,313 ------------ ------------ ------------ ------------ Gross margin 714,940 884,406 1,421,615 1,593,860 General and administrative expense 855,774 774,605 2,096,240 1,676,456 Depreciation and amortization expense 151,345 146,391 454,036 421,291 ------------ ------------ ------------ ------------ Loss from operations (292,179) (36,590) (1,128,661) (503,887) Other income (expense): Interest income -- 408 1,338 1,200 Interest expense (310,375) (241,464) (836,210) (723,660) Finance charges (52,500) (58,695) (97,500) (82,195) Gain on sale of assets -- -- 25,000 -- Other income 5,670 14,072 24,335 46,271 ------------ ------------ ------------ ------------ Total other income (expense) (357,205) (285,679) (883,037) (758,384) ------------ ------------ ------------ ------------ Loss before extraordinary item (649,384) (322,269) (2,011,698) (1,262,271) Extraordinary item: Gain from extinguishment of debt -- 51,548 -- 455,149 ------------ ------------ ------------ ------------ Net loss $ (649,384) $ (270,721) $ (2,011,698) $ (807,122) ============ ============ ============ ============ Basic and dilutive net loss per common share before extraordinary item $ (0.02) $ (0.01) $ (0.06) $ (0.04) Extraordinary item -- 0.00 -- 0.01 ------------ ------------ ------------ ------------ Basic and dilutive net loss per common share $ (0.02) $ (0.01) $ (0.06) $ (0.03) ============ ============ ============ ============ Weighted average number of common shares outstanding 31,791,572 29,972,161 31,414,243 29,922,358 ============ ============ ============ ============
See accompanying notes. -4- GAMECOM, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT for the nine months ended September 30, 2001 ---------- (Unaudited)
Common Stock Additional ------------------------ Paid-In Accumulated Shares Amount Capital Deficit Total ---------- -------- ---------- ----------- ----------- Balance at December 31, 2000 30,462,380 $152,312 $1,695,533 $(6,082,454) $(4,234,609) Common stock issued for services 1,068,970 5,345 237,159 -- 242,504 Common stock issued for interest 57,000 285 13,115 -- 13,400 Common stock issued for financing fees 255,320 1,276 58,724 -- 60,000 Common stock issued for cash 125,000 625 24,375 -- 25,000 Common stock issued as repayment of notes payable to stockholders 250,000 1,250 48,750 -- 50,000 Common stock issued as finance charges on notes payable to stockholders 481,142 2,406 95,094 -- 97,500 Net loss -- -- -- (2,011,698) (2,011,698) ---------- -------- ---------- ----------- ----------- Balance at September 30, 2001 32,699,812 $163,499 $2,172,750 $(8,094,152) $(5,757,903) ========== ======== ========== =========== ===========
See accompanying notes. -5- GAMECOM, INC. CONSOLIDATED STATEMENT OF CASH FLOWS for the nine months ended September 30, 2001 and 2000 ---------- (Unaudited)
Nine Months Ended September 30, ----------------------------- 2001 2000 ----------- ----------- Cash flows from operating activities: Net income (loss) $(2,011,698) $ (807,122) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 454,036 421,291 Bad debt expense 33,471 -- Stock issued as financing fees 157,500 82,195 Stock issued as compensation for services and interest 255,904 -- Increase (decrease) in operating assets 29,925 (40,368) Increase (decrease) in accounts payable and accrued expenses 183,183 (216,491) ----------- ----------- Net cash used in operating activities (897,679) (560,495) ----------- ----------- Cash flows from investing activities: Capital expenditures (16,656) (916,217) ----------- ----------- Net cash used in investing activities (16,656) (916,217) ----------- ----------- Cash flows from financing activities: Proceeds from notes payable 60,000 946,666 Payments on notes payable (95,741) (27,980) Proceeds from obligations under product financing arrangements 850,988 139,740 Payments on obligations under product financing arrangements (101,000) (75,840) Proceeds from notes payable to stockholders 147,500 86,000 Increase in book overdraft 21,453 -- Proceeds from issuance of common stock 25,000 16,666 ----------- ----------- Net cash provided by financing activities 908,200 1,085,252 ----------- ----------- Net decrease in cash and cash equivalents (6,135) (391,460) Cash and cash equivalents at beginning of period 6,135 406,140 ----------- ----------- Cash and cash equivalents at end of period $ -- $ 14,680 =========== =========== Non-cash investing and financing activities: Interest paid $ 568,677 $ 544,572 =========== =========== Income taxes paid $ -- $ -- =========== =========== Common stock issued as repayment of notes payable to stockholders $ 50,000 $ -- =========== ===========
