10-Q 1 mainbody.htm MAINBODY mainbody.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q
 
þ           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended:   31 March 2014

¨           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from:   ________________ to _______________

Commission File No. 333-158946
 
logo
 
Sungame Corp.
  (Exact name of registrant as specified in its charter)

Delaware
**-*******
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)

3091 West Tompkins Avenue, Las Vegas, NV 89103
 (Address of principal executive office)

Registrant's telephone number:   (702) 789-0848

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     þ NO
 
Issuer has filed all reports required to be filed pursuant to §13 and §15(d) on a voluntary basis providing what the registrant believes to be current information and has filed a Form 8A on 30 August 2013 obligating itself to future filings.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    o Yes    þ NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,”  “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer   o
Accelerated filer                      o
Non-accelerated filer     o
Smaller reporting company þ


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   ¨ YES  þ  NO

Indicate the number of the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
 
As of Date
 
Outstanding
31 March 2014
 
177,758,067
30 April 2014
 
177,768,067
 
 

 

 
 
 
Sungame Corp.
 (A Development Stage Company Commencing 21 October 2010)
 
 
   
 
Page
 
         
PART I-
 
3
 
 
 
 
 
 
ITEM 1-
 
4
 
 
 
 
 
 
 
 
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6  
 
 
 
   
 
 
7  
 
 
 
   
ITEM 2-
 
13  
 
 
 
   
ITEM 3-
 
17  
 
 
 
   
ITEM 4-
 
17  
 
 
 
   
PART II-
 
18  
 
 
 
   
ITEM 1-
 
18  
 
 
 
   
ITEM 1A-
 
18  
 
 
 
   
ITEM 2-
 
18  
 
 
 
   
ITEM 3-
 
18  
 
 
 
   
ITEM 4-
 
18  
 
 
 
   
ITEM 5-
 
18  
 
 
 
   
ITEM 6-
 
19  
 
 
 
   
 
19
 
 
 
 
   
Exhibit 31.1
 
   
 
 
 
   
Exhibit 32.2
 
   
 
 
 
 

 

 
 
 
 

This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”).  These statements are based on management’s beliefs and assumptions, and on information currently available to management.  Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider,” or similar expressions are used.


THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.  SUCH STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT THE COMPANY AND ITS INDUSTRY.  FORWARD-LOOKING STATEMENTS ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE, ACHIEVEMENTS AND PROSPECTS TO BE MATERIALLY DIFFERENT FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.  THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.

 
 
 
 
 

 
 

 
 
 
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Condensed Balance Sheets
 
 
   
March 31,
   
December 31,
 
   
2014
   
2013
 
    (Unaudited)        
ASSETS:
           
             
   Current Assets:
           
      Cash
  $ 771,491     $ 237,786  
      Inventory
    313,395       27,795  
      Prepaid Expenses
    757,625       416,000  
Total Current Assets
    1,842,511       681,581  
                 
Fixed Assets
               
      Office Equipment
    2,140       2,140  
      Accumulated Depreciation
    (2,063 )     (1,955 )
Total Fixed Assets
    77       185  
                 
Capitalized Software
               
      Capitalized Software
    500,419       341,419  
      Accumulated Depreciation
    (178,385 )     (136,683 )
Total Capitalized Software
    322,034       204,736  
                 
TOTAL ASSETS
  $ 2,164,622     $ 886,502  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIENCY:
               
                 
Current Liabilities:
               
        Accounts Payable
  $ 586,791     $ 397,212  
        Related party advances
    944,866       1,375,967  
        Unearned revenue
    4,241,661       1,875,253  
Total Current Liabilities
    5,773,318       3,648,432  
                 
TOTAL LIABILITIES    
5,773,318
     
3,648,432
 
                 
Stockholders' Deficiency:
               
                 
Preferred stock, $.001 par value;
               
    5,000,000 shares authorized with none outstanding
               
Common stock subscriptions
    30,000       30,000  
Common stock, $.001 par value;
               
    300,000,000 authorized with:
               
    177,758,067 shares issued and outstanding
    177,758       177,758  
Additional paid in capital
    151,998       151,998  
Accumulated deficit
    (3,968,452 )     (3,121,686 )
                 
