Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1/A
AMENDMENT NO. 5
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SUNGAME CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 7370 20-8017623
-------- ---- ----------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
501 Silverside Road, Suite 105, Wilmington, DE 19809/ Phone (310) 666-0051
(Address and telephone number of principal executive offices)
Guy M. Robert, President
501 Silverside Road, Suite 105, Wilmington, DE 19809/ Phone (310) 666-0051
(Name, address and telephone number of agent for service)
COPIES OF ALL COMMUNICATIONS TO:
Laura E. Anthony, Esq., Legal & Compliance, LLC,
330 Clematis St., Suite 217, West Palm Beach, FL, 33401
phone 561-514-0936 / fax 561-514-0832
Approximate date of commencement of proposed sale to the public: As soon as
possible after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
--------------------------------------------------------------------------------
Large accelerated filer [___] Accelerated filer [___]
--------------------------------------------------------------------------------
Non-accelerated filer [___] Smaller reporting company [_X_]
(Do not check if a smaller
reporting company)
--------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
----------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SECURITY OFFERING PRICE(1) REGISTRATION FEE
(2)
----------------------------------------------------------------------------------------------------------------------
Common Stock by Selling 6,400,000 $1.50(3) $9,600,000 $535.68
Shareholders
----------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the registration fee pursuant to Rule 457(o) under the Securities Act.
(2) Previously paid with Form S-1 Registration #333-158946.
(3) There is no market for our common shares and our pricing is arbitrary with no relation to market value, book
value, liquidation value, earnings or dividends. The prices shown in the table below were arbitrarily set based on
speculative concepts unsupported by any other comparables.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
ii
SUBJECT TO COMPLETION
PROSPECTUS
SUNGAME CORPORATION
6,400,000 SHARES OF COMMON STOCK OF SELLING SHAREHOLDERS
This is the initial public offering of SunGame Corporation, a Delaware business
company. This prospectus covers the resale by selling shareholders named on page
16.
We are registering 6,400,000 shares of common stock of selling shareholders for
sale on behalf of selling shareholders.
The selling stockholders, by themselves or through brokers and dealers, are
offering their shares at $1.50 per share until such time as a market develops
and thereafter at prevailing market prices or in privately negotiated prices. We
will not receive any of the proceeds from the sale of the shares being sold by
the selling stockholders. The selling stockholders will receive all proceeds
from such sales.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK; SEE "RISK FACTORS" BEGINNING ON
PAGE 6 TO READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF THE
COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") OR ANY STATE OR PROVINCIAL SECURITIES
COMMISSION, NOR HAS THE SEC OR ANY STATE OR PROVINCIAL SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
We intend to have an application filed on our behalf by a market maker for
approval of our common stock for quotation on the Over-the Counter Bulletin
Board quotation system, subject to effectiveness of the Registration Statement.
Such application has not yet been filed, nor is there any selected market maker
as of yet. Nevertheless, after we have selected a market maker, there is no
assurance that the market maker will agree to file the necessary documents for
quotation on the OTC Bulletin Board, nor can there be any assurance that such an
application for quotation, if made, will be approved. Therefore, there is no
assurance that we will be successful in getting our shares quoted on the OTC
Bulletin Board.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the date that the registration statement
relating to these securities, which has been filed with the Securities and
Exchange Commission, becomes effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
The date of this Prospectus is January __, 2010.
1
TABLE OF CONTENTS
PART I - INFORMATION REQUIRED IN PROSPECTUS Page No.
