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SGMZ > SEC Filings for SGMZ > Form 10-Q on 14-Nov-2013All Recent SEC Filings

Show all filings for SUNGAME CORP

Form 10-Q for SUNGAME CORP


14-Nov-2013

Quarterly Report


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

Forward Looking Statements

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

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

Description of Business

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

The Company had 3 full time employees as of September 30, 2013.

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Table of Contents

Liquidity and Capital Resources

We had $7,529 cash as of September 30, 2013 compared to $2,604 at December 31, 2012. This net increase of $4,925 consisted of cash provided by financing activities of $527,838 offset by cash used for operating activities of $522,913. Cash provided by financing activities consisted of stock sales and subscriptions totaling $353,976, related party net advances of $149,470, and net borrowing from a lender of $24,392. Cash used for operating activities was primarily our operating loss of $822,571 for the nine months ended September 30, 2013, offset by deposits on future tablet sales of $118,940, an increase in accounts payable of $74,510, depreciation and amortization of $46,176, and compensatory stock issuance of $90,500.

We have incurred significant losses and negative cash flows from operations since our inception in on November 14, 2006. We have an accumulated deficit of $2,531,699 and a working capital deficiency of $2,267,422 as of September 30, 2013. These conditions raise substantial doubt about our ability to continue as a going concern. We have historically financed our activities through the private placement of equity securities and through related party advances. Through September 30, 2013, we have dedicated our financial resources to the development of Flightdeck and Vidirectory and the expansion of our tablet business and general and administrative expenses as described later in the section titled Results of Operations.

Results of Operations - For the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012;

Revenues

We generated revenue of $49,210 for the nine months ended September 30, 2013, versus revenue of $15,695 for the nine months ended September 30, 2012. All of the revenue for the nine months ended September 30, 2013 is from tablet sales, $39,000 of which was to a related party, Chandran. The revenue of $15,695 for the nine months ended September 30, 2012 was due to Vidirectory sales and consulting revenue.

Tablet related Revenue and Cost of Sales

Tablet related revenue and cost of sales were $49,210 and $22,271 for the nine months ended September 30, 2013 and 2012, respectively. There were no tablet sales during the nine months ended September 30, 2012 as we did not begin selling tablets until the second quarter of 2013.

General and Administrative Expenses

General and administrative expenses were $806,222 and $505,203 for the nine months ended September 30, 2013 and 2012, respectively. This increase of $301,019 was primarily due to an increase in salaries, wages and benefits totaling $75,055, which primarily resulted from the stock bonus to the Chief Executive Officer, an increase in consulting fees of $125,464 primarily due to capital raising activities, an increase in travel, and entertainment expense of $38,981, and an increase in our web development expense of $45,986.

Interest Expense

Interest expense was $18,112 and $2010 for the nine months ended September 30, 2013 and 2012, respectively. This increase of $16,102 was primarily due our borrowing $60,000 on a note payable to a lender, during the nine months ended September 30, 2013. There was no similar borrowing during the nine months ended September 30, 2012.

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Table of Contents

Net Loss

Net loss was $822,571 and $530,693 for the nine months ended September 30, 2013 and 2012, respectively. This increase in net lossof $291,878 was attributable to the changes in the revenue and expense captions as described above.

Results of Operations - For the three months ended September 30, 2013 compared to the six months ended June 30, 2013

Revenues

We generated revenues for the three months ended September 30, 2013 and three months ended September 30, 2012 of $42,100 and $3,260, respectively. The revenue of $42,100 for the three months ended September 30, 2013 is for tablet sales including $32,000, which were sold to our related party, Chandran. The revenue of $3,260 for the three months ended September 30, 2012 was for sales of Vidirectory.

Tablet related Revenue and Cost of Sales

Tablet related revenue and cost of sales were $42,100 and 19,153 for the three months ended September 30, 2013. There were no tablet sales during the three months ended September 30, 2012 as we did not distribute tablets until the second quarter of 2013.

General and Administrative Expenses

General and administrative expenses were $290,283 and $190,807 for the three months ended September 30, 2013 and the three months ended September 30, 2013, respectively. This increase of $119,476 was primarily due To an increase of $85,591 in consulting expenses primarily related to capital raising activities and a $20,264 increase in travel and entertainment expenses.

Interest Expense

Interest expense was $8,704 and $852 for the three months ended September 30, 2013 and the three months ended September 30, 2013, respectively. This change of $7,852 was primarily due to interest expense recorded on an additional $20,000 borrowing from a lender during the three months ended September 30, 2013. We had originally borrowed $40,000 from this same lender during the first half of 2013.

Net Loss

Net loss was $291,432 and $181,959 for the three months ended September 30, 2013 and the three months ended September 30, 2013, respectively. This decrease in net income of $109,473 was attributable to the changes in the revenue and expense captions as described above.

Off-Balance Sheet Arrangements

The Company has no Off-Balance Sheet Arrangements.

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Table of Contents

Tabular Disclosure of Contractual Obligations

                                     Payments due by Period
                                            Less than 1                            More than
 Contractual Obligations       Total            year       1-3 years   3-5 years    5 years

Loan payable-majority
shareholder                 $ 1,652,917     $  1,652,917
Loan payable-minority
shareholder                 $   162,372     $    162,372
TOTAL                         1,815,289        1,815,289

Going Concern

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

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

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

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

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