Total Stockholders' Deficiency
    (3,608,696 )     (2,761,930 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY
  $ 2,164,622     $ 886,502  

 
 
The accompanying notes are an integral part of these condensed unaudited financial statements
 
 
 

 
 
 

 
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Condensed Statements of Operations
(Unaudited)
 
 
               
October 21,
 
               
2010 (Inception of
 
   
Three months ended
   
Development Stage)
 
   
March 31,
   
through March 31,
 
   
2014
   
2013
   
2014
 
                   
Revenues
  $ 657,250     $ 110     $ 806,722  
                         
Cost of goods sold
    274,400       -       325,535  
Gross profit
    382,850       -       481,187  
                         
Operating Expenses
                       
                         
      Depreciation & amortization
    41,809       15,392       179,669  
      General & administrative
    1,187,807       170,002       4,261,683  
                         
Total Expenses
    1,229,616       185,394       4,441,352  
                         
Loss From Operations
    (846,766 )     (180,284 )     (3,960,165 )
                         
                         
Other Income and (Expenses)
                       
      Interest income
    -       -       10  
      Interest expense
    -       (845 )     (29,297 )
      Other income
    -       5,000       21,000  
Total Other Income and (Expenses)
    -       (4,155 )     (8,287 )
                         
Net Loss
  $ (846,766 )   $ (181,129 )   $ (3,968,452 )
                         
Per Share Information
                       
Loss per common share:
                       
    Basic and Diluted
  $ (0.00 ) *   $ (0.00 ) *        
                         
Weighted average number
                       
of shares outstanding: Basic and Diluted
    177,758,067       177,575,014          
                         
* Denotes a loss of less than $(0.01) per share
                 

 

 
The accompanying notes are an integral part of these condensed unaudited financial statements
 
 


 
 
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Condensed Statements of Cash Flows
(Unaudited)
 

               
October 21, 2010
 
               
(Inception of
 
               
Dev. Stage)
 
   
Three months ended
   
Through
 
   
March 31,
   
March 31,
 
   
2014
   
2013
   
2014
 
                   
Cash Flows from Operating Activities
                       
    Net Loss
  $ (846,766 )   $ (181,129 )   $ (3,968,452 )
                         
    Adjustments to reconcile net loss to
                       
    net cash provided by (used for)
                       
    operating activities:
                       
        Depreciation and amortization
    41,809       15,392       179,669  
        Stock issued for licensing agreement
                    165,000  
        Compensatory stock issuances
                    102,825  
        Inventory
    (285,600 )             (313,395 )
        Unearned revenue
    2,366,408               4,241,661  
        Prepaid expenses
    (341,625 )     (30,000 )     (757,625 )
        Accounts payable
    189,579       2,495       466,073  
        Accrued liabilities
            (5,209 )     (356 )
            Net cash provided by (used for)
                       
            operating activities
    1,123,805       (198,451 )     115,440  
                         
Cash Flows from Investing Activities
            -          
        Investment in capitalized
                       
           software
    (159,000 )     -       (500,419 )
          Net cash used for
                       
          investing activities
    (159,000 )     -       (500,419 )
                         
Cash Flows from Financing Activities
                       
        Common stock issued
                    343,976  
        Common stock subscriptions
                    30,000  
        Related party advances
    1,760,194       167,579       782,494  
        Related party payments
    (2,191,294 )                
        Borrowings on notes payable
            40,000       100,000  
        Payments on notes payable
                    (100,000 )
            Net cash provided by (used for)
                       
            financing activities
    (431,100 )     207,579       1,156,470  
                         
Net Increase In Cash
    533,705       9,128       771,491  
                         
Cash At The Beginning Of The Period
    237,786       2,604       -  
              -          
Cash At The End Of The Period
  $ 771,491     $ 11,732     $ 771,491  
                         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
                 
                         
     Cash paid for interest expense
  $ -     $ 845     $ 29,297  
     Cash paid for income taxes
  $ -     $ -     $ -  
                         
NON-CASH TRANSACTIONS
                       
     Stock issued for merger and consulting services
  $ -     $ -     $ 177,325  
     Net liabilities assumed in the merger
  $ -     $ -     $ 282,045  

 

 
The accompanying notes are an integral part of these condensed unaudited financial statements

 


 
 

 

SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
AND THE PERIOD FROM OCTOBER 21, 2010 (INCEPTION OF DEVELOPMENT STAGE) TO MARCH 31, 2014



1.           Business and Summary of Significant Accounting Policies
 
Business
 
The accompanying financial statements include the accounts of Sungame Corporation (“the Company”), a Delaware corporation.  The Company is an early development stage company.
 