-----------------------------------------------------------------------------------------------------------
ITEM 1. Front of Registration Statement and Outside Front Cover Page of i
Prospectus
ITEM 2. Prospectus Cover Page 1
ITEM 3. Prospectus Summary Information, Risk Factors and Ratio of 3
Earnings to Fixed Charges
ITEM 4. Use of Proceeds 14
ITEM 5. Determination of Offering Price 14
ITEM 6. Dilution 14
ITEM 7. Selling Security Holders 15
ITEM 8. Plan of Distribution 18
ITEM 9. Description of Securities 20
ITEM 10. Interest of Named Experts and Counsel 21
ITEM 11. Information with Respect to the Registrant 21
a. Description of Business 21
b. Description of Property 32
c. Legal Proceedings 32
d. Market for Common Equity and Related Stockholder Matters 32
e. Financial Statements 33
f. Selected Financial Data 34
g. Supplementary Financial Information 34
h. Management's Discussion and Analysis of Financial Condition 34
and Results of Operations
i. Changes In and Disagreements With Accountants on Accounting 39
and Financial Disclosure
j. Quantitative and Qualitative Disclosures About Market Risk 39
k. Directors and Executive Officers 39
l. Executive and Directors Compensation 41
m. Security Ownership of Certain Beneficial Owners and 43
Management
n. Certain Relationships, Related Transactions, Promoters And 44
Control Persons
ITEM 11 A. Material Changes 45
ITEM 12. Incorporation of Certain Information by Reference 45
ITEM 12 A. Disclosure of Commission Position on Indemnification for 45
Securities Act Liabilities
2
ITEM 3. PROSPECTUS SUMMARY INFORMATION, RISK FACTORS AND RATIO OF EARNINGS TO
FIXED CHARGES
OUR COMPANY
SunGame Corporation ("We," "Us," "Our") was organized under the laws of the
State of Delaware on November 14, 2006 as SunGame International, Inc. On
November 17, 2006, we changed our name to SunGame Corporation. We are a Delaware
corporation organized for the purpose of engaging in any lawful business with a
current plan to engage in the internet virtual world space.
We are an early development stage company in the process of establishing a three
dimensional, virtual world community called GameConnect. Leveraging the
increasing popularity of online communities with this proprietary "virtual
world", we intend to capitalize on the ever increasing popularity of gaming.
With an initial focus on casual and tournament skill-based gaming, we will also
offer visitors a broad spectrum of social activities including group chats,
music download, media sharing, content creation and other features designed to
build the community and generate repeat traffic to the site.
We anticipate generating the majority of our revenues from our advertisers. The
general strategy of the virtual communities is to create a virtual world around
a game on a massive scale, so that millions can use it at any time. Games are
initially free, enabling the community to develop, then as the audience reaches
critical mass, retailer and advertising revenue will follow.
We also anticipate that the remainder of our revenue will come from fees charged
to players for some of the games and services provided by our virtual world, as
described on pages 21 through 29.
We have begun initial operations and are currently without revenue. Our
President, Mr. Robert, and our Director, Mr. Goss, are spending up to 40 hours
per week on our business at this time, and our controller and technical manager
are part-time, as needed. Through the year ended December 31, 2008, the
executive officers contributed their services and have not begun to be
compensated.
We are in the developmental stage of our business. In the beginning of 2009, we
launched our End User Virtual World system "GameConnect" in Beta version and
this Virtual World is publicly available by registering at GameConnect.com. We
intend to begin the marketing of the Virtual Worlds towards customers in the
corporate arena after adding customers to Game Connect.
Since January 1, 2009, the Company has been focused on making improvements to
its network architecture. The Company has enhanced the overall appearance of the
world; what was formerly SunIsland is now GameConnect.com, and has a world view.
This updated version features landmarks and buildings from around the world,
such as the Great Wall of China, the Pyramids, the Hollywood sign, etc.
In an effort to optimize and manage our growth, the Company has segregated its
operation into two divisions, consumer and business to business.
The consumer division, now branded as GameConnect.com (GameConnect), continues
to focus on the continued development and implementation of SunGame's Virtual
World Systems for individuals. GameConnect is available to users in both the
United States and Canada. The world focuses on targeting men and women, ages 18
to 28, the primary focus is on the development of a virtual community through
casual games and other social networking activities.
3
GameConnect now offers a number of free applications, including, game play,
chat, music download, and limited customization of their virtual world.