See accompanying notes. -6- GAMECOM, INC. NOTES TO FINANCIAL STATEMENTS 1. Basis of Presentation The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles and the rules of the U.S. Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2000. They do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements for the year ended December 31, 2000 included in the Company's Form 10-KSB and Form DEF 14A filed with the Securities and Exchange Commission. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been included. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the respective full year. Effective September 21, 2001, GameCom, Inc. merged with Ferris Productions, Inc. by issuing 18,072,289 shares of GameCom common stock for all of the outstanding shares of Ferris. The merger, which was initiated prior to June 30, 2001, is accounted for as a pooling of interests in the accompanying unaudited consolidated interim financial statements. The pooling of interests method of accounting assumes that GameCom and Ferris have been merged since their inception and the historical interim consolidated financial statements for periods prior to consummation of the merger are restated as though the companies have been combined since their inception. 2. Notes Payable to Stockholders During the nine months ended September 30, 2001, the Company borrowed an additional $147,500 from certain stockholders of the Company and incurred $97,500 of finance charges associated with the issuance of these new loans. During the nine months ended September 30, 2001, the Company repaid certain notes payable to stockholders in the amount of $50,000 through the issuance of its common stock. Continued -7- GAMECOM, INC. NOTES TO FINANCIAL STATEMENTS 3. Income Taxes The difference between the 34% federal statutory income tax rate and amounts shown in the accompanying interim consolidated financial statements is primarily attributable to an increase in the valuation allowance applied against the tax benefit from utilization of net operating loss carryforwards. 4. Litigation The Company is a defendant in a lawsuit brought by Entertainment Technologies & Programs, Inc. ("ETPI") in the 215th Judicial District Court of Harris County, Texas. ETPI and Ferris had entered into a letter of intent relating to a proposed acquisition of Ferris by ETPI. Ferris terminated that letter of intent and entered into a letter of intent with the Company under which Ferris would merge with the Company. ETPI claims that Ferris' termination of the letter of intent was a breach of contract and that the Company tortiously interfered with ETPI's letter of intent. ETPI is asking for damages of $10 million. Management believes that the suit is entirely without merit and intends to vigorously defend it. -8- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The statements contained in this Report that are not historical are forward-looking statements, including statements regarding the Company's expectations, intentions, beliefs or strategies regarding the future. Forward-looking statements include the Company's statements regarding liquidity, anticipated cash needs and availability and anticipated expense levels. All forward-looking statements included in this Report are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statement. It is important to note that the Company's actual results could differ materially from those in such forward-looking statements. The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Report. Overview Effective September, 2001, GameCom completed the acquisition of Ferris Industries, Inc., a leading developer and operator of virtual reality devices. Ferris designed, developed, and distributed technically-advanced products for the entertainment, simulation, promotion, and education markets. Its virtual reality ("VR") devices are computer-based and allow people to view and manipulate graphical representations of physical reality. The acquisition provided the Company with a wider array of products within the Company's industry, an experienced management team, an existing revenue stream, and established distribution channels. Until it acquired Ferris, GameCom had devoted substantially all of its efforts to implementing its `Net GameLink (TM), product, 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. It intends to continue development and deployment of that entertainment system while at the same time expanding Ferris' business. Post-merger, the anticipated deployment of the Company's existing virtual reality technology is anticipated to be highly profitable. The Ferris acquisition was accounted for as a pooling of interests. Ferris was much larger than GameCom in terms of assets, and had substantial revenues whereas GameCom had essentially no revenues at the time of the acquisition. As a result, the discussion below relates in major part to the Ferris operations rather than GameCom's. Future revenues and profits will depend upon various factors, including market acceptance of `Net GameLink (TM) and, more importantly, on the success of Ferris' product lines, as well as on general economic conditions. There can be no assurances that the Company will successfully