10-Q 1 mainbody.htm MAINBODY mainbody.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:  31 March, 2012
   
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ________ to ________

Commission file number: 000-27831
 
logo
 
 
 SUNGAME CORPORATION
 (Exact name of registrant as specified in its charter)
     
Delaware
 
 
(State or other jurisdiction of incorporation or organization)
 
 (IRS Employee Identification No.)
     
3091 West Tompkins Avenue, Las Vegas, NV
 
89103
(Address of principal executive offices) 
 
 (Zip Code)
     
Registrant's telephone number, including area code: (702) 789-0848
     
 
Securities Registered pursuant to Section 12(b) of the Exchange Act:
     
Title of each class
 
Name of each exchange on which registered
None
 
None
     
Securities Registered pursuant to Section 12(g) of the Exchange Act:
     
Common Stock, $0.001 Par Value
 (Title of class)
 
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  o
 
Indicate by checkmark 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  x 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 12b2 of the Exchange Act.
 
Large accelerated filer      o
Accelerated filer                       o
Non-accelerated filer        o
Smaller reporting company     x
(Do not check if a smaller reporting company)
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  Yes o   No  x
 
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes  o   No  o

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
 
The number of shares of common stock as of  March 31, 2012 is 177,575,014 issued.
 
(DOCUMENTS INCORPORATED BY REFERENCE)
None

 
 
 
logo
 
SUNGAME CORPORATION
For The Quarterly Period Ended March 31, 2012


 
   
Page
PART 1 – FINANCIAL INFORMATION
 
     
Item 1.
3
     
Item 2.
10
     
Item 3.
14
     
Item 4.
14
     
PART II – OTHER INFORMATION
 
     
Item 1.
16
     
Item 1A.
16
     
Item 2.
16
     
Item 3.
16
     
Item 4.
16
     
Item 5.
16
     
Item 6.
16
     
17


THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.  SUCH STATEMNTS ARE BASED ON CURRENT EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS AOUT 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.
 
 
 
 
 

 

 
 
 
 
PART I - FINANCIAL INFORMATION

Item 1.           Financial Statements.

Our unaudited financial statements included in this Form 10-Q for the three months ended March 31, 2012 are as follows:
 
Unaudited Balance Sheet as of March 31, 2012 and December 31, 2011 (audited);
 
Unaudited Statements of Operations for the three months ended March 31, 2012 and 2011;
 
Unaudited Statements of Cash Flows for the months ended March 31, 2012 and 2011; and
 
Notes to Unaudited Financial Statements.

These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included.  Operating results for the interim period ended March 31, 2012 are not necessarily indicative of the results that can be expected for the full year

 
 
 
 
 
 
 
 
 
 
 
 
 
 
SUNGAME CORPORATION
(A DEVELOOPMENT STAGE COMPANY)
BALANCE SHEETS

 
   
March 31,
   
December 31,
 
   
2012
   
2011
 
   
Unaudited
       
ASSETS:
           
             
   Current Assets:
           
      Cash
  $ 5,921     $ 13,338  
      Prepaid Expenses
    -       1,250  
                 
Total Current Assets
    5,921       14,588  
                 
   Fixed Assets
               
      Office Equipment
    2,140       2,140  
      Accumulated Depreciation
    (1,207 )     (1,100 )
      933       1,040  
                 
Capitalized Software
               
   Capitalized Software
    161,424       123,444  
   Accumulated Depreciation
    (20,418 )     (8,468 )
      141,006       114,976  
                 
TOTAL ASSETS
  $ 147,860     $ 130,604  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIENCY:
               
                 
    Current Liabilities:
               
        Accounts Payable
  $ 251,877     $ 236,726  
        Related Party Advances
    1,179,853       1,012,226  
        Accrued Liabilities
    -       4,319  
Total Current Liabilities
    1,431,730       1,253,271  
                 
Stockholders' Deficiency:
               
                 
Common stock, par value, $0.001
    177,575       177,575  
    300,000,000 authorized with:
               
    177,575,014 issued and outstanding
               
Paid in Capital
    (282,295 )     (282,295 )
Preferred Stock, par value $0.001
               
5,000,000 authorized with none outstanding
               
                 
    Accumulated deficit
    (1,179,150 )     (1,017,947 )
                 
Total Stockholders' Deficiency
    (1,283,870 )     (1,122,667 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY
  $ 147,860     $ 130,604  

 
The accompanying notes are an integral part of these financial statements.
 