The Company, trading under the symbol “SGMZ”, is the Company behind the Flighteck.tv content management and discovery platform.  Sungame also uses the brand “Freevi” as a d.b.a., as it acquired Freevi Corp. and the brand has retained its value sufficient to keep using the brand Freevi.  Sungame’s mission is simple:  to enrich people’s lives by becoming a leading social networking, content creation, content discovery and distribution platform.  Integral to the site’s functionality is a central aggregation engine that excels at servicing targeted, focused and high quality content and social media interactions based on the user’s specific interests and past usage history.  Other tools available on the website are designed to simplify content creation and distribution for content producers, while providing these artists an engaged audience interested in consuming this content.  Sungame is also the Company behind Vidirectory, a video based business directory that simplifies online marketing for small businesses.  The Company is making efforts to offer an innovative 3D line of tablets.  This new tablet line, due to the proprietary and patented glass viewing screen assembly, has the ability to display HD quality glasses-free 3D pictures and videos, as well as maintaining the ability to act as standard 2D tablets to take full advantage of the existing content currently available.
 
Sungame shapes products that support its mission by creating utility for users, developers and advertisers as follows:
 
1.    Flightdeck enables people to stay connected, access and discover new content as well as socialize with their friends and family across different social medial platforms.  The platform allows its users to create, discover, share, and fund content they care about.
 
2.    Flightdeck allows developers to use the Flightdeck Platform to create audio, video, editorial content and applications (apps) that they can market and distribute to the platform’s global network of users.
 
3.    Sungame enables advertisers to engage subsets of users based on information the users have chosen to share with the platform such as their age, location, gender or interests.  Flightdeck’s content focused strategy gives advertisers a unique combination of reach, relevance, social context, and engagement to enhance the value of their ads.
 
The Company merged with Freevi Corporation on April 15, 2011.  Freevi brings a rich media platform to the Company revolving around its core product the “Freevi Flightdeck” ™, a graphical user interface that allows users to consume video and audio content, network with other Freevi users, engage in e-commerce transactions, and access games and other applications.  Freevi’s proprietary technologies were licensed from Chandran Holding Media, Inc., its majority shareholder at the time of its acquisition by the Company.
 
The Company was incorporated in Delaware on November 14, 2006. The Company’s fiscal year end is December 31st.

Basis of Presentation
 
The interim financial statements of Sungame Corporation (“we”, “us”, “our” or the “Company”) are unaudited and contain all adjustments (consisting primarily of normal recurring accruals) necessary for a fair statement of the results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for a full year or for previously reported periods. These interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013 as filed with the Securities and Exchange Commission (“SEC”) on April 15, 2014. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
 
The financial statements of the Company have been prepared pursuant to the rules and regulations of the SEC for Quarterly Reports on Form 10-Q and in accordance with US GAAP. Accordingly, these financial statements do not include all of the information and footnotes required by US GAAP for annual financial statements.
 
The financial statements are unaudited, but, in management's opinion, include all adjustments (which, unless otherwise noted, include only normal recurring adjustments) necessary for a fair presentation of such financial statements. The results of operations for the three months ended March 31, 2014 and 2013 are not necessarily indicative of the entire fiscal year or for any other period.
 
 
 
 




SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
AND THE PERIOD FROM OCTOBER 21, 2010 (INCEPTION OF DEVELOPMENT STAGE) TO MARCH 31, 2014

(continued)


Summary of Significant Accounting Policies

Development Stage Company

The Company is a development stage company as defined by Accounting Standards Codified No. 915. The Company is devoting substantially all of its present efforts to establish a new business. All losses accumulated since inception, have been considered as part of the Company’s development stage activities.
 
Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts and timing of revenue and expenses, the reported amounts and classification of assets and liabilities, and disclosure of contingent assets and liabilities. These estimates and assumptions are based on management’s future expectations for the Company’s operations. The Company’s actual results could vary materially from management’s estimates and assumptions.
 
Revenue Recognition
 
We recognize revenue from tablet sales when the products are shipped since title to the products has passed when the tablets leave our shipping area.  We have no advertising revenues to date but will recognize advertising revenues as advertising services are provided in the future.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents.
 
Inventory
 
Inventory consists of 3-D tablets produced in Asia and are stated at cost, on a first-in, first-out basis, at the lower of cost or market.

Equipment

Equipment, when acquired, is stated at cost. Depreciation will be computed using the straight-line method to allocate the cost of depreciable assets over the estimated useful lives of the assets.
 
 

 




SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
AND THE PERIOD FROM OCTOBER 21, 2010 (INCEPTION OF DEVELOPMENT STAGE) TO MARCH 31, 2014

(continued)

Capitalized Software Costs

Capitalized software costs are capitalized when technological feasibility is proven. These costs are amortized over the estimated life of the related assets. Capitalized software costs were $341,419 in prior years for two products that have proven technological feasibility. There were $159,000 of capitalized software costs for the development of the tablet platform portal during the three months ended March 31, 2014.
 
Long Lived Assets

“Long-lived assets” are reviewed for impairment of value whenever events or changes in circumstances indicate that the carrying value of the assets might not be recoverable or at least at the end of each reporting period. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying value of an asset is not recoverable. For long-lived assets to be held and used, management measures fair value based on quoted market prices or based on discounted estimates of future cash flows.

Concentration of Credit Risk

The Company’s financial instruments that are exposed to concentrations and credit risk primarily consist of amounts due to related parties. (see Note 4).

Income Taxes

Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for significant deferred tax assets when it is more likely than not, that such asset will not be recovered.

At March 31, 2014 and 2013, the Company had net operating loss carry-forwards of approximately $3,968,000 and $1,789,000, which begin to expire in 2026.  At March 31, 2014 and 2013 the Company had deferred tax assets of approximately $1,389,000 and $662,000 created by the net operating losses, which have been offset by a 100% valuation allowance.
 
Net Loss Per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the year. Potentially dilutive securities are stock options for 8,334,000 shares (see Note 10) which were not considered outstanding shares because the effect would have been anti-dilutive.

2.           Reverse Merger

Effective April 15, 2011 Sungame Corporation entered into a merger agreement (the "Agreement") with Freevi Corporation, acquiring 100% of the outstanding common stock of Freevi Corporation through the issuance of 177,000,000 shares of its common stock with no readily available market price. Freevi Corporation was incorporated in Nevada on October 21, 2010. The transaction was accounted for as a reverse merger as the shareholders of Freevi Corporation retained the majority of the outstanding common stock of Sungame Corporation

 
 

 


SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
AND THE PERIOD FROM OCTOBER 21, 2010 (INCEPTION OF DEVELOPMENT STAGE) TO MARCH 31, 2014

(continued)


after the share exchange. Effective with the Agreement, the Company's stockholders' equity was recapitalized as that of Freevi Corporation, while 100% of the assets and liabilities of Sungame Corporation valued at $(282,045), consisting of cash $231, net fixed assets $1,361, accounts payable $121,265, and related party advances $162,372, were recorded as being acquired in the reverse merger for its outstanding common shares (250,000) on the merger date. Subsequent to the April 15, 2011 recapitalization Freevi Corporation ceased to exist, with Sungame Corporation as the sole surviving entity.

3.           Going Concern Uncertainty and Managements’ Plans

In the Company’s audited financial statements for the fiscal year ended December 31, 2013, the Report of the Independent Registered Public Accounting Firm includes an explanatory paragraph that describes substantial doubt about the Company’s ability to continue as a going concern.  The Company’s financial statements for the three months ended March 31, 2014 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.  The Company reported a net loss of $846,766 and $181,129 for the three months ended March 31, 2014 and 2013, respectively, and an accumulated deficit of $3,968,452 as of March 31, 2014. As of December 31, 2013 the accumulated deficit was $3,121,686. At March 31, 2014, the Company’s total current liabilities exceed total current assets by $3,930,808.  At December 31, 2012 this amount was $2,966,851.