implement its expansion plans, including the `Net GameLink (TM) entertainment concept and the hoped-for expansion of Ferris' operations. The Company faces all of the risks, expenses, and difficulties frequently encountered in connection with the expansion and development of the business, difficulties in maintaining delivery schedules if and when volume increases, the need to develop support arrangements for systems at widely dispersed physical locations, and the need to control operating and general and administrative expenses. While the Ferris acquisition provided an established stream of revenues and historically favorable gross margins, Ferris had not yet generated a profit, and substantial additional capital, or major highly-profitable custom applications, will be needed if those operations are to become profitable. -9- Results of Operations Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000 Two major factors affect the Company's results of operations for the three months ended September 30, 2001 compared to the corresponding period of 2000. First, revenues declined. Second, interest expense increased. Revenues from both of the Company's accounting virtual reality product lines -- theme parks and arcades and custom applications -- are somewhat unpredictable. Theme park and arcade revenues are affected by both the overall traffic at facilities of this type and by the extent to which the Company is able to provide new and attractive content to attract more users and increase repeat business. Custom applications tend to consist of a few large projects at any time, and the stage of completion of any particular project can significantly affect revenue. The Company had revenue of $941,672 for the three months ended September 30, 2001 compared to $1,088,519 for the corresponding three months of 2000. Revenue from theme parks and arcades declined primarily because the Company did not substantially update the content of its virtual reality systems at these facilities during 2001. Revenue from custom applications and other sources also declined, reflecting the fact that the Company completed several major projects in the first two quarters of 2001 and revenues from new projects in this area had not yet begun. Cost of sales and services increased despite the reduced sales because of promotional initiatives into new and more lucrative markets for the Company's products. General and administrative costs of $855,774 for the three months ended September 30, 2001, compared to $774,605 for the three months ended September 30, 2000, reflect primarily costs associated with the negotiation and completion of the merger between GameCom and Ferris completed in September of 2001. Interest expense increased to $310,375 for the three months ended September 30, 2001 compared to $241,464 for the corresponding period of 2000 largely because the Company acquired a substantial number of additional virtual reality and arcade systems for deployment at theme parks and arcades. These items were acquired under non-cancelable leasing arrangements with the bulk of the lease payments accounted for as interest. The three months ended September 30, 2000 also included an extraordinary item for gain from the extinguishment of debt, as a result of placing the Company's former Schooner Brewery subsidiary into bankruptcy. Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000 The Company had revenue of $2,313,790 for the nine months ended September 30, 2001, compared to $2,485,173 for the corresponding nine months of 2000. Revenue from theme parks and arcades declined primarily because of the absence of new content of its virtual reality systems at theme parks and arcades as described above. Revenue from custom applications and other sources also declined, but only slightly, from $889,461 to $871,111, reflecting the winding down of major projects in the first two quarters of 2001, and because revenue from new projects in this area had not yet begun. Cost of sales and services increased despite the reduced sales because of promotional initiatives into new and more lucrative markets for the Company's products. General and administrative costs of $2,096,240 for the nine months ended September 30, 2001, compared to $1,676,456 for the three months ended September 30, 2000, reflect in substantial part costs associated with the negotiation and completion of the merger between GameCom and Ferris. The increase in interest expense to $836,210 for the nine months ended September 30, 2001, compared to $723,660 for the corresponding period of 2000, reflects the acquisition -10- of additional virtual reality and arcade systems as described above. The extraordinary item for extinguishment of debt during the nine months ended September 30, 2000 is the result of placing the Company's former Schooner Brewery subsidiary into bankruptcy. Liquidity and Capital Resources As of September 30, 2001 the