 

SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Statement of Operations

 
               
October 21, 2010
 
               
(Inception of
 
               
Dev. Stage)
 
   
Three Months Ended
   
through
 
   
March 31,
   
March 31, 2012
 
   
2012
   
2011
       
                   
Revenue:
  $ 10,265     $ 2,269     $ 14,834  
                         
Operating Expenses:
                       
      Depreciation
    12,057       -       20,846  
      General and Administrative
    159,025       154,880       1,171,957  
                         
Total Expenses
    171,082       154,880       1,192,803  
                         
Net Loss From Operations
    (160,817 )     (152,611 )     (1,177,969 )
                         
                         
Other Income (Expense)
                       
      Interest income
    -       -       10  
      Interest expense
    (386 )     -       (1,191 )
      (386 )     -       (1,181 )
                         
Net Loss
  $ (161,203 )   $ (152,611 )   $ (1,179,150 )
                         
Per Share Information
                       
Loss per common share
  $ (0.00 )   $ (0.00 )        
                         
                         
Weighted average number
                       
of shares outstanding
    177,575,014       177,000,000          

 
 
The accompanying notes are an integral part of these financial statements.
 
 



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

               
October 21, 2010
 
               
Inception of
 
   
Three months ended
   
Dev. Stage)
 
   
March 31,
   
through
 
   
2012
   
2011
   
March 31, 2012
 
                   
Cash Flows from Operating Activities
                 
                   
     Net Loss
  $ (161,203 )   $ (152,611 )   $ (1,179,150 )
                         
     Adjustments to reconcile net loss to
                       
     net cash provided by (used for)
                       
     operating activities
                       
        Depreciation
    12,057       -       20,846  
        Stock issued for licensing agreement
    -       -       165,000  
        Compensatory stock issuances
    -       -       12,325  
        Increase in other receivables
    -       (8,844 )     -  
        Prepaid expenses
    1,250       2,500       -  
        Accounts payable
    15,151       18,601       130,843  
        Accrued liabilities
    (4,319 )     (211 )     -  
           Net cash used for operating
                       
           activities
    (137,064 )     (145,565 )     (850,136 )
                         
Cash Flows from Investing Activities
                       
       Investment in capitalized software
    (37,980 )             (161,424 )
           Net cash used for investing
                       
           activities
    (37,980 )             (161,424 )
                         
Cash Flows from Financing Activities
                       
      Related party advances
    167,627       138,499       1,017,481  
           Net cash provided by financing
                       
           activities
    167,627       138,499       1,017,481  
                         
Net Decrease In Cash
    (7,417 )     (7,066 )     5,921  
                         
Cash At The Beginning Of The Period
    13,338       10,650       -  
                         
Cash At the End Of The Period
  $ 5,921     $ 3,584     $ 5,921  
                         
Schedule Of Non-Cash Investing And Financing Activities
                       
                         
In 2011 the Company issued 177,000,000 shares of common stock pursuant to a reverse merger for net
         
   liabilities of $282,045.
                       
                         
Supplemental Disclosure
                       
                         
Cash paid for interest
  $ -     $ -     $ 805  
Cash paid for income taxes
  $ -     $ -     $ -  

 
The accompanying notes are an integral part of these financial statements.

 


 
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011


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 merged with Freevi Corporation by issuing 177,000,000 shares on April 15, 2011.  Freevi brings a rich media platform to the Company revolving around its core product the “Freevi Flightdeck” ™, a graphical user interface that allows users to consume video and audio content, network with other Freevi users, engage in e-commerce transactions, and access games and other applications.  Freevi’s proprietary technologies were licensed from Chandran Holding Media, Inc., its majority shareholder at the time of its acquisition by the Company.

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

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

Our business is rapidly evolving and intensely competitive, and is subject to changing technology, shifting user needs and frequent introductions of new products and services.  We have many competitors in different industries, including traditional search engines, vertical search engines, e-commerce sites, social networking sites, traditional media companies, and providers of online products and services.  Our current and potential competitors range from large and established companies to emerging startups.  Established companies have longer operating histories and more established relationships with customers and end users, and they can use their experience and resources against us in a variety of competitive ways, including by making acquisitions, investing aggressively in research and development, and competing aggressively for advertisers and websites.  Emerging startups may be able to innovate and provide products and services faster than we can.  If our competitors are more successful than we are in developing competing products or in attracting and retaining users, advertisers, and content providers, our revenues and growth rates could decline.

