10-Q 1 sungame_10q-033111.htm FORM 10-Q sungame_10q-033111.htm
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 March 31, 2011
 
[_]  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 þ No o

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 o No o

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 o
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company þ
 
(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 o  No þ
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o  No þ

The number of shares of common stock are:
As of 31 March 2011 - 250,014
As of 9 May 2011- 177,550,014 issued, 250,014 outstanding
(issuances from the merger have not been processed through transfer)
 
 
 

 
 
SUNGAME CORPORATION
For The Quarterly Period Ended March 31, 2011

TABLE OF CONTENTS
 
 
PART I - FINANCIAL INFORMATION
3
     
Item 1.
Financial Statements
3
     
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
11
     
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
21
     
Item 4.
Controls and Procedures
21
   
PART II - OTHER INFORMATION
22
     
Item 1.
Legal Proceedings
22
     
Item 1A.
Risk Factors
22
     
Item 2.
Unregistered Sales of Equity Securities.
22
     
Item 3.
Defaults Upon Senior Securities
22
     
Item 4.
Removed and Reserved.
22
     
Item 5.
Other Information.
22
     
Item 6.
 Exhibits.
22
     
SIGNATURES
23
 
 
 
2

 
 
Part I.  Financial Information.
 
Item 1.  Financial Statements.
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Balance Sheets
 
 
   
March 31,
   
December 31,
 
   
2011
   
2010
 
   
Unaudited
       
ASSETS:
           
             
Current Assets:
           
Cash
  $ 26     $ 60  
Accounts Receivable
    21,650       17,600  
                 
Total Current Assets
    21,676       17,660  
                 
Fixed Assets
               
Office Equipment
    2,140       2,140  
Accumulated Depreciation
    (779 )     (672 )
Total Fixed Assets
    1,361       1,468  
                 
Other Assets
               
Investment - Freevi Corp
               
                 
TOTAL ASSETS
  $ 23,037     $ 19,128  
                 
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY):
               
                 
Current Liabilities:
               
Accounts Payable
  $ 112,035     $ 112,035  
Credit Cards Payable
    9,229       8,751  
Loans Payable - Stockholder
    161,872       161,272  
                 
Total Current Liabilities
    283,136       282,058  
                 
Stockholders' Equity (Deficiency):
               
Common stock, par value, $0.001 300,000,000 authorized with: 250,000 issued and outstanding
    250       250  
Paid in Capital
    2,153,035       2,153,035  
Preferred Stock, par value $0.001 5,000,000 authorized with none outstanding
    -       -  
                 
Accumulated deficit
    (2,413,384 )     (2,416,215 )
                 
Total Stockholders' (Deficiency)
    (260,099 )     (262,930 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY
  $ 23,037     $ 19,128  
                 
 
The accompanying notes are an integral part of these financial statements
 
 
3

 
 
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Statements of Operations
 
               
November 13,
 
   
Three months ended
   
2006, (Inception)
 
   
March 31,
         
to March 31,
 
   
2011
   
2010
   
2011
 
   
Unaudited
   
Unaudited
   
Unaudited
 
                   
Revenue:
  $ 31,150     $ 6,265     $ 106,262  
                         
Total Revenue
    31,150       6,265       106,262  
                         
Costs and Expenses:
                       
      Software development
    27,140       17,108       1,440,575  
      Stock based compensation
    -       -       587,300  
      Depreciation
    107       69       779  
      Consulting costs
    -       -       302,500  
      Bad debts
    -       -       4,214  
      Startup costs
    765       19,018       178,156  
                         
Total Expenses
    28,012       36,195       2,513,524  
                         
Net Income (Loss) From Operations
    3,138       (29,930 )     (2,407,262 )
                         
                         
Other Income and (Expenses)
                       
      Interest expense
    (307 )     (5,108 )     (6,122 )
      (307 )     (5,108 )     (6,122 )
                         
Net Income (Loss)
  $ 2,831     $ (35,038 )   $ (2,413,384 )
                         