Company's liquidity position was extremely precarious. The Company had current liabilities of $6,470,577, including $3,607,780 in obligations under the lease financing for its virtual reality systems, and short-term notes payable of $1,107,059, some of which were either demand indebtedness or were payable at an earlier date and were in default, and related accrued interest on the notes. As of September 30, 2001 there were only $129,707 in current assets available to meet those liabilities. The Company has not made any draws under its equity line of credit since March 2001, because the price and volume of trading in the Company's shares have been too low to make that source of financing attractive. To date the Company has met its capital requirements by acquiring needed equipment under non-cancelable leasing arrangements, through capital contributions, loans from principal shareholders and officers, and certain private placement offerings. For the nine months ended September 30, 2001, the net loss from operations was $(2,011,698). After taking into account the non-cash items included in that loss, the Company's cash requirements were approximately $913,000. To cover these cash requirements, the Company issued additional shares of its common stock to investors for approximately $25,000, acquired equipment on its non-cancelable leasing arrangements in the amount of approximately $750,000 (net of repayments), increased its borrowings from shareholders by $147,500, drew down its remaining cash of approximately $6,100, and incurred a bank overdraft of approximately $21,500. Plan of Operations The opinion of the Company's independent auditor for each of the last two fiscal years expressed substantial doubt as to the Company's ability to continue as a going concern. The Company will need substantial additional capital or new lucrative custom application projects to become profitable. Assuming that capital becomes available, or the Company is successful in achieving major custom application projects, the Company expects to achieve profitability within the next 12 months. As of September 15, 2001 the Company entered into a debenture purchase agreement calling for Olympic Holdings, L.L.C. to purchase $1,000,000 in principal amount of the Company's convertible subordinated debentures at various times from September 15 through November 15, 2001. The debentures are convertible into restricted shares of the Company's common stock, at no discount to market price. That funding is critical in order to cure defaults under the Company's lease obligations, to satisfy certain bank indebtedness, and to expand the Company's theme park operations. Olympic has only partially, to date, performed on that contract, but has given the Company repeated oral assurances that the entire $1,000,000 amount will be funded by the end of November. If the required funding is not forthcoming, the Company will find it difficult to continue in operation. The Company will need additional financing beyond the $1,000,000, or to acquire major custom application projects currently under negotiation, to carry out its expansion plans. The Company has not obtained any commitments for that financing, and the Company may not bring certain negotiations for major custom applications to contract fruition. -11- PART II - OTHER INFORMATION Item 1. Legal Proceedings N/A Item 4. Submission of Matters to a Vote of Security Holders At a special meeting of shareholders on September 21, 2001, the Company's shareholders voted to approve GameCom's merger with Ferris Productions, Inc., to adopt GameCom's amended and restated certificate of incorporation, which increased the authorized number of shares of common stock to 100,000,000, to approve certain amendments to GameCom's incentive stock option plan, and to authorize GameCom's board of directors to amend GameCom's articles of incorporation, at any time within one year of the meeting, to adopt a new corporate name. In accordance with the merger agreement with Ferris, Bob Ferris, Lance Loesberg, and Andy Wells joined the Company's Board of Directors. L. Kelly Jones and John F. Aleckner Jr. continued as directors of the Company. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 10. Debenture Purchase Agreement dated September 15, 2001 between the Company and Olympic Holdings LLC SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GAMECOM, INC. Date: November 14, 2001 /s/ L. Kelly Jones ----------------------- --------------------------------- L. Kelly Jones Chief Executive Officer and Chief Financial Officer -12- EX-10 3 ex-10.txt DEBENTURE PURCHASE AGREEMENT DEBENTURE PURCHASE AGREEMENT THIS AGREEMENT, dated as of September 15, 2001 , is by and between GameCom, Inc., a Texas corporation, with its executive offices at 440 North Center, Arlington, TX 76011 (the "Company"), and Olympic Holdings LLC, a_____limited liability company with its principal place of