10-Q 1 sungame_10q-093010.htm SUNGAME CORPORATION FORM 10-Q sungame_10q-093010.htm


SUNGAME CORP
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

FORM 10-Q

 
(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, 2010

[_]  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:   333-158946
 

SUNGAME CORPORATION
 
(Exact name of registrant as specified in its charter)
     
Delaware
 
20-8017623
(State or other jurisdiction
 
(IRS Employer Identification No.)
of incorporation or organization)
   

501 Silverside Road, Suite 105,
Wilmington, DE
19809
(Address of principal executive offices)
 
(zip code)
     
(310) 666-0051
 (Registrant’s telephone number, including area code)
 
 
 (Former Name, former address and former fiscal year, if changed since last report)
 
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 [X]  No [_]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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).   Yes [_] 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [_]
Accelerated filer [_]
Non-accelerated filer [_]
Smaller reporting company [X]
(Do not check if a smaller reporting company)
 

Indicate by check mark whether the issuer is a shell company (as defined in rule 12b-2 of the Exchange Act) Yes [_]    No  [X]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
 PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court
Yes  [_]     No  [_]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
As of November 12, 2010, there were 10,000,000 shares of the Registrant's Common Stock outstanding.
 
 
2

 
 

SUNGAME CORPORATION
For The Quarterly Period Ended September 30, 2010

TABLE OF CONTENTS
 
 
PART I - FINANCIAL INFORMATION
4
     
Item 1.
Financial Statements
4
     
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
12
     
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
19
     
Item 4.
Controls and Procedures
19
   
PART II - OTHER INFORMATION
20
     
Item 1.
Legal Proceedings
20
     
Item 1A.
Risk Factors
20
     
Item 2.
Unregistered Sales Of Equity Securities And Use Of Proceeds.
20
     
Item 3.
Defaults Upon Senior Securities
20
     
Item 4.
(Removed and Reserved)
20
     
Item 5.
Other Information
21
     
Item 6.
Exhibits
21
     
SIGNATURES
21
 

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.

 
3

 

PART I - FINANCIAL INFORMATION

Item 1. 
Financial Statements
 
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Balance Sheets
 
   
Sep 30,
   
December 31,
 
   
2010
   
2009
 
   
Unaudited
       
ASSETS:
           
             
Current Assets:
           
Cash
 
$
606
   
$
2,011
 
Accounts Receivable
   
28,280
     
-
 
Total Current Assets
   
28,886
     
2,011
 
                 
Fixed Assets
   
2,140
     
1,373
 
Depreciation
   
(496
)
   
(252
)
Total Fixed Assets
   
1,644
     
1,121
 
                 
TOTAL ASSETS
 
$
30,530
   
$
3,132
 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT:
               
                 
Current Liabilities:
               
Accounts Payable
 
$
125,605
   
$
51,582
 
Contract Payable
   
-
     
165,000
 
Other Payables
   
5,747
     
649
 
Loans Payable - Stockholder
   
161,272
     
117,470
 
                 
Total Current Liabilities
   
292,624
     
334,701
 
                 
Stockholders' Deficit:
               
                 
Common stock, par value $0.001
               
100,000,000 shares authorized; 10,000,000 and 10,000,000
issued and outstanding respectively
   
10,000
     
10,000
 
Preferred stock, par value $0.001
               
5,000,000 shares authorized; no shares issued or outstanding
   
-
     
-
 
Paid in capital
   
2,125,909
     
1,960,909
 
Accumulated deficit
   
(2,398,003
)
   
(2,302,478
)
                 
Total Stockholders' Deficit
   
(262,094
)
   
(331,569
)
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
 
$
30,530
   
$
3,132
 
 
The accompanying notes are an integral part of these financial statements


 
4

 

 
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Statements of Operations
 
   
Three Months ended
   
Nine Months ended
   
2006,
(Inception)
 
   
Sep 30,
         
Sep 30,
         
Sep 30,
 
   
2010
   
2009
   
2010
   
2009
   
2010
 
   
Unaudited
   
Unaudited
   
Unaudited
   
Unaudited
   
Unaudited
 
                               
Revenue:
                             
Miscellaneous Income
 
$
26,100
   
$
25,000-
   
$
43,403
   
$
25,000-
   
$
68,403
 
                                         
Total Income
   
26,100
     
25,000-
     
43,403
     
25,000-
     
68,403
 
                                         
Costs and Expenses:
                                       