Per Share Information
                       
Income (Loss) per common share
  $ 0.01     $ (0.14 )        
                         
                         
Weighted average number of shares outstanding
    250,000       250,000          
 
The accompanying notes are an integral part of these financial statements
 
 
 
 
 
4

 
 
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Statements of Cash Flows
 
 
               
November 13,
 
   
Three months ended
   
2006, (Inception)
 
   
March 31,
         
to March 31,
 
   
2011
   
2010
   
2011
 
   
Unaudited
   
Unaudited
   
Unaudited
 
Cash Flows from Operating Activities
                 
                   
     Net Income (Loss)
  $ 2,831     $ (35,038 )   $ (2,413,384 )
      Adjustments to reconcile net loss to
                       
         net cash used by operating activities:
                       
        Depreciation
    107       69       779  
        (Increase) in accounts receivable
    (4,050 )     (4,714 )     (21,650 )
        Increase in accrued expenses
    -       -       190,000  
        Increase in credit card payable
    478       3,520       9,230  
        Increase/(decrease) in accounts payable
    -       (4,000 )     878,037  
        Compensatory stock issuances
    -       -       837,300  
Net Cash Used by Operating Activities
    (634 )     (40,163 )     (519,688 )
                         
Cash Flows from Investing Activities
                       
                         
     (Increase) in Fixed Assets
    -       -       (767 )
                         
Net Cash Used for Investing Activities
    -       -       (767 )
                         
Cash Flows from Financing Activities
                       
                         
      Issuance of Common Stock and Warrants
    -       -       251,500  
      Paid in capital
    -       -       107,109  
      Increase in Loans Payable
    600       44,602       161,872  
                         
Net Cash Provided by Financing Activities
    600       44,602       520,481  
                         
Net Increase in Cash & Cash Equivalents
    (34 )     4,439       26  
                         
Beginning Cash & Cash Equivalents
    60       2,011       -  
                         
Ending Cash & Cash Equivalents
  $ 26     $ 6,450     $ 26  
                         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
                       
                         
     Cash paid for interest expense
  $ 307     $ -       6,122  
     Cash paid for income taxes
  $ -     $ -     $ -  
                         
NON-CASH TRANSACTIONS
                       
     Stock issued for services
  $ -     $ -       837,300  
     Paid in capital - debt relief
    -       -       182,376  
     Stock issued for debt relief
    -       -       863,369  
 
The accompanying notes are an integral part of these financial statements
 
 
5

 
 
 
Sungame Corporation
Statements of Stockholder's Equity (Deficit)
 
 
         
Common
               
Preferred
             
   
Common
   
Dollars at
   
Paid in
   
Preferred
   
Dollars
   
Retained
   
Stockholders'
 
   
Shares (1)
   
$0.001 Par
   
Capital
   
Shares
   
$0.001 Par
   
Earnings
   
Deficiency
 
Balances 11/14/06
    -     $ -     $ -       -     $ -     $ -     $ -  
Shares to parent for services
    38       1       1,499                               1,500  
Net loss for year
                                            (1,500 )     (1,500 )
Balances at December 31, 2006
    38       1       1,499       -       -       (1,500 )     -  
                                                         
Net loss for year
                                            (890,443 )     (890,443 )
Balances at December 31, 2007
    38       1       1,499       -       -       (891,943 )     (890,443 )
                                                         
Shares issued to parent for debt relief
    103,088       103       774,897                               775,000  
Shares issued for services
    96,874       97       587,203                               587,300  
Shares issued for cash
    12,500       12       119,988                               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
    212,500       213       1,595,696               -       (1,872,296 )     (276,387 )
                                                         
Shares issued for cash
    12,500       12       124,988                               125,000  
Shares issued for services
    25,000       25       249,975                               250,000  
Net loss for year
                                            (430,182 )     (430,182 )
Balances at December 31, 2009
    250,000       250       1,970,659       -       -       (2,302,478 )     (331,569 )
                                                         