business at_____ (the "Purchaser"). The Company desires to issue and sell to the Purchaser and the Purchaser desires to purchase $1 million in principal amount of the Company's 6% Convertible Subordinated Debentures in the form of Exhibit A (the "Debentures"). Capitalized terms which are not proper nouns are defined in Section 6. The parties therefore agree as follows: 1. Purchase of Debentures; Closings. (a) Subject to the terms and conditions set forth in this Agreement, the Company shall issue and sell to the Purchaser, and the Purchaser shall purchase, $1 million in principal amount of the Debentures on the Closing Dates and in the amounts specified below. Each Debenture shall be payable one year from the applicable Closing Date, and shall be convertible at a conversion price equal to the average closing bid prices of the Company's Common Stock on the OTCBB for the five business days immediately preceding the applicable Closing Date, as reported by ________________. The principal amount of Debentures to be purchased on each Closing Date shall be as indicated. Closing Date Principal Amount ------------ ---------------- September 15, 2001 $250,000 On or before October 15, 2001 $375,000 On or before November 15, 2001 $375,000 (b) Each closing of the purchase and sale of the Debenture (a "Closing") shall take place at the offices of the Escrow Agent The date of each Closing is hereinafter referred to as a "Closing Date." (c) At or before each Closing, the Company shall deliver to the Escrow Agent: (i) An original and duly executed Debenture with the initial conversion price blank; and (ii) all other documents, instruments and writings required to have been delivered or necessary at or prior to Closing by the Company pursuant to this Agreement. (d) At or before each Closing, the Purchaser shall deliver to the Escrow Agent: (i) a sum equal to the principal amount of the Debentures to be purchased at that Closing (the "Purchase Price") in United States dollars in immediately available funds by wire transfer to an account designated in writing by the Escrow Agent prior to the Closing; and (ii) all documents, instruments, and writings required to have been delivered or necessary at or prior to Closing by the Purchaser pursuant to this Agreement. (e) Upon receipt of all of the items set forth in subparagraphs 1(c) and 1(d) of this Section, the Escrow Agent shall (i) confirm the agreement of both of the parties as to the initial conversion price; (ii) complete the Debenture being issued at that Closing by filling in that conversion price; (iii) deliver the Purchase Price to the Company in accordance with its written instructions, less fees, if any, then due and owing to the Escrow Agent; and (iv) deliver the Debenture to the Purchaser in accordance with its written or faxed instructions. 2. Representations and Warranties (a) Representations and Warranties of the Company. The Company hereby represents and warrants to the Purchaser as follows, all of which survive Closing: (i) Organization and Qualification. The Company is a corporation, duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Company is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not reasonably be expected to have, individually or in the aggregate, a material adverse effect on (a) the results of operations, assets, prospects, or financial condition of the Company, or (b) the Purchaser' rights under this Agreement, the Escrow Agreement and the Debenture (a "Material Adverse Effect"). (ii) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated hereby and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company. This Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. (iii) Issuance of Debenture. The Debenture has been duly and validly authorized for issuance, offer and sale pursuant to this Agreement and, when issued and delivered as provided hereunder against payment in accordance with the terms hereof, shall be valid and binding obligation of the Company enforceable in accordance with its terms. The Company has and at all times while the Debenture is outstanding has and will continue to maintain an adequate reserve of shares of Common Stock to enable it to perform its obligations under this Agreement and the Debenture. When 2 issued in accordance with the terms hereof and the Debenture, the Underlying Shares will be duly authorized, validly issued, fully paid and nonassessable. (iv) No Conflicts. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby and thereby do not and will not (i) conflict with or violate any provision of its or its subsidiaries' articles of incorporation, resolutions or bylaws or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject (including Federal and State securities laws and regulations), or by which any property or asset of the Company is bound or affected, except in the case of each of clauses (ii) and (iii), such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect. The business of the Company is not being conducted in violation of any law, ordinance or regulation of any governmental authority. (v) Consents and Approvals. Except for a right of first refusal in favor of Swartz Private Equity, L.L.C., which has been waived for this transaction, neither the Company nor any subsidiary is required to obtain any consent, permit, waiver, authorization or order of, or make any filing or registration with, any court or other federal, State, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of this Agreement, other than the applicable filings under State and federal securities laws (collectively, the "Required Approvals"). (vi) Disclosure Documents. The Disclosure Documents are accurate and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. (b) Representations and Warranties of the Purchaser. The Purchaser represents and warrants to the Company as follows: (i) Organization and Qualification. The Purchaser is a limited liability company duly organized and validly existing and in good standing under the laws of the jurisdiction of its incorporation. (ii) Authorization; Enforcement. The execution and delivery of this Agreement and the purchase of the Debenture by the Purchaser hereunder have been duly authorized by all necessary action on the part of the Purchaser. This Agreement has been duly executed and delivered by the Purchaser or on its behalf and constitutes the valid and legally binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, liquidation, fraudulent transfer, reorganization, moratorium and remedies or by other equitable principles of general application or similar laws relating to or affecting generally the enforcement of creditors' rights. 3 (iii) Investment Intent. The Purchaser is acquiring the Debentures and the Underlying Shares for its own account for investment purposes only and not with a view to or for distributing or reselling such Debenture or Underlying Shares or any part thereof or interest therein, without prejudice, however, to the Purchaser' right, subject to the provisions of this Agreement, at all times to sell or otherwise dispose of all or any part of such Debenture or Underlying Shares in compliance with applicable federal and State securities laws. (iv) Purchaser Status. At the time the Purchaser was offered the Debenture, it was, and at the date hereof, it is, and at each Closing Date, it will be, an "accredited investor" as defined in Rule 501(a) under the Securities Act. (v) Ability of Purchaser to Bear Risk of Investment. The Purchaser is able to bear the economic risk of an investment in the Debenture and, at the present time, is able to afford a complete loss of such investment. (vi) Prohibited Transactions. The Debentures to be purchased by the Purchaser are not being acquired, directly or indirectly, with the assets of any "employee benefit plan", within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended. (vii) Access to Information. The Purchaser acknowledges receipt of the Disclosure Documents and further acknowledges that it has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Debenture and the merits and risks of investing in the Debenture; (ii) access to information about the Company and the Company's financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment in the Debenture; and (iii) the opportunity to obtain such additional information which the Company possesses or can acquire which is necessary to make an informed investment decision with respect to the Debenture. (viii) Reliance. The Purchaser understands and acknowledges that (i) the Debentures are being offered and sold, and the Underlying Shares are being offered, to it without registration under the Securities Act in a transaction that is exempt from the registration provisions of the Securities Act and (ii) the availability of such exemption, depends in part on, and that the Company will rely upon the accuracy and truthfulness of, the foregoing representations and the Purchaser hereby consents to such reliance. 3. Conditions Precedent to the Obligation of Purchaser to Purchase Debentures. The obligation of the Purchaser to purchase the Debentures at each of the Closings is subject to the satisfaction, on or prior to the applicable Closing Date, of the following conditions, any one or more of which may be waived by the Purchaser in writing: (a) Representations and Covenants. The representations and warranties of the Company contained in this Agreement shall be true and complete in all material respects, except for changes in the ordinary course of business, on and as of the Closing with the same force and effect as though made on and as of such date. 4 (b) Performance of Agreements. The Company shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by the Company on or prior to such date. (c) Status of Ferris Merger. The Agreement of Merger dated May 3, 2001 between the Company and Ferris Productions, Inc., a Delaware corporation, shall be in full force and effect and neither party to that Agreement shall have notified the other of any intention not to complete the merger contemplated thereby (or such merger shall have been completed). 