Software development
   
9,035
     
24,853
     
39,283
     
258,533
     
1,395,567
 
Stock based compensation
   
-
     
-
     
-
     
-
     
587,300
 
Depreciation
   
107
     
69
     
244
     
206
     
496
 
Consulting costs
   
15,000
     
12,000
     
45,000
     
16,000
     
302,500
 
Startup costs
   
12,131
     
20,982
     
48,857
     
44,921
     
174,999
 
                                         
Total Expenses
   
36,273
     
57,904
     
133,384
     
319,660
     
2,460,862
 
                                         
Net Loss From Operations
   
(10,173
)
   
(32,904
)
   
(89,981
)
   
(319,660
)
   
(2,392,459
)
                                         
                                         
Other Income and (Expenses)
                                       
Interest
   
(311
)
   
-
     
(5,544
)
   
-
     
(5,544
)
     
(311
)
   
-
     
(5,544
)
   
-
     
(5,544
)
                                         
                                         
Net Loss
 
$
(10,484
)
 
$
(32,904
)
 
$
(95,525
)
 
$
(294,660
)
 
$
(2,398,003
)
                                         
Per Share Information
                                       
Loss per common share
 
$
(0.00
)
 
$
(21.94
)
 
$
(0.01
)
 
$
(196.44
)
       
                                         
Weighted average number
                                       
of shares outstanding
   
10,000,000
     
1,500
     
10,000,000
     
1,500
         
 
The accompanying notes are an integral part of these financial statements

 
5

 

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

               
November 14,
 
   
Nine months ended
   
Nine months ended
   
2006, (Inception)
 
   
Sep 30,
   
Sep 30,
   
to Sep 30,
 
   
2010
   
2009
   
2010
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
Cash Flows from Operating Activities
                 
                   
Net Income (Loss)
 
$
(95,525
)
 
$
(294,660
)
 
$
(2,398,003
)
Adjustments to reconcile net loss to
                       
net cash used by operating activities:
                       
Depreciation
   
244
     
207
     
496
 
Increase in accounts receivable
   
(28,280
)
           
(28,280
)
Increase/(Decrease) in accounts payable
   
74,023
     
17,950
     
125,605
 
Increase/(Decrease) in other payables
   
5,098
     
-
     
5,748
 
Increase/(Decrease) in contracts payable
   
(165,000
)
   
(25,000 
)
   
-
 
Compensatory stock issuances
   
-
     
150,000
     
737,300
 
Net Cash Used by Operating Activities
   
(209,440
)
   
(151,503
)
   
(1,557,134
)
                         
Cash Flows from Investing Activities
                       
                         
Purchase of Fixed Assets
   
(767
)
   
-
     
(2,140
)
     
-
     
-
     
-
 
                         
Net Cash Used for Investing Activities
   
(767
)
   
-
     
(2,140
)
                         
Cash Flows from Financing Activities
                       
                         
Sale of Common Stock
   
-
     
600
     
10,000
 
Increase in Paid in Capital
   
165,000
     
124,400
     
1,388,609
 
Increase in Loans Payable - Stockholder
   
43,802
     
7,470
     
161,272
 
                         
Net Cash Provided by Financing Activities
   
208,802
     
132,470
     
1,559,881
 
                         
Net Increase in Cash & Cash Equivalents
   
(1,405
)
   
(19,033
)
   
606
 
                         
Beginning Cash & Cash Equivalents
   
2,011
     
22,285
     
-
 
                         
Ending Cash & Cash Equivalents
 
$
606
   
$
3,252
   
$
606
 
                         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
                 
                         
Cash paid for interest expense
 
$
5,544
   
$
-
   
$
5,544
 
Cash paid for income taxes
 
$
-
   
$
-
   
$
-
 
                         
NON-CASH TRANSACTIONS
                       
Stock issued for services
 
$
-
   
$
150,000
   
$
962,300
 
Paid in capital from debt relief
 
$
165,000
   
$
-
   
$
1,028,369
 
 
The accompanying notes are an integral part of these financial statements
 
 
6

 
 
  SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Statements of Stockholder's Equity (Deficit)
 
         
Common
               
Preferred
   
Common
   
Stock
             
   
Common
 
Dollars at
   
Paid in
   
Preferred
   
Dollars
   
Stock
   
Subscription
   
Retained
   
Stockholders'
 
   
Shares
   
$0.001 Par
   
Capital
   
Shares
   
$0.001 Par
   
Subscribed
   
Receivable
   
Earnings
   
Equity
 
Balances 11/14/06
   
-
   
$
-
   
$
-
     
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
Shares to parent for services
   
1,500
     
1
     
1,499
                                             
1,500
 
Net loss for year
                                                           
(1,500
)
   
(1,500
)
Balances at December 31, 2006
   
1,500
     
1
     
1,499
     
-
     
-
     
-
     
-
     
(1,500
)
   