Forgiveness of debt
                    182,376                               182,376  
Net loss for year
                                            (113,737 )     (113,737 )
Balances at December 31, 2010
    250,000       250       2,153,035       -       -       (2,416,215 )     (262,930 )
                                                         
Net income for period
                                            2,831       2,831  
                                                         
Balances at March 31, 2011 -
   Unaudited
    250,000     $ 250     $ 2,153,035     $ -     $ -     $ (2,413,384 )   $ (260,099 )
                                                         
                                                         
(1) As retroactively restated for a 40 for 1 reverse stock split on January 10, 2011
                         
 
The accompanying notes are an integral part of these financial statements
 
 
 
6

 

 

NOTES TO FINANCIAL STATEMENTS

 
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 virtual worlds and online games. The Company believes that it can exploit the market that is at the confluence of social games and social virtual world, and that this market is very significant. The Company will provide various types of Games in an online Virtual World where the users, regardless of location can play games, chat, buy  virtual goods and where our customers are corporations and game aggregators.

The main activity will be to provide a social games and social virtual worlds 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 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.

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.

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.

 
7

 

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.
 
At March 31, 2011 and 2010 the Company had net operating loss carry forwards of approximately $1,521,000 and $1,445,000 which begin to expire in 2026. The deferred tax asset of approximately $593,200 and $563,600 in 2011 and 2010 created by the net operating losses have been offset by a 100% valuation allowance. The change in the valuation allowance in 2011 and 2010 was $29,600 and $44,300.

2.           Going Concern Uncertainty and Managements’ Plans

In the Company’s audited financial statements for the fiscal year ended December 31, 2010, 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 year ended December 31, 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 $113,737 for the year ended December 31, 2010, and an accumulated deficit of $2,416,215 as of December 31, 2010. As of March 31, 2011 the accumulated deficit is $2,413,384. At December 31, 2010, the Company’s total current liabilities exceed total current assets by $103,126. At March 31, 2011 this amount was $99,589.

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 $1,413,435 as of December 31, 2010. By March 31 this total had increased to $1,440,575. Per the discussion under “Software Costs” this amount has been expensed at this time.
 
4.           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.

5.           Advance Payable, Related Party

At December 31, 2009, the Company’s had working capital advances due to the Company’s majority shareholder, Adversor, Inc. (“Adversor”) of $117,470. These funds are non interest bearing and are due on demand. Also included in the Company’s $51,582 in accounts payable at end 2009 were $26,600 owed to Adversor. In 2009 the Company recorded consulting fees to Adversor of $26,600. At December 31, 2010 the Company had working capital advances due to Adversor of $161,272, also non-interest bearing and due on demand. At March 31, 2011 Adversor advances had increased to $162,372. Included in the Company’s $112,035 in the Company’s accounts payable at end 2010 were $106,013 owed to Adversor. In 2010 the Company recorded consulting fees to Adversor of $45,000.

 
8

 

6.           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.

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, pursuant to the Securities Purchase Agreement the Company received further 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 an $0.01 per share allocated to the warrant. 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.
 
For clarification purposes, Adversor has been characterized as a holding company by nature. As fair and accurate depiction, Adversor owned a majority share of Sungame, and thus could be interpreted as a parent subsidiary relationship, particularly under accounting rules. However, Adversor was never intended to exert control over Sungame, and was intended to relinquish the stock, which it did, and therefore Sungame takes the founded position it was never a subsidiary, regardless of the classification for accounting purposes; although we do understand the source of confusion. We trust this adequately explains our position.

Warrants

At December 31, 2008, 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, 2010 the Company negotiated a settlement on a contract in the amount of $165,000 and was forgiven accounts payable in the amount of $17,376. The Company has treated such amounts as capital contributions and as such has increased Additional Paid in Capital by $182,376.

 
9

 


8.            8K Information filed

On November 3, 2010, the Company filed form 8K with the Securities and Exchange Commission (SEC) reporting the Company’s signing of a binding letter of intent with Freevi, Inc., a Nevada corporation and having their headquarters in Canada, to merge the two entities. Freevi, Inc. is a private corporation that is entering into the social networking business space, with acumen in multimedia.