4. Conditions Precedent to the Obligation of the Company to Issue Debentures. The obligation of the Company to issue the Debentures at each of the Closings is subject to the satisfaction, on or prior to the applicable Closing Date, of the following conditions, any one or more of which may be waived by the Company in writing: (a) Representations and Covenants. The representations and warranties of the Purchaser contained in this Agreement shall be true and complete in all material respects, except for changes in the ordinary course of business, on and as of the Closing with the same force and effect as though made on and as of such date. (b) Performance of Agreements. The Purchaser shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by the Purchaser on or prior to such date. 5. Other Agreements of the Parties. (a) Manner of Offering. The Debenture is being issued pursuant to Rule 506 of Regulation D of the Securities Act. The Debenture will bear restrictions on transfer, and will carry a restrictive legend with respect to the exemption from registration under the Securities Act. The transfer and resale of the Debenture and the Underlying Shares may be made only pursuant to registration under the Securities Act or an exemption from such registration. (b) Quotation of Common Stock. The Company shall use its best efforts to maintain the quotation for its Common Stock on the OTCBB or other market on which the Common Stock is quoted or listed during the period that the Debentures may be converted hereunder by the Purchaser, and shall provide to the Purchaser evidence of such continued quotation or listing. (c) Holding Period. Notwithstanding the earlier expiration with respect to certain of the Debentures of the holding period required under the SEC's Rule 144 for sales of the Common Stock issuable upon conversion of the Debentures, the Purchaser shall not sell or otherwise dispose of the Common Stock issuable upon such conversion of the Debentures before the first anniversary of the last Closing Date contemplated by this Agreement. 6. Certain Definitions. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: (a) "Affiliate" means, with respect to any Person, any Person that, directly or indirectly, controls, is controlled by or is under common control with such Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with") shall mean the possession, directly or indirectly, of the power to direct or 5 cause the direction of the management and policies of such Person, whether through the ownership of voting securities by contract or otherwise. (b) "Agreement" shall mean this Debenture Purchase Agreement. (c) "Business Day" means any day except Saturday, Sunday and any day which is a legal holiday or a day on which banking institutions in the State of Texas are authorized or required by law or other government actions to close, between the hours of 9:30 a.m. and 6:00 p.m. Central Standard Time. (d) "Debenture" means the Company's 6% Convertible Subordinated Debenture Due December 1, 2001. (e) "Closing" shall have the meaning set forth in Section 1(b). (f) "Closing Date" shall mean the date of a Closing, as set forth in Section 1(b). (g) "Commission" means the United States Securities and Exchange Commission. (h) "Common Stock" means shares now or hereafter authorized of the class of common stock, no par value, of the Company and stock of any other class into which such shares may hereafter have been reclassified or changed. (i) "Company" shall have the meaning set forth in the introductory paragraph. (j) "Disclosure Documents" means the Company's most recent Annual Report on Form 10-K filed with the Commission, its most recent Quarterly Report on Form 10-Q, its most recent proxy statement filed with the Commission and all reports and other documents subsequently filed by the Company with the Commission under the Securities and Exchange Act of 1934. (k) "Escrow Agent" means Raice Paykin & Krieg LLP, 185 Madison Avenue, New York, New York 10016; Tel: 212-725-4423; Fax: 212-684-9022 . (l) "Event of Default" shall have the meaning set forth in the Debenture. (m) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (n) "Material" shall mean having a financial consequence in excess of $100,000. (o) "OTCBB" shall mean the OTC Bulletin Board. (p) "Person" means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind. (q) "Debenture" means one of the Company's 6% Convertible Subordinated Debentures issued pursuant to in this Agreement. (r) "Purchase Price" shall have the meaning set forth in Section 1(a). (s) "Purchaser" shall have the meaning set forth in the introductory paragraph. (t) "Required Approvals" shall have the meaning set forth in Section 2(a)(v). 