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.
 
 
 

 
 
 
 
 
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

 
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 functional.

Long Lived Assets

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

Concentration of Credit Risk

The Company’s financial instruments that are exposed to concentrations and credit risk primarily consist of amounts due to related parties. (see Note 5) 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, 2012 and 2011, the Company had net operating loss carry-forwards of approximately $1,195,000 and $443,000, which begin to expire in 2026.  At March 31, 2012 and 2011 the Company had deferred tax assets of approximately $418,000 and $155,000 created by the net operating losses, which have been offset by a 100% valuation allowance.

2.           Reverse Merger

Effective April 15, 2011 Sungame Corporation entered into a merger agreement (the “Agreement”) with Freevi Corporation, acquiring 100% of the outstanding common stock of Freevi Corporation through the issuance of 177,000,000 shares of its common stock with no readily available market price.  Freevi Corporation was incorporated in Nevada on October 21, 2010.  The transaction was accounted for as a reverse merger as the shareholders of Freevi Corporation retained the majority of the outstanding common stock of Sungame Corporation after the share exchange.  Effective with the Agreement, the Company’s stockholders equity was recapitalized as that of Freevi Corporation, while 100% of the assets and liabilities of Sungame Corporation valued at $(282,045), consisting of cash $231, net fixed assets $1,361, accounts payable $121,265, and related party advances of $162,372, were recorded as being acquired in the reverse merger for its outstanding common shares (250,000) on the merger date.  Subsequent to the April 15, 2011 recapitalization Freevi Corporation ceased to exist, with Sungame Corporation as the sole surviving entity.  The accompanying financial statements exclude the financial position, results of operations and cash flows of Sungame Corporation prior to the April 15, 2011 merger.

3.           Going Concern Uncertainty and Managements’ Plans

In the Company’s audited financial statements for the fiscal year ended December 31, 2011, the Report of the Independent Registered Public Accounting Firm includes an explanatory paragraph that describes substantial doubt about the Company’s ability to continue as a going concern.  The Company’s financial statements for the three months ended March 31, 2012 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 $161,203 and $152,611 for the three months ended March 31, 2012, and 2011 respectively, and an accumulated deficit of $1,179,150 as of March 31, 2012. As of December 31, 2011 the accumulated deficit was $1,017,947. At March 31, 2012, the Company’s total current liabilities exceed total current assets by $1,425,809.  At December 31, 2011 this amount was $1,238,683.
 
 
 

 
 
 
 
 
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011
 
 
The future success of the Company is likely dependent on its ability to attain additional capital, or to find an acquisition to add value to its present shareholders and ultimately, upon its ability to attain future profitable operations.  There can be no assurance that the Company will be successful in obtaining such financing, or that it will attain positive cash flow from operations.  Management believes that actions presently being taken to revise the Company’s operating and financial requirements provide the opportunity for the Company to continue as a going concern.

4.           Property and Equipment

The Company has incurred software costs in the development of its systems in the amount of $7,415 and 33,443 during the three months ended March 31, 2012 and 2011, respectively, which has been expensed.    Capitalized software costs were $27,980 and $0 for the three months ended March 31, 2012 and 2011 for two products that have proven technologically feasible.  Depreciation expense amounted to $12,057 and $0 for the three months ended March 31, 2012 and 2011, respectively.

5.           Advance Payable, Related Party

At March 31, 2012 and December 31, 2011, the Company’s had working capital advances due to one of the Company’s then minority shareholders, Adversor, Inc. (“Adversor”), of $162,372.  These funds are non-interest bearing and are due on demand. Included in the Company’s accounts payable at March 31, 2012 and December 31, 2011 was $199,513 and $182,513 owed to Adversor.

During the three months ended March 31, 2012 and 2011, the Company’s majority shareholder, Chandran Holding Media, Inc. (Chandran) advanced funds to the Company for operations.  The Company and Chandran also share certain members of executive management and certain employees.  At March 31, 2012 and December 31, 2011, the Company owed Chandran $1,017,480 and $849,854.  These funds are non-interest bearing and due on demand.

6.           Legal Matters

The Company is involved in a litigation in Colorado.  Broadway Holdings, Inc. vs. Sungame Corporation.  The suit is a breach of contract by Broadway Holdings, Inc. filed on or about August 2, 2011, in the District Court, Denver County, Colorado.  The litigation evolves from Broadway Holdings, Inc. contracting to perform services for Sungame and not performing those services, and two years later, the Company attempting to rectify the situation.  No specific award was sought, and the Company has counter claimed against Broadway Holdings, Inc.