Subscribers have access to a growing number of features, currently including;
significant customization of their virtual world and avatar, including
accessories, furniture, clothing, etc. Subscribers can download music, upload
videos and pictures, challenge friends to and compete in online game
tournaments, earning SunGameBucks for further use in the GameConnect community.
The system now includes a cross platform solution where mobile users with Java
and Internet can log in to the Virtual World, see a list of the friends that are
on line and are able to chat with them.
In addition to working on the continued development of the GameConnect virtual
world, the Company continues to establish its capabilities to offer virtual
world development and support functions for third parties.
Our Auditors have issued a going concern opinion and the reasons noted for
issuing the opinion are our lack of revenues and modest capital.
Factors that make this offering highly speculative or risky are:
o There is no market for any securities;
o We have no revenues or sales;
o We are a start up company;
o We have no prior experience in the internet virtual world community
as a company;
o We are undercapitalized.
Our executive offices are located at 501 Silverside Road, Suite 105, Wilmington,
DE 19809 and the telephone number is 310-666-0051.
4
SUMMARY OF FINANCIAL INFORMATION
-----------------------------------------------------------------------------------------------
As at September 30, 2009
-----------------------------------------------------------------------------------------------
Total Assets $4,373
Current Liabilities $300,420
Shareholders' Deficiency $296,047
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
From November 14, 2006 to
September 30, 2009
-----------------------------------------------------------------------------------------------
Revenues $0
Net Loss at during the nine months ended September 30, 2009 $294,660
Net Loss from November 14, 2006 to September 30, 2009 $2,166,956
-----------------------------------------------------------------------------------------------
As of September 30, 2009, the accumulated deficit for our company was
$2,166,956. As of December 31, 2008, the accumulated deficit for our business
was $1,872,296. We anticipate that we will operate in a deficit position and
continue to sustain net losses for the foreseeable future.
THE OFFERING
We are registering 6,400,000 shares listed for sale on behalf of selling
shareholders. We will not received any proceeds from the sale of shares by our
selling stockholders.
There is no market for our shares and our pricing is arbitrary with no relation
to market value, liquidation value, earnings or dividends. Our selling
shareholders plan to sell common shares at $1.50, until such time as a market
develops for any of the securities and thereafter at such prices as the market
may dictate from time to time. The price of selling shareholders shares was
arbitrarily set at $1.50 per share, based on speculative concepts unsupported by
any other comparables.
----------------------------------------------------------------------------------------
THE OFFERING
------------------------------------------ ---------------------------------------------
Shares of common stock offered by Up to 6,400,000 shares of common stock
selling stockholders which would represent approximately 64%
of our outstanding common stock
------------------------------------------ ---------------------------------------------
Common stock to be outstanding Up to 10,00,000 shares of common stock
after the offering
------------------------------------------ ---------------------------------------------
Use of proceeds We will not receive any proceeds from the
sale of the shares by selling stockholders
------------------------------------------ ---------------------------------------------
5
We are authorized to issue 100,000,000 shares of common stock. Our current
shareholders, officers and directors collectively own 10,000,000 shares of
restricted common stock. These shares were issued at an average price of $0.18
per share.
There is currently no public market for our shares as it is presently not traded
on any market or securities exchange.
OUR COMPANY RISK FACTORS
Our securities, as offered hereby, are highly speculative and should be
purchased only by persons who can afford to lose their entire investment in us.
Each prospective investor should carefully consider the following risk factors,
as well as all other information set forth elsewhere in this prospectus, before
purchasing any of the shares of our common stock.
OUR BUSINESS IS A DEVELOPMENT STAGE COMPANY AND UNPROVEN AND THEREFORE RISKY.
We have only very recently adopted the business plan described herein. Potential
investors should be made aware of the risk and difficulties encountered by a new
enterprise in the internet virtual world community business, especially in view
of the intense competition from existing businesses in the industry.