-
 
                                                                         
Net loss for year
                                                           
(890,443
)
   
(890,443
)
Balances at December 31, 2007
   
1,500
     
1
     
1,499
     
-
     
-
     
-
     
-
     
(891,943
)
   
(890,443
)
                                                                         
Shares issued to parent for debt relief
   
4,123,500
     
4,124
     
770,876
                                             
775,000
 
Shares issued for services
   
3,875,000
     
3,875
     
583,425
                                             
587,300
 
Shares issued for cash
   
500,000
     
500
     
119,500
                                             
120,000
 
Warrants issued for cash
             
5,000
                                             
5,000
 
Additional paid-in capital from parent
     
107,109
                                             
107,109
 
Net loss for year
                                                           
(980,353
)
   
(980,353
)
Balances at December 31, 2008
   
8,500,000
     
8,500
     
1,587,409
             
-
     
-
     
-
     
(1,872,296
)
   
(276,387
)
                                                                         
Shares issued for cash
   
500,000
     
500
     
124,500
                                             
125,000
 
Shares issued for services
   
1,000,000
     
1,000
     
249,000
                                             
250,000
 
Net loss for year
                                                           
(430,182
)
   
(430,182
)
Balances at December 31, 2009
   
10,000,000
     
10,000
     
1,960,909
     
-
     
-
     
-
     
-
     
(2,302,478
)
   
(331,569
)
                                                                         
Debt forgiveness
                   
165,000
                                             
165,000
 
Net loss for period
                                                           
(95,525
)
   
(95,525
)
Balances at Sep 30, 2010 - Unaudited
   
10,000,000
   
$
10,000
   
$
2,125,909
     
-
   
$
-
   
$
-
   
$
-
   
$
(2,398,003
)
 
$
(262,094
)
 
 
The accompanying notes are an integral part of these financial statements
 

 
7

 

 
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

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 that intends to become a leader in providing seamless egaming and skill gaming in a virtual world. The Company believes that it can exploit the market that is at the confluence of gaming and egaming, and that this market is very significant. The Company will provide various types of Skill Games in an online Virtual World where the users, regardless of location can compete and place bets, using virtual money or real money and where the end users can be individuals or corporations.

The main activity will be to provide a network that attracts players who interact in a seamless environment. The main goal will be to introduce competitive and unique products in an already established market place. The Company will be a premier marketer of money related activities that will have distinct comparative advantages compared to both direct and indirect competitors.

The Company was incorporated in Delaware on November 14, 2006. The Company’s fiscal year end is December 31st.

Summary of Significant Accounting Policies

Development Stage Company

The Company is a development stage company as defined by ASC 915. The Company is devoting substantially all of its present efforts to establish a new business. All losses accumulated since inceptions have been considered as part of the Company’s development stage activities.

Risks and Uncertainties

The Company operates in an emerging industry that is subject to market acceptance and technological change. The Company’s 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.

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.

Property and Equipment

Property and equipment, when acquired, will be 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.
 
 
8

 
 
Software Costs

The costs for internal use software, whether developed or obtained, are assessed to determine whether they should be capitalized or expensed in accordance with American Institute of Certified Public Accountants’ Statement (“SOP”) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”. Capitalized software costs are reflected as property and equipment on the balance sheet and are to be depreciated when the Company begins recording revenue the deemed date that the software is placed in service. As of the date of these financial statements the development of the software necessary to achieve the business purposes of the Company is in an undeterminable state causing the Company to deem the asset to be impaired. This conclusion requires that the costs incurred to date be treated as expenses as opposed to the capitalizing of the software.

Start-up Costs

Start-up costs that would commonly be capitalized as Other Assets to be amortized over a period of five years have also been deemed to be impaired for the same reasons stated in the paragraph on “Software Costs”. Based on these circumstances, management has elected to expense these start-up costs as well.

“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. The Company presently uses one vendor for all of its software development.

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.
 
Deferred tax asset at March 31, 2010
  $ 549,987  
Valuation allowance
  $ (549,987 )
Net deferred tax asset
    -0-  
 
2.           Going Concern Uncertainty and Managements’ Plans

In the Company’s audited financial statements for the fiscal year ended December 31, 2009, 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 interim financial statements for the quarter ended September 30, 2010 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 $10,484 for the quarter ended September 30, 2010, and an accumulated deficit of $2,398,003 as of September 30, 2010.  At September 30, 2010, the Company’s total current liabilities exceed total current assets by $263,738.
 
 
9

 


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.

3.           Property and Equipment

The Company has incurred software costs in the development of its virtual world in the amount of $1,395,567 as of September 30, 2010. Per the discussion under “Software Costs” this amount has been expensed at this time.
 