The Company will vigorously defend itself in this lawsuit, as it believes the claims against the Company are without merit.
 
 
 
 

 

 

 
 
Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operation
 
Statement Regarding Forward-Looking Information
 
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.
 
For the three months ended March 31, 2012 we generated revenue of $10,265 compared to $2,269 for the three months ended March 31, 2011.  The increase of $7,996 is due to nonrecurring development work performed for a customer during the three months ended March 31, 2012.  2011 focus was directed to developing the core of a beneficial product to the market. Q1 of 2012 focused on finalizing the sales process and support. With that acceptance of the vidirectory by the market, focus has now been directed to revenue generation with the on boarding of an out bound call center and an aggressive recruiting campaign for internal sales associates. During Q2 while significantly improving the number of users by sales and marketing, more and more products will come available also increasing the velocity of revenue.  For the remainder of Q2, flightdeck will remain under maintenance with a few beta users. A development team has already started on the final leg of the go to market build of this product and it is our goal to have it available for public consumption during Q3.
 
In Q1, the Company engaged Qarim Brown to redesign the schmatics for the new ViDirectory to make the product more relevant to current market trends.  Specifically, Mr. Brown was charged with the integration of user functionality and aesthetics. The Company built in Q1 the design schematics for the functional spec of ViDirectory. The Company plans to pass these functional specs to the development team in Q2. The Company also did the same for the Flightdeck and the general corporate web site.
 
 
 

 
 
- 10 -


 
 
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2012 (Q1 2012)
COMPARED TO THREE MONTHS ENDED MARCH 31, 2011 (Q1 2011)

Revenues

For the three months ended March 31, 2012 we generated revenue of $10,265 compared to $2,269 for the three months ended March 31, 2011.  The increase of $7,996 is due to nonrecurring development work performed for a customer during the three months ended March 31, 2012.

Operating Expense

Operating expenses for the three months ended March 31, 2012 were $171,082 compared to $154,880 for the three months ended March 31, 2011.  This net increase of $16,202 was due to a increase in consulting costs of $42,984 during the three months ended March 31, 2012 versus the same period in the prior year, offset by capitalized software costs for Flightdeck and ViDirectory of $37,980 for the three months ended March 31, 2012 which were expensed during the three months ended March 31, 2011 as those products were still in a research and development mode.
 
Net Loss

The net loss for the three months ended March 31, 2011 was $160,817 compared to a net loss of $152,611 for the three months ended March 31, 2011.  The $10,206 increase in net loss is directly attributable to the increase in revenue and increase in operating expenses described above.  As of March 31, 2012, we have an accumulated deficit of $1,179,150.

Net Loss Applicable to Common Stock

Net income applicable to Common Stock was $0.00 for the three months ended March 31, 2012 compared to a net loss per share of $0.00 for the three months ended March 31, 2011.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2012, we had cash on hand of $5,921 and total assets of $147,860; consisting of cash of $5,921, net fixed assets of $933 and capitalize software of $141,006.  At March 31, 2012, we had total current liabilities of $1,431,730; consisting of $251,877 of accounts payable, and related party advances of $1,179,853.  At March 31, 2012, we had a working capital deficit of $1,425,809.

During the three months ended March 31, 2012, cash used in operating activities was ($137,064) compared to ($145,565) during the three months ended March 31, 2011

During the three months ended March 31, 2012, investment in capitalized software was $37,980 and during the three months ended March 31, 2011, we did not use or receive funds from investing activities.  During the three months ended March 31, 2012, we increased our advances from related parties by $167,627 in financing activities.  During the three months ended March 31, 2011, we increased our related party advances by $138,499 in financing activities.

Outlook

The United States has been experiencing a widespread and severe economic recession that, among other things, has reduced availability of credit and capital financing and heightened economic risks.  We have been grossly undercapitalized in 2012 and unable to raise a significant amount of capital, other than receiving $167,627 in advances from our majority shareholder.

The continuing effects and duration of these developments and related uncertainties on the Company’s future operations and cash flows cannot be estimated at this time but likely will be significant, and in its audit report on our consolidated financial statements, our independent registered accounting firm has expressed substantial doubt as to our ability to continue as a going concern (see Note 2 to our consolidated financial statements).
 