The future success of the Company is likely dependent on its ability to attain additional capital, or to find an acquisition to add value to its present shareholders and ultimately, upon its ability to attain future profitable operations.   There can be no assurance that the Company will be successful in obtaining such financing, or that it will attain positive cash flow from operations.  Management believes that actions presently being taken to revise the Company’s operating and financial requirements provide the opportunity for the Company to continue as a going concern.

4.            Related Party Transactions

Two former principals of Freevi Corporation and shareholders of the Company have consulting agreements with the Company. Guy Robert, the Company’s Chief Development Officer, entered into an independent contractor agreement with the Company on September 23, 2011 for three years at an annual payment of $120,000 which is paid to Adversor, a company 49% owned by Guy Robert. Neil Chandran, the Company’s Chief Executive Officer provides monthly consulting services to the Company and was paid $87,981 and $16,148 for the three months ended March 31, 2014 and 2013, respectively.
 
At March 31, 2014 and December 31, 2013 the Company had working capital advances due to a related party shareholder, Adversor, Inc. (“Adversor”) of $162,372.  These funds are non-interest bearing and are due on demand.  Included in the Company’s accounts payable at March 31, 2014 and December 31, 2013 was $282,087 owed to Adversor.  Due to the merger with Freevi Corporation on April 15, 2011, Adversor is a minority shareholder.

During the three months ended March 31, 2014 and 2013, the Company’s majority shareholder, Chandran Holding Media, Inc. (Chandran) advanced funds to the Company to finance operations.  The Company and Chandran also share certain members of executive management and certain employees.  At March 31, 2014 and 2013, the Company owed Chandran $782,494 and $1,213,595.  These funds are non-interest bearing and due on demand.  During the three months ended March 31, 2014, Chandran advanced funds of $1,760,194 to the Company and the Company paid back $2,191,294 to Chandran.  During the three months ended March 31, 2013, Chandran advanced $167,579 to the Company.

 
 

 
 
- 10 -




SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
AND THE PERIOD FROM OCTOBER 21, 2010 (INCEPTION OF DEVELOPMENT STAGE) TO MARCH 31, 2014

(continued)


5.            Note Payable

During the three months ended March 31, 2013, the Company borrowed $40,000 on a six month term with a 60% interest rate.  The loan was paid off by December 31, 2013.

6.            Unearned Revenue

During the year ended December 31, 2013, the Company entered into a Master Distribution Agreement for its 3D tablets with an individual.  This individual will distribute 3D tablets through resellers across the country.  At March 31, 2014 and December 31, 2013, the master distribution and resellers advanced $3,718,829 and $1,352,421, respectively, for 3D tablets to be manufactured and distributed in the future.  During the quarter ended March 31, 2014, the Master Distributor advanced $3,434,364 of which $434,245 was refunded due to delays in obtaining tablets from the Asian manufacturer which have continued into the second quarter of 2014 but are expected to be corrected by December 31, 2014.  In addition, prepaid advertisers for the Flightdeck web advertising was $522,832 at March 31, 2014 and December 31, 2013. These advanced deposits have been included in unearned revenue at March 31, 2014 and December 31, 2013.  The Company has used $757,625 and $416,000 at March 31, 2014 and December 31, 2013, respectively, of the tablet advances to prepay tablet production to be delivered in 2014.

7.            Equity

An investor has subscribed for 10,000 shares at $3 per share, which has been included in the balance sheet as common stock subscriptions at March 31, 2014 and December 31, 2013.  These shares were issued in early April, 2014.