This merger is proposed to be a “stock only” transaction. The Company will cause a reverse split in its outstanding shares of 1 new share for each 40 shares now outstanding. After this reverse split the shares will be exchanged on a 1 for 1 basis as this is considered to be the approximate fair value for each entity.

On January 10, 2011, The Company filed a form 8K with the SEC reporting the reverse split of the outstanding shares. In addition, the Company increased the authorized shares from 100,000,000 to 300,000,000.

Subsequent events

On April 15, 2011 The Company filed form 8K with the SEC reporting that the acquisition with Freevi has been completed. The Company issued 177,000,000 post reverse split shares to facilitate the transaction.

 
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation.

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.

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 communities. Leveraging the increasing popularity of online communities with this proprietary “virtual world”, we intend to capitalize on the ever increasing popularity of games. With an initial focus on casual and tournament based games, we will also offer visitors a broad spectrum of social activities including group chats, music download, media sharing, content creation, advertisements and other features designed to build the community and generate repeat traffic to the Virtual world.



 
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In addition, we have the mission to become a leading supplier in social games 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 been focusing the development during the period on a Facebook based cross platform game for subagames.com by Wicked Interactive.

 
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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 game 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 Virtual-World 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 $350M earn out).

 
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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, games and virtual world trends, providing users with a wide variety of games through various partners.  At the Virtual World online community, the members can socialize, play games, share content, compete in tournament and buy virtual goods.

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.

Freevi Development

In addition to our game development efforts, we have been very active developing two specific solutions for Freevi Corporation during the period.

ViDirectory.com

During the three months ended March 31, 2011, we have developed ViDirectory, which is a complex Company Directory Service web environment.

It has a wide number of features, which are being launched in various releases.

The system was already developed by Freevi’s development resources (see Note 8 to the Financial Statements) and had reached Alpha launch, but after analysis from the SunGame Technical Team, the recommendation was to rewrite the service.

 
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This, to ensure that the service would be able to manage a high number of users and to allow us to add various services which are defined below.

DealFreevi.Com

The Sungame technical team has further worked on the system support for the ViDirectory Dealer Campaign called DealFreevi.com.

 
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This service consist of a dealer acquisition web site with application form and detailed information to the ViDirectory Dealer Program.

As soon as a prospective Dealer fills out the above form, the information is stored in a database and is in real time available in a browser based Administrative subsystem.

 
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RESULTS OF OPERATIONS
 
THREE MONTHS ENDED MARCH 31, 2011 (Q1 2010)
COMPARED TO THREE MONTHS ENDED MARCH 31, 2011 (Q1 2010)


Revenues

For the three months ended March 31, 2011 we generated revenue of $31,150 compared to $6,265 for the three months ended March 31, 2010.  The increase of $24,885 was due to  nonrecurring development work performed for a customer.

Operating Expenses

Operating expenses for the three months ended March 31, 2011 were $28,012 compared to $36,195 for the three months ended March 31, 2010.  This net decrease of $8,183 was the result of the decrease of 18,253 of expenses attributable to start-up costs, on the one hand, and the increase of 10,032 in software development costs associated with the increase in revenue on the other hand

Interest Expense

We incurred interest expense of $307 for the three months ended March 31, 2011 as compared to $5,108 of interest expense for the three months ended March 31, 2010.  This decrease in interest expense is attributable to no interest-bearing contracts payable outstanding during the three months ended March 31, 2011 versus $165,000 outstanding during the three months ended March 31, 2010.

Loss From Operations

Income from operations for the three months ended March 31, 2011 was $3,138 compared to a net loss from operations of ($29,930) for the three months ended March 31, 2010.   The $33,068 decrease in net loss is directly attributable to the increase in revenue and decrease in operating expenses described above.  As of March 31, 2011, we have an accumulated deficit of $2,413,384.