4.           Accounts Payable

At December 31, 2007, account payable totaled $775,000 and was owed to one creditor, Adversor, a majority shareholder of the Company. During the year ended December 31, 2008, the creditor agreed to forgive the $775,000 in exchange for 4,123,500 shares of the Company’s restricted common stock (See Note 7).

5.           Contracts Payable

During the year ended December 31, 2008, the Company entered into a Corporate Finance Advisory Services Agreement with Friedland Global Capital Markets, LLC (Friedland) the Agreement provides that the Company would pay a total of $190,000 for services as set forth in the Agreement.  In July 2008, Friedland agreed to suspend payment of the fees until the completion of financing.  These funds are non-interest paying and due on demand. During the year ended December 31, 2009 the Company made payments in the amount of $25,000 against this obligation. In the second quarter of 2010 the Company completed negotiations for the mutual release of all obligations under this contract with no further liability. The cancellation of the contract was treated as an additional contribution to Paid-in-Capital.

6.           Advance Payable, Related Party

During the year ended December 31, 2007, the Company’s majority shareholder, Adversor, Inc. (Adversor) advanced funds of $118,369 to the Company for operations. During the year ended December 31, 2008, Adversor advanced an additional $78,740 to support operations.  During the year ended December 31, 2008, the Company repaid $8,369 of the outstanding amount.  At December 31, 2008, Adversor is owed $110,000.  During the year ended December 31, 2009 Adversor advanced an additional $7,470 and paid bills amounting to $17,000 on behalf of the Company. During the quarter ended March 31, 2010 Adversor advanced an additional $14,300 and paid bills in the amount of $30,302 on behalf of the Company. During the quarter ended September 30, 2010 Adversor advanced an additional $22,800, paid bills in the amount of $32,233 and paid a debt of $25,000 with interest of $5,000 on behalf of the Company. During the quarter ended September 30, 2010 Adversor paid bills in the amount of $21,075 on behalf of the Company. The current total owed to Adversor is $133,808. These funds are non-interest bearing and due on demand.

7.           Stockholders’ Deficiency

Common Stock

In October 2008, the Company entered into a Security Purchase Agreement (Security Purchase Agreement) with a third party, the Company received cash of $125,000 in exchange for 500,000 shares of restricted common stock and a warrant exercisable for 500,000 shares of the Company’s restricted common stock.  The warrant has an exercise price of $0.80 per share and a term of three years.  The shares were sold at a price of $0.25 per share with $0.24 per share allocated to the common stock and $0.01 per share allocated to the warrant.
 
 
10

 

 
In October 2008, the Company entered into a Services Agreements with two parties.  The Services Agreements provides for the Company to receive services totaling up to $625,000 in connection with the development of its website and gaming software to be paid for by the issuance of up to 2,500,000 shares of the Company’s common stock.  During the year ended December 31, 2008, the Company issued 1,600,000 of these shares in exchange for services performed at that time totaling $400,000.  The shares were issued at a price of $0.25 per share.

In October 2008, the Company issued 4,123,500 shares of its restricted common stock to its majority shareholder, Adversor, in exchange for their efforts in the settlement of $775,000 of outstanding accounts payable owed to an unrelated third party vendor.  The shares were issued at a price of $0.188 per share.

In September 2008, the Company issued 1,373,000 shares of its restricted common stock to a director, Mr. Goss, of the Company as payment for services totaling $1,373,000.  The shares were issued at a price of $0.10 per share.

In June 2008, the Company issued 902,000 shares of its restricted common stock to Friedland, in exchange for services totaling $50,000 provided under the Finance Advisory Services Agreement.  The shares were issued at a price of $0.055 per share.

In March of 2009, the Company issued 500,000 shares of its common stock in exchange for $125,000 cash. The Company also issued 100,000 shares of its restricted common stock in exchange for consulting services valued at $25,000.

In October of 2009, the Company issued 900,000 shares of its restricted common stock in exchange for consulting services valued at $225,000.

Warrants

At September 30, 2010, the following warrants to purchase common stock were outstanding:

Number of common
shares covered by warrants
   
Exercise Price
 
Expiration Date
           
  500,000     $ 0.80  
October 2011
  500,000     $ 0.80  
March 2012
  1,000,000            
 
Other Capital Transactions

During the year ended December 31, 2008, our majority shareholder, Adversor, paid $20,000 for services on our behalf.  In addition, during the year ended December 31, 2008, Adversor forgave $87,109 in debt owed to them.  The Company has treated such amounts as capital contributions and as such has increased Additional Paid in Capital by $107,109. During the quarter ended September 30, 2010 the Company negotiated a mutual release of a contract for services that resulted in a relief of debt in the amount of $165,000. This was treated as a capital contribution and as such has increased  Additional Paid in Capital by that amount.
 