8.            Lease and Obligation Commitments

The Company had an operating lease for building space with monthly payments of $3,466, which expired in April, 2013.  The Company leases its corporate headquarters on a month-to-month basis for $1,650.  The Company also leases office space in Beverly Hills, California for $2,220 per month under a one-year operating lease, which began in February, 2014.  The Company has preordered approximately 1,700 tablets at $400 per unit and will take delivery in the second quarter of 2014.  The Company also has a $120,000 annual obligation to Guy Robert, a consultant, for future development services through September 2014.  Details of the lease commitment and future payments in 2014 and beyond are as follows:
 
       
Future
                 
Total
 
   
Expense
 
Expenses
             
After
 
Future
 
   
2014
 
2014
 
2015
 
2016
 
2017
 
2018
 
Expenses
 
                               
Table purchase obligations       680,000                   680,000  
                               
Adversor consulting agreement
 
 30,000
 
  60,000
                 
 60,000
 
                               
Office lease
 
 4,440
 
  17,760
 
  2,220
             
 19,980
 
                               
TOTAL
 
34,440
 
757,760
 
2,220
 
0
 
0
 
0
 
759,980
 

 
 
 
 

 
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SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
AND THE PERIOD FROM OCTOBER 21, 2010 (INCEPTION OF DEVELOPMENT STAGE) TO MARCH 31, 2014

(continued)


9.            Legal Matters

The Company was involved in litigation in Colorado.  Broadway Holdings, Inc. (Broadway) vs. Sungame Corporation.  The suit was a breach of contract by Broadway Holdings, Inc. filed on or about August 2, 2011, in the District Court, Denver County, Colorado.  The case was settled on December 24, 2012.  All claims and counterclaims were dismissed in the confidential settlement.  All Sungame shares held by the Broadway Plaintiffs shareholders, which amounted to 10,780 shares, were cancelled in 2013.

10.            Commitments and Contingencies

On September 23, 2011, the Company entered into an independent contractor agreement with Guy Robert, a Board member and key development consultant.  The term of the agreement was for three years at an annual payment of $120,000 to Adversor, a company 49% owned by Guy Robert, with an option agreement granting the following tranches of contingent stock options with an exercise price of $0.001 per share:  3,000,000 on April 1, 2011, 2,667,000 on April 1, 2012, 2,667,000 on April 1, 2013, 2,667,000 on April 1, 2014, and 2,667,000 upon severance of this agreement, excluding severance of the term of this agreement.  The options will be issued and exercised upon the average daily trading volume exceeding 500,000 for the prior 90 days, which has never occurred since the inception of this agreement.  Guy Robert, is also to receive performance based compensation for all deals, projects, and assets that he initiates.  The performance compensation shall be 2.5% of the net realizable value brought into the Company, which has been zero thus far.
 
11.              Subsequent Events
 
The 10,000 shares for the stock subscription at $3.00 per share were issued in April, 2014. 
 
In accordance with ASC 855, Subsequent Events, the Company has evaluated events that occurred subsequent to the balance sheet date through May 23, 2014, the date of available issuance of these unudited financial statements. The Company determined that other than as disclosed above, there were no material reportable subsequent events to be disclosed.
 
 
 
 
 
 
 
 
 

 
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Forward Looking Statements

This report contains forward looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) and Section 27A of the Securities Act of 1933 (the “Securities Act”). Statements contained in this report which are not statements of historical facts may be considered forward-looking information with respect to plans, projections, or future performance of the Company as defined under the Private Securities litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those projected. The words “anticipate”, “believe”, “estimate”, “expect”, “objective”, and “think” or similar expressions used herein are intended to identify forward-looking statements.  The forward-looking statements are based on the Company’s current views and assumptions and involve risks and uncertainties that include, among other things,  national and international economic and market conditions; our ability to raise capital and complete the acquisition of certain assets;  our ability to sustain, manage, or forecast growth; existing government regulations and the changes in, or the failure to comply with, government regulations; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.

Except as may be required by applicable law, we do not undertake or intend to update or revise our forward-looking statements, and we assume no obligation to update any forward-looking statements contained in this report as a result of new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. You should carefully review and consider the various disclosures we make in this report and our other reports filed with the SEC that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business. The following discussion and analysis should be read in conjunction with the financial statements and related footnotes included elsewhere in this quarterly report which provide additional information concerning the Company’s financial activities and condition.
 