 
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Net Loss Applicable To Common Stock

Net income applicable to Common Stock was $0.01 for the three months ended March 31, 2011 compared to a net loss per share of $0.01 for the three months ended March 31, 2010.


LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2011, we had cash on hand of $26 and total assets of $23,037; consisting of cash of $26, accounts receivable of $21,650 and net fixed assets of $1,361.  At March 31, 2011, we had total current liabilities of $283,136; consisting of $112,035 of accounts payable, $9,229 of other payables, and a $161,872 loan payable to a stockholder.  At March 31, 2011, we had a working capital deficit of $261,460.

During the three months ended March 31, 2011, cash used in operating activities was $634 compared to $40,163 during the three months ended March 31, 2010.  During the three months ended March 31, 2011, net income of $2,831 were adjusted for a non-cash item consisting of $107 in depreciation.  During the three months ended March 31, 2010, net losses of $35,038 were adjusted for non-cash items consisting of $69 in depreciation.

During the three months ended March 31, 2011 and March 31, 2010, we did not use or receive funds from investing activities.  During the three months ended March 31, 2011, we increased our loan payable by $600 in financing activities.  During the three months ended March 31, 2010, we increased our loan payable by $44,602 in financing activities.

In October 2008, we entered into a Security Purchase Agreement with a third party pursuant to which we received, in March 2009, 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.

During the three months ended March 31, 2010, our majority shareholder, Adversor, Inc. advanced additional funds of $44,602 to support operations.  During the year ended December 31, 2008, Adversor advanced additional funds of $98,740 to support operations.  In 2008 Adversor contributed $107,109 to the Company's capital.  During the year ended December 31, 2009, Adversor advanced an additional $7,470 to support operations. The balance owed to Adversor at March 31, 2010 is $162,072.  The amounts owed are non-interest bearing and due on demand.

 
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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 system 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 our restricted common stock to our director, Mr. Goss as payment for services totaling $137,300. The shares were issued at a price of $0.10 per share.

In June 2008, we issued 902,000 shares of our 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.

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 $1,500,000 to fund our operations for the next 12 months as follows:

System Development and Integration
 
$
500,000
 
Professional Fees
   
125,000
 
Sales, Marketing, Strategic Partnerships
   
225,000
 
General & Administrative
   
500,000
 
Working Capital
   
150,000
 
Total
 
$
1,500,000
 


 
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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, 2010 and 2009 includes a “going concern” explanatory paragraph that describes substantial doubt about our ability to continue as a going concern.
 
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 not generated 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 $125,000 (approximately $1,500,000 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 March 31, 2011, 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, 2010 for a more complete discussion of our critical accounting policies and estimates.
 
 
 
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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.
 
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 March 31, 20101 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 March 31, 2011.  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, 2011.  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.

 
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PART II - OTHER INFORMATION
 
Item 1. Legal Proceedings
 
We are not a party to any legal proceedings nor is any of Sungame 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

None.
 
However, it should be noted the Sungame Corp. and Freevi Corp. have successfully engaged in a business combination, with Sungame being the surviving entity, and there was a share exchange where Freevi shares were  exchanged for Sungame shares, pursuant to the terms and conditions of the combination. [See 8K dated 15 April 2011]
See Item 5 for further disclosures of unregistered transactions in equity securities after the disclosure period.
 
Item 3. Defaults Upon Senior Securities
 
None
 
Item 4. Removed and Reserved.
 
 
Item 5. Other Information
 
The Board of Directors had held a meeting on 2 May 2011 and appointed Raj Ponniah as Secretary of Sungame Corp. with the understanding that his appointment coincide with the publication of this 10Q to save on costs. Mr. Ponniah currently is a Director of Sungame and recused himself from the vote, but accepted the appointment.

On 2 May 2011, The board of Directors authorized 25,000  for Mundial Financial Group, L.L.C. for investment banking services, and authorized the issuance of 300,000 shares to Marshal Shichtman and Associates, P.C. as a gratuity for services rendered.
 
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
 

 
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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:    May 13, 2011
 
 
 
 
 
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