 
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Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations

Statement Regarding Forward-Looking Information

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q, including without limitation, statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations regarding our financial position, estimated working capital, business strategy, the plans and objectives of our management for future operations and those statements preceded by, followed by or that otherwise include the words “believe”, “expects”, “anticipates”, “intends”, “estimates”, “projects”, “target”, “goal”, “plans”, “objective”, “should”, or similar expressions or variations on such expressions are forward-looking statements. We can give no assurances that the assumptions upon which the forward-looking statements are based will prove to be correct. Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements, including, but not limited to, the availability and pricing of additional capital to finance operations.
Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
The following discussion should be read in conjunction with our unaudited consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q.

Background and History
 
SunGame Corporation (“We,” “Us,” “Our”) was organized under the laws of the State of Delaware on November 14, 2006 as SunGame International, Inc. On November 17, 2006, we changed our name to SunGame Corporation. We are a Delaware corporation organized for the purpose of engaging in any lawful business with a current plan to engage in the internet virtual world space.

We are an early development stage company in the process of establishing a three dimensional, virtual world community called GameConnect. Leveraging the increasing popularity of online communities with this proprietary “virtual world”, we intend to capitalize on the ever increasing popularity of gaming. With an initial focus on casual and tournament skill-based gaming, we will also offer visitors a broad spectrum of social activities including group chats, music download, media sharing, content creation and other features designed to build the community and generate repeat traffic to the Virtual world.
 

In addition, we have the mission to become a leading supplier in social gaming and related services to the business-to-business segment, including customized social games, virtual worlds, virtual eWallets, cross platform solutions and social network branding. In that regard we have recently entered into partnership agreements with Wicked Interactive and ActionJetz for game development.


 
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As each generation of computers become more powerful and affordable, and access to broadband internet increasingly available within the home, the gaming industry has become one of the most successful industries online. The most popular online game, World of Warcraft, a “Massively Multiplayer Online Role- Playing Game” or “MMORPG” enables over 1 million players from around the world to play simultaneously. Released in November 2004, it is estimated that World of Warcraft generated revenues in excess of $100 million in each of several different markets in its first year alone and recently announced it had signed its 10 millionth registered user. The potential for success in this sector has resulted in a perpetual delivery of new games to the market, much to the delight of the consumers, who seem to have a strong appetite for product.

The other component of the GameConnect experience is the social networking aspect. The original web-based communities were formed to serve people with shared interests and activities, enabling them to communicate through message boards and email services. Relevant content is created and posted by the members. Within relatively short order, social networking revolutionized the way we communicate and share information on an everyday basis. Networks such as Facebook now boast over 500 million members, and the YouTube phenomenon is influencing the nature of presidential elections.

The next generation of the social network is set in a virtual world, members can create avatars to represent themselves and buy “real estate” which is then developed and customized to reflect their own personality and lifestyle. A number of successful Virtual Worlds are growing fast including Mindark’s Entropia and Club Penguin (bought by Disney for $350M, plus possible $350 earn out).

However, while people around the world participate in these communities every day, few social networks have been able to establish a successful business model. We intend to capitalize on the social networking, gaming and virtual world trends, providing users with a wide variety of skill games through GameConnect, a Virtual World online community where the members can socialize, play games, share content and compete in tournament with virtual goods as well as cash prices. We will work to balance the more popular “standard” games such as bowling and golf, with original content created by independent game developers. Like many of the traditional gaming sites, ours has instituted an “outsourcing” strategy, allowing members of the community to develop the content -- for gamers, by gamers. The developer friendly culture is expected to result in continual generation of original and challenging games to keep residents within the world.

In an effort to optimize and manage our growth, we have segregated our operation into two divisions, consumer and business to business.

Since the current revenues and customers have not been sufficient to reach positive cash flow, the board has been looking into various options to enable the operation to grow.

On June 15, 2010, we entered into a Partnership Agreement with Wicked Interactive, Ltd. pursuant to which we shall develop a web based game and Wicked shall publish the game on facebook.

 
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On 7th of September, 2010 we were appointed to develop a facebook application for Sqwishland.com. We plan to have this application launched at the end of this year.


 
RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2010
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2009

Revenues

For the three months ended September 30, 2010 we generated revenue of $26,100 compared to revenues of $25,000 for the three months ended September 30, 2009.  The $1,100 increase in revenue was attributable to ­developing sales and operations.