Description of Business

We are an early development stage company.  Prior to the merger with Freevi Corporation, Sungame was in the process of establishing a 3D virtual world communities.  Sungame (also known as the “Company”), trading under the symbol “SGMZ”, is the Company behind the Flightdeck.tv content management and discovery platform.  Sungame also uses the brand “Freevi” from time to time as a d.b.a., as it acquired Freevi Corp. and the brand has retained its value sufficient to keep using the brand Freevi.  Sungame’s mission is simple: to enrich people’s lives by becoming a leading social networking, content creation, content discovery and distribution platform.  Integral to the site’s functionality is a central aggregation engine that excels at serving targeted, focused and high quality content and social medial interactions based on the user’s specific interests and past usage history.  Other tools available on the website are designed to simplify content creation and distribution for content producers, while providing these artists an engaged audience interested in consuming this content.  Sungame is also the Company behind Vidirectory, a video based business directory that simplifies online marketing for small businesses.
 
 
 

 
 
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The Company had 5 full time employees as of 31 March 2014.

Critical Accounting Policies and Estimates
 
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and related disclosure of contingent assets and liabilities.  On an ongoing basis, we evaluate our estimates.  We based our estimates on historical experiences and on various other assumptions that we believe to be reasonable under the circumstances.  These estimates and assumptions provide a basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions, and these differences may be material.
 
Risks And Uncertainties
 
We operate in an emerging industry that is subject to market acceptance and technological change. Our operations are subject to significant risks and uncertainties, including financial, operational, technological and other risks associated with operating an emerging business, including the potential risk of business failure.
 
Revenue Recognition
 
We recognize revenue from tablet sales when the products are shipped since title to the products has passed when the tablets leave our shipping area. We have no advertising revenues to date but will recognize advertising revenues as advertising services are provided in the future.
 
Capitalized Software Costs
 
Capitalized software costs are capitalized when technological feasibility is proven. These costs are amortized over the estimated life of the related assets.
 
Long Lived Assets
 
“Long-lived assets” are reviewed for impairment of value whenever events or changes in circumstances indicate that the carrying value of the assets might not be recoverable or at least at the end of each reporting period. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying value of an asset is not recoverable. For Long-lived assets to be held and used, management measures fair value based on quoted market prices or based on discounted estimates of future cash flows.
 
 

 
 
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Income Taxes
 
We have effectively provided a full valuation allowance for the tax effects of our net operating losses during the quarter ended March 31, 2014 and March 31, 2013 and for the period from inception (October 21, 2010) to March 31, 2014 to offset the deferred tax asset that might otherwise have been recognized as a result of operating losses in the current period and prior periods since, because of our history of operating losses, management is unable to conclude at this time that realization of such benefit is currently more likely than not.
 
Recent Accounting Pronouncements
 
Management does not believe that any recently issued, but not yet effective, accounting standards, if adopted, will have a material effect on our future financial position, results of operations, and operating cash flows.

Liquidity and Capital Resources
 
We have incurred significant losses and negative cash flows from operations since our inception in on October 11, 2010.  We have an accumulated deficit of $3,968,452 and a working capital deficiency $3,930,908 as of March 31, 2014.  These conditions raise substantial doubt about our ability to continue as a going concern.  We have historically financed our activities through the private placement of equity securities and through related party advances.  Through March 31, 2014, we have dedicated our financial resources to the development of Flightdeck and Vidirectory and the expansion of our tablet business and general and administrative expenses as described later in the section titled Results of Operations.
 
We have incurred significant losses and negative cash flows from operations since our inception in on October 11, 2010.  We have an accumulated deficit of $3,968,452  and a working capital deficiency $3,930,908 as of March 31, 2014.  These conditions raise substantial doubt about our ability to continue as a going concern.  We have historically financed our activities through the private placement of equity securities and through related party advances.  Through March 31, 2014, we have dedicated our financial resources to the development of Flightdeck and Vidirectory and the expansion of our tablet business and general and administrative expenses as described later in the section titled Results of Operations.
 
Results of Operations - For the three months ended March 31, 2014 compared to the three months ended March 31, 2013;
 
Revenues
 
We generated revenue of $657,250 for the three months ended March 31, 2014, versus revenue of $110 for the three months ended March 31, 2013.  All of the revenue for the three months ended March 31, 2014 is from tablet sales.

Tablet related Revenue and Cost of Sales

Tablet related revenue and cost of sales were $657,250 and $274,400 for the three months ended March 31, 2014.  There were no tablet sales during the three months ended March 31, 2013 as we did not begin selling tablets until the second quarter of 2013.
 