 

 
 
- 11 -



 
We presently are unable to satisfy our obligations as they come due and do not have enough cash to sustain our anticipated working capital requirements and our business expansion plans for the remainder of 2012.  Subject to unforeseen effects of the economic risks and uncertainties discussed in the foregoing paragraph and to our ability to raise working capital, we expect to continue for the remainder of the calendar year 2012 to incur expenses related to software development.  The further delay of the rollout of our virtual world products, will have material adverse effects on our cash flow, results of operations and financial condition including significant uncertainty as to our ability to continue as a going concern.  No assurance can be given that we will be able to secure any third party financing or that such financing will be available to us on acceptable terms.

Given the current financial market disruptions, credit crisis and economic recession, it is difficult at this time to obtain any third-party financing on acceptable terms, whether public or private equity or debt, strategic relationships, capital leases or other arrangements.  Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restricting covenants.  Strategic arrangements, if necessary to raise additional funds, may require that we relinquish rights to certain of our technologies or products or agree to other material obligations and covenants.

Other than the insignificant revenue realized, we do not expect to begin to realize revenue from our virtual world and Facebook games until the third quarter of 2012.  So far though, we cannot provide assurance that the market will ever accept our games.  Any failure by us to sell our games within our expected schedule or on terms acceptable to us will likely have a material adverse impact on our cash flow, results of operations and financial condition.  In addition, we expect to face competition from larger, more formidable competitors as we enter the virtual world and Facebook games market.  A lack of market acceptance of our virtual world and Facebook games, failure to obtain additional financing, or unforeseen adverse competitive, economic, or other factors may adversely impact our cash position, and thereby materially adversely affect our financial condition and business operations.
 
We anticipate funding operations through private investments and loans made by our current shareholders.  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
 
$
700,000
 
Professional Fees
 
$
100,000
 
Sales, Marketing, Strategic Partnerships
 
$
100,000
 
General & Administrative
 
$
500,000
 
Working Capital
 
$
100,000
 
Total
 
$
1,500,000
 

We will need substantial additional capital to support our proposed future operations.  We have no significant revenues from operations.  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.
 
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.
 
 
 

 
 
- 12 -



 
 
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, 2011 and 2010 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 software development, possible acquisitions 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 3 to 4 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, 2012, 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, 2011 for a more complete discussion of our critical accounting policies and estimates.
 
 
 
 

 
 
- 13 -



 
 
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.

Income Taxes

We have effectively provided a full valuation allowance for the tax effects of our net operating losses during the three months ended March 12, 2012 and for the period from inception (October 21, 2010) to March 31, 2012 to offset the deferred tax asset that might otherwise have been recognized as a result of operating losses in the current period and prior periods since, because of our history of operating losses, management is unable to conclude at this time that realization of such benefit is currently more likely than not.

Recent Accounting Pronouncements

There were no recent accounting pronouncements that would have a significant effect on our future financial position, results of operations, and operating cash flows.

Off-Balance Sheet Arrangements

As of March 31, 2012, 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, 2012.  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.
 
 
 

 

 
- 14 -



 
 
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, 2012.  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.
 
 
 
 
 
 
- 15 -

 
 
PART II - OTHER INFORMATION

Item 1.     Legal Proceedings

The Company is involved in a litigation in Colorado.  Broadway Holdings, Inc. vs. Sungame Corporation.  The suit is a breach of contract by Broadway Holdings, Inc. filed on or about August 2, 2011, in the District Court, Denver County, Colorado.  The litigation evolves from Broadway Holdings, Inc. contracting to perform services for Sungame and not performing those services, and two years later, the Company attempting to rectify the situation.  No specific award was sought, and the Company has counter claimed against Broadway Holdings, Inc.

The Company will vigorously defend itself in this lawsuit, as it believes the claims against the Company are without merit.

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.

Item 3.     Defaults Upon Senior Securities
.
None

Item 4.     Mine Saftey Disclosure
 
Not applicable.

Item 5.     Other Information

None.

Item 6.      Exhibits


 

 
 
 
 
- 16 -




 

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.

SUNGAME CORPORATION




By:  /s/   Neil Chandran                                                                               
Name:     Neil Chandran
Title:       Principal Executive Officer,
                President and Chief Executive Officer,
                Chief Financial Officer and Principal
               Accounting Officer, Director

Date:    May 15, 2012


 

 

 
- 17 -