Operating Expenses

Operating expenses for the three months ended September 30, 2010 were $36,273 compared to $57,904 for the three months ended September 30, 2009.  This net decrease of $21,631 was the result of the decrease of expenses attributable to software development costs and  start-up costs.

Interest Expense

We incurred interest expense of $311 for the three months ended September 30, 2010 as compared to zero interest expense for the three months ended September 30, 2009.  This interest expense is attributable to interest on loans and credit cards.

Loss From Operations

Loss from operations for the three months ended September 30, 2010 was $10,484 compared to $32,904 for the three months ended September 30, 2009.  The $22,420 decrease in net loss is directly attributable to the increase in revenue and decrease in operating expenses described above.  As of  September 30, 2010, we have an accumulated deficit of $2,398,003.
 

 
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Net Loss Applicable To Common Stock

Net loss applicable to Common Stock was $0.00 for the three months ended September 30, 2010 compared to net loss of  $21.94 for the three months ended September 30, 2009.

NINE MONTHS ENDED SEP 30, 2010
COMPARED TO NINE MONTHS ENDED SEP 30, 2009

Revenues

For the nine months ended September 30, 2010 we generated revenue of $43,403 compared to revenue of $25,000 for the nine months ended September 30, 2009.  The $18,205 increase in revenue was attributable to ­developing sales and operations.

Operating Expenses

Operating expenses for the nine months ended September 30, 2010 were $133,384 compared to $319,660 for the nine months ended September 30, 2009.  This net decrease of $186,276 was the result of the decrease of expenses attributable to software development costs and  start-up costs.

Interest Expense

We incurred interest expense of $5,544 for the nine months ended September 30, 2010 as compared to zero interest expense for the nine months ended September 30, 2009.  This interest expense is attributable to interest on loans and credit cards.

Loss From Operations

Loss from operations for the nine months ended September 30, 2010 was $89,981 compared to $294,660 for the nine months ended September 30, 2009. The $204,679 decrease in net loss is directly attributable to the increase in revenue and decrease in operating expenses described above.

Net Loss Applicable To Common Stock

Net loss applicable to Common Stock was $0.01 for the nine months ended September 30, 2010 compared to $196.44 for the nine months ended September 30, 2009.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2010, we had cash on hand of $606 and total assets of $30,530; consisting of cash of $606, accounts receivable of $28,280 and net fixed assets of $1,644.  At September 30, 2010, we had total current liabilities of $292,624; consisting of $125,605 of accounts payable, $5,747 of other payables, and $161,272 loan payable to a stockholder.  At September 30, 2010, we had a working capital deficit of $262,094.

During the year ended December 31, 2008, the Company entered into a Corporate Finance Advisory Services Agreement with Friedland Global Capital Markets, LLC (“Friedland”) the Agreement provides that the Company would pay a total of $190,000 for services as set forth in the Agreement.  In July 2008, Friedland agreed to suspend payment of the fees until the completion of financing.  These funds are non-interest paying and due on demand. During the year ended December 31, 2009 the Company made payments in the amount of $25,000 against this obligation. In the second quarter of 2010 the Company completed negotiations for the mutual release of all obligations under this contract with no further liability. The cancellation of the contract was treated as an additional contribution to Paid-in-Capital.


 
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Continuing Operations:

Net Cash (Used in) Provided By Operating Activities

During the nine months ended September 30, 2010, cash used in operating activities was $209,440 compared to $151,503 during the nine months ended September 30, 2009.  During the nine months ended September 30, 2010, net losses of $89,981 were adjusted for a non-cash item consisting of $244 in depreciation.  During the nine months ended September 30, 2009, net losses of $294,660 were adjusted for non-cash items consisting of $206 in depreciation, and $150,000 in compensatory stock issuances.

Net Cash Used in Investing Activities

During the nine months ended September 30, 2010, we used net cash in investing activities of continuing operations of $767 for the purchase of fixed assets.  We did not utilize any cash in investing activities of continuing operations during the nine months ended September 30, 2009.

Net Cash (Used in) Provided by Financing Activities

During the nine months ended September 30, 2010, we received $208,802 from our financing activities.  During the nine months ended September 30, 2009, we received $132,570 from our financing activities.

In October 2008, we entered into a Security Purchase Agreement with a third party in which we received cash of $125,000 in exchange for 500,000 shares of restricted common stock and a warrant exercisable for 500,000 shares of our restricted common stock.  The warrant has an exercise price of $0.80 per share and a term of three years.  The shares were sold at a price of $0.25 per share with $0.24 per share allocated to the common stock and $0.01 per share allocated to the warrant.