General and Administrative Expenses

General and administrative expenses were $1,187,807 and $170,002 for the three months ended March 31, 2014 and 2013, respectively.  This increase of $1,017,805 was primarily due to an increase in conference and tradeshows as the company develops exposure for its new tablet product totaling $192,719, an increase in consulting fees of $381,817 primarily due to capital raising activities, an increase in travel, and entertainment expense of $115,736, and an increase in legal fees primarily due to a yet to be filed registration statement of $131,293.
 
 
 
 

 
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Interest Expense
 
Interest expense was $0 and $845 for the three months ended March 31, 2014 and 2013, respectively.  This decrease of $845 was primarily due to no borrowing during the three months ended March 31, 2014.
 
Net Loss
 
Net loss was $846,766 and $181,129 for the three months ended March 31, 2014 and 2013, respectively.  This increase in net loss of $665,637 was attributable to the changes in the revenue and expense captions as described above.
 
Off-Balance Sheet Arrangements

The Company has no Off-Balance Sheet Arrangements.
 
Tabular Disclosure of Contractual Obligations
 
Contractual Obligations
Payments due by Period
Total
Less than 1 year
1-3 years
3-5 years
More than 5 years
           
Tablet purchase obligations 680,000 680,000      
Long Term Debt Obligations
60,000
60,000
     
Capital Lease Obligations
         
Operating Lease Obligations
19,980
19,980
     
Other Long Term Liabilities Reflected on the
Company’s Balance Sheet under GAAP
         
Totals
759,980
759,980
     
 
Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  The Company has incurred operating losses and negative operating cash flow since inception and future losses are anticipated.  These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.  The Company’s plan of operations, even if successful, may not result in cash flow sufficient to finance and expand its business.

Realization of assets is dependent upon continued operations of the Company, which in turn is dependent upon management’s plans to meet its financing requirements and the success of its future operations.  The ability of the Company to continue as a going concern is dependent on improving the Company’s profitability and cash flow and securing additional financing.

Management is presently seeking to raise permanent equity capital in the capital markets to eliminate negative working capital and raise the necessary funds to satisfy its operations.  Failure to raise equity capital or secure some other form of long-term debt arrangement will cause the Company to further increase its negative working capital deficit and increase its operating losses.

The Company believes in the viability of its strategy to generate revenues and profitability and in its ability to raise additional funds, and believes that the actions presently being taken by the Company provide the opportunity for it to continue as a going concern.  However, the Company can give no assurance that such financing will be available on terms advantageous to it, or at all.  Should the Company not be successful in obtaining the necessary financing to fund its operations, the Company would need to curtail certain or all of its operational activities.  The accompanying unaudited condensed financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

 
 

 
 
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We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.


Evaluation of Disclosure Controls and Procedures
 
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of March 31, 2014.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of such date, at a reasonable level of assurance, in ensuring that the information required to be disclosed by our company in the reports we file or submit under the Exchange Act is: (i) accumulated and communicated to our management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f).  Under the supervision and with the participation of our management, including  our  Chief  Executive  Officer  and Chief  Financial  Officer,  we conducted  an  evaluation of the effectiveness of our internal control over financial reporting based on the criteria in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission .  Based on our evaluation, management has concluded that our internal control over financial reporting was effective as of March 31, 2014.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.  This report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting pursuant to temporary rules of the Securities and Exchange Commission.

Changes in Internal Control Over Financial Reporting
 
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 

 

 
- 17 -





 
The Company is not a party to, or the subject of, any material pending legal proceedings.

 
The Company is a Smaller Reporting Company.  A Smaller Reporting Company is not required to provide the risk factor disclosure required by this form.

 
None

 
None

 
Not Applicable

 
No material changes have been made to the procedures by which securities holders may recommend nominees to the Company’s Board of Directors.


(a)      Exhibits and Reports on Form 8-K


 
 

 
 
- 18 -

 

 
 
 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated:   23 May 2014
 
Las Vegas, Nevada


SUNGAME CORPORATION


By: /s/    Neil Chandran                                                              
Name:    Neil Chandran
Title:      Principal Executive Officer,
               Principal Accounting Officer, Director


 
 
 
 
 

 

 
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