6 (u) "Securities Act" means the Securities Act of 1933, as amended. (v) "Subsidiaries" shall have the meaning set forth in Section 2(a)(i). (w) "Trading Day" means (a) a day on which the Common Stock is quoted on Nasdaq, the OTCBB or the principal stock exchange on which the Common Stock has been listed, or (b) if the Common Stock is not quoted on Nasdaq, the OTCBB or any stock exchange, a day on which the Common Stock is quoted in the over-the-counter market, as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding its functions of reporting prices). (x) "Underlying Shares" means the shares of Common Stock into which the Debenture is convertible in accordance with the terms thereof. 7. Miscellaneous. (a) Fees and Expenses. Except as set forth above, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay the fees of the Escrow Agent and all stamp and other taxes and duties levied in connection with the issuance of the Debenture (and upon conversion thereof, the Underlying Shares) pursuant hereto. The Purchaser shall be responsible for its own tax liability that may arise as a result of the investment hereunder or the transactions contemplated by this Agreement. Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company shall pay all costs, expenses, fees and all taxes incident to and in connection with: (A) the issuance and delivery of the Debenture and, upon conversion thereof, the Underlying Shares, and (B) the exemption from registration of the Debentures and, upon conversion thereof, the Underlying Shares for offer and sale to the Purchaser under the securities or Blue Sky laws of the applicable jurisdiction. (b) Entire Agreement; Amendments. This Agreement, together with the Exhibits, Annexes and Schedules hereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters. This Agreement shall be deemed to have been drafted and negotiated by both parties and no presumptions as to interpretation, construction or enforceability shall be made by or against either party in such regard. (c) Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be deemed to have been made a)three Business Days after depositing same into the United States mail, postage prepaid, certified mail, return receipt requested, addressed to the party at the address below, or 2) the next Business Day after depositing same with a nationally-recognized overnight courier service, fees prepaid and addressed to the party at the address below. The addresses for such communications shall be: If to the Company: GameCom, Inc. 440 North Center, Arlington, TX 76011 7 Attn: L. Kelly Jones, Chief Executive Officer With copies to: Raice Paykin & Krieg LLP 185 Madison Avenue New York, NY 10016 Attn: David C. Thomas, Esq. Tel: (212) 725-4423 Fax: (212) 983-9210 If to the Purchaser: Olympic Holdings, LLC ------------------- If to Escrow Agent: Raice Paykin & Krieg LLP 185 Madison Avenue New York, NY 10016 Attn: David C. Thomas, Esq. Tel: (212) 725-4423 Fax: (212) 684-9022 or such other address as may be designated in writing hereafter, in the same manner, by such person. (d) Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by both the Company and the Purchaser, or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. (e) Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. (f) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The assignment by a party of this Agreement or any rights hereunder shall not affect the obligations of such party under this Agreement. (g) No Third Party Beneficiaries. This Agreement is intended for the benefit of the parties and their respective permitted successors and assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person. (h) Governing Law; Venue; Service of Process. The parties acknowledge that the transactions contemplated by this Agreement and the exhibits hereto bear a reasonable relation to the State of Texas. The internal laws of the State of Texas shall govern this Agreement and the exhibits 8 hereto. Any action to enforce the terms of this Agreement or any of its exhibits shall be exclusively brought in the State and/or federal courts in the State of Texas. (i) Survival. The representations, warranties and covenants of the parties in this Agreement shall survive the Closing (or any earlier termination of this Agreement). (j) Counterpart Signatures. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature page were an original thereof. (k) Severability. In case any one or more of the provisions of this Agreement shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision which shall be a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first indicated above. Company: GAMECOM, INC. By: ______________________________ L. Kelly Jones, Chief Executive Officer Purchaser: Olympic Holdings LLC By: ________________________ Name: Title: 9 -----END PRIVACY-ENHANCED MESSAGE-----