In October 2008, we entered into a Services Agreements with two parties.  The Services Agreements provides for us to receive services totaling up to $625,000 in connection with the development of our website and gaming software to be paid for by the issuance of up to 2,500,000 shares of our common stock.  During the year ended December 31, 2008, we issued 1,600,000 of these shares in exchange for services performed at that time totaling $400,000.  The shares were issued at a price of $0.25 per share.

In October 2008, we issued 4,123,500 shares of our restricted common stock to our majority shareholder, Adversor, in exchange for their efforts in the settlement of $775,000 of outstanding accounts payable owed to an unrelated third party vendor.  The shares were issued at a price of $0.188 per share.

In September 2008, we issued 1,373,000 shares of restricted common stock to a director, Mr. Goss, of the Company as payment for services totaling $1,373,000.  The shares were issued at a price of $0.10 per share.

In June 2008, we  issued 902,000 shares of restricted common stock to Friedland, in exchange for services totaling $50,000 provided under the Finance Advisory Services Agreement.  The shares were issued at a price of $0.055 per share.

In March of 2009, we issued 500,000 shares of common stock in exchange for $125,000 cash.  We also issued 100,000 shares of restricted common stock in exchange for consulting services valued at $25,000.

In October of 2009, we issued 900,000 shares of restricted common stock in exchange for consulting services valued at $225,000.

During the year ended December 31, 2007, our majority shareholder, Adversor, Inc. (Adversor) advanced funds of $118,369 for operations. During the year ended December 31, 2008, Adversor advanced an additional $78,740 to support operations.  During the year ended December 31, 2008, we repaid $8,369 of the outstanding amount.  At December 31, 2008, Adversor is owed $110,000.  During the year ended December 31, 2009 Adversor advanced an additional $7,470 and paid bills amounting to $17,000 on our behalf. During the quarter ended March 31, 2010 Adversor advanced an additional $14,300 and paid bills in the amount of $30,302 on our behalf. During the quarter ended September 30, 2010 Adversor advanced an additional $22,800, paid bills in the amount of $32,233 and paid a debt of $25,000 with interest of $5,000 on our behalf. These funds are non-interest bearing and due on demand.


 
16

 

We anticipate funding operations through private investments and loans made by our current shareholders and management, however, we have no commitments for such funding as of the date of this report.  In addition, we anticipate generating revenue in the near future, however, we have no current commitments or contracts that could result in such revenue.  Management will have complete discretionary control over the actual utilization of said funds and there can be no assurance as to the manner or time in which said funds will be utilized.
 
We foresee that we will need a minimum of $300,000 to fund our operations for the next 12 months as follows:

System Development and Integration
 
$
150,000
 
Professional Fees
   
50,000
 
Sales, Marketing, Strategic Partnerships
   
50,000
 
General & Administrative
   
25,000
 
Working Capital
   
 25,000
 
    Total
 
$
300,000
 

We will need substantial additional capital to support our proposed future operations.  We have minimal revenues.  We have no committed source for any funds as of the date hereof.  No representation is made that any funds will be available when needed.  In the event funds cannot be raised when needed, we may not be able to carry out our business plan, may never achieve sales or royalty income, and could fail in business as a result of these uncertainties.

As a result of becoming a publicly reporting company with the SEC we will incur costs in connection with complying with the reporting requirements of the SEC.  Such costs will include annual audits and those legal costs in connection with making filings with the SEC.  We have accounted for such costs above in “Professional Fees” and “General & administrative”.

Because of the limited financial resources that we have, it is unlikely that we will be able to diversify our operations.  Our probable inability to diversify our activities into more than one area will subject us to economic fluctuations within the virtual world industry and therefore increase the risks associated with our operations due to lack of diversification.

We anticipate generating the vast majority of our revenues from our advertisers. Advertisers can generally terminate their contracts, at any time.  Advertisers could decide to not do business with us if their investment in advertising with us does not generate sales leads, and ultimately customers, or if we do not deliver their advertisements in an appropriate and effective manner.  If we are unable to remain competitive and provide value to advertisers, they may stop placing ads with us, which would negatively harm future revenues and business.  In addition, expenditures by advertisers tend to be cyclical, reflecting overall economic conditions and budgeting and buying patterns.  Any decreases in or delays in advertising spending due to general economic conditions could delay or reduce our revenues or negatively impact our ability to grow our revenues.

In the event we are unable to achieve additional capital raising through future private or public offerings, we will limit operations to fit within our capital availability. In such event, we will probably seek loans for operating capital.  We have not achieved any commitments for loans from any source.  In any event our business can be operated with a skeleton staff and have limited advertising/marketing budget, which could cause us to remain unprofitable and eventually fail.

Going Concern

The independent registered public accounting firm's report on our financial statements as of December 31, 2009 and 2008 includes a “going concern” explanatory paragraph that describes substantial doubt about our ability to continue as a going concern.


 
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We are dependent on raising additional equity and/or, debt to fund any negotiated settlements with our outstanding creditors and meet our ongoing operating expenses. There is no assurance that we will be able to raise the necessary equity and/or debt that we will need to be able to negotiate acceptable settlements with our outstanding creditors or fund our ongoing operating expenses. We cannot make any assurances that we will be able to raise funds through such activities. 
 
Capital Resources

We have only common stock as our capital resource.

We have no material commitments for capital expenditures within the next year, however if operations are commenced, substantial capital will be needed to pay for participation, investigation, exploration, acquisition and working capital.

Need For Additional Financing

We do not have capital sufficient to meet our cash needs. We have generated nominal revenue and have minimal resources to conduct planned operations. We estimate that our monthly expenses to commence planned operations within the next 12 months are approximately $24,000 (approximately $300,000 per year). Thus, using currently available capital resources (the primary source of which is non-binding commitments and expectations from management and current shareholders), we expect to be able to conduct planned operations for a minimum period of 1-3 months. We are currently relying solely on current shareholders and management to provide the necessary funds to continue operations. We do not have any commitments for such funding from shareholders or management.

At the present time, we have not made any arrangements to raise additional cash. Management and current shareholders are expected, but have not committed, to provide the necessary working capital so as to permit us to conduct planned operations until such time as we have begun to generate revenue and/or have become sufficiently funded.  However, if we do not begin to generate revenue or cannot raise additional needed funds, we will either have to suspend development operations until we do raise the funds, or cease operations entirely.

In addition, the United States and the global business community is experiencing severe instability in the commercial and investment banking systems which is likely to continue to have far-reaching effects on the economic activity in the country for an indeterminable period. The long-term impact on the United States economy and our operating activities and ability to raise capital cannot be predicted at this time, but may be substantial.

Critical Accounting Policies

We have identified the policies below as critical to its business operations and the understanding of our results from operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management's Discussion and Analysis of Financial Conditions and Results of Operations where such policies affect our reported and expected financial results.  Note that our preparation of this document requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of expenses during the reporting periods. There can be no assurance that actual results will not differ from those estimates.  During the three months ended September 30, 2010, there were no significant changes in our critical accounting policies and estimates. You should refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2009 for a more complete discussion of our critical accounting policies and estimates.

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.


 
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Software Costs

The costs for internal use software, whether developed or obtained, are assessed to determine whether they should be capitalized or expensed in accordance with American Institute of Certified Public Accountants' Statement (“SOP”) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”. Capitalized software costs are reflected as property and equipment on the balance sheet and are to be depreciated when we begin recording revenue the deemed date that the software is placed in service. As of the date of these financial statements the development of the software necessary to achieve the business purposes of our Company is in an undeterminable state causing us to deem the asset to be impaired. This conclusion requires that the costs incurred to date be treated as expenses as opposed to the capitalizing of the software.
   
Start-Up Costs

Start-up costs that would commonly be capitalized as Other Assets to be amortized over a period of five years have also been deemed to be impaired for the same reasons stated in the paragraph on “Software Costs”. Based on these circumstances, management has elected to expense these start-up costs as well.

“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.

Off-Balance Sheet Arrangements
 
As of September 30, 2010, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, that had been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we were engaged in such relationships.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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.

Item 4. Controls and Procedures

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 September 30, 2010.  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.
 

 
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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 September 30, 2010.  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.
 
PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are not a party to any pending legal proceedings nor is any of our property the subject of any pending legal proceedings.

Item 1A. Risk Factors

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.

Item 2. Unregistered Sales Of Equity Securities And Use Of Proceeds.

None
 
Item 3. Defaults Upon Senior Securities

None
 
Item 4. (Removed and Reserved).


 
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Item 5. Other Information

None

Item 6. Exhibits
 
EXHIBIT
     
NUMBER
 
DESCRIPTION
 
       
31.1    Certification of Principal Executive Officer and Principal Financial Officer pursuant to Sarbanes-Oxley Section 302  
       
32.1
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Sarbanes-Oxley Section 906
 
 
SIGNATURES

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.

By: /s/ Guy M. Robert                                                    
Name: Guy M. Robert
Title: Principal Executive Officer, President and Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer, Director
Date: November 12, 2010


By: /s/ Ranulf Goss                                                         
Name: Ranulf Goss
Title: Director
Date: November 12, 2010
 
 
 
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