WE HAVE A LACK OF REVENUE HISTORY AND INVESTORS CANNOT VIEW OUR PAST PERFORMANCE
SINCE WE ARE A START-UP COMPANY.
We were formed on November 14, 2006 for the purpose of engaging in any lawful
business and have adopted a plan to engage in the internet virtual world space.
We have had no revenues in the last five years. We are not profitable and the
business effort is considered to be in an early development stage. We must be
regarded as a new or development venture with all of the unforeseen costs,
expenses, problems, risks and difficulties to which such ventures are subject.
WE HAVE A HISTORY OF LOSSES.
We recently have incurred increased operating expenses without any increase in
revenues. We reported a net loss of $294,660 and $80,330, for the nine month
periods ended September 30, 2009 and 2008 ($32,940 and $10,035 for the three
months ended September 30, 2009 and 2008), respectively. During the years ended
December 31, 2009 and 2008, we recognized a net loss of $980,353 and $890,443,
respectively.
WE CAN GIVE NO ASSURANCE OF SUCCESS OR PROFITABILITY TO OUR INVESTORS.
There is no assurance that we will ever operate profitably. There is no
assurance that we will generate revenues or profits, or that the market price of
our common stock will be increased thereby.
6
OUR AUDITORS HAVE ISSUED A "GOING CONCERN" QUALIFICATION TO ITS OPINION WHICH
INDICATES THAT WE DO NOT HAVE ADEQUATE CASH RESOURCES OR CASH FLOW BASED ON OUR
FINANCIAL STATEMENTS TO INSURE OUR CONTINUATION IN BUSINESS.
Our independent registered public accounting firm's report on our financial
statements as of December 31, 2008 and December 31, 2007, and for the periods
then ended, includes an explanatory paragraph expressing substantial doubt about
our ability to continue as a going concern. As a result of this going concern
modification in our auditor's report on our financial statements, we may have a
difficult time obtaining significant additional financing. If we is unable to
secure significant additional financing, we may be obligated to seek protection
under the bankruptcy laws and our shareholders may lose their investment.
WE MAY HAVE A SHORTAGE OF WORKING CAPITAL IN THE FUTURE WHICH COULD JEOPARDIZE
OUR ABILITY TO CARRY OUT OUR BUSINESS PLAN.
Our capital needs consist primarily of expenses related to general and
administrative activities and product development and could exceed $300,000 in
the next twelve months. Such funds are not currently committed.
We have not generated revenue other than non-recurring $25,000 income for the
quarter end September 30, 2009 and have minimal resources to conduct planned
operations. We estimate that our monthly expenses to commence planned operations
within the next 12 months are approximately $24,000 (approximately $300,000 per
year). Thus, using currently available capital resources (the primary source of
which is non-binding commitments and expectations from management and current
shareholders), we expect to be able to conduct planned operations for a minimum
period of 2-3 months.
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.
OUR OFFICERS AND DIRECTORS MAY HAVE CONFLICTS OF INTEREST WHICH MAY NOT BE
RESOLVED FAVORABLY TO US.
Certain conflicts of interest may exist between us and our officers and
directors. Our Officers and Directors have other business interests to which
they devote their attention and may be expected to continue to do so although
management time should be devoted to our business. As a result, conflicts of
interest may arise that can be resolved only through exercise of such judgment
as is consistent with fiduciary duties to us. See "Directors and Executive
Officers" (page 39), and "Conflicts of Interest" (page 41). Our officers are
spending part-time in this business - up to 40 hours per week.
WE WILL NEED ADDITIONAL FINANCING FOR WHICH WE HAVE NO COMMITMENTS, AND THIS MAY
JEOPARDIZE EXECUTION OF OUR BUSINESS PLAN.
We have limited funds, and such funds may not be adequate to carry out the
business plan in the internet virtual world business. Our ultimate success
depends upon our ability to raise additional capital. We have not investigated
the availability, source, or terms that might govern the acquisition of
additional capital and will not do so until we determine a need for additional
financing. If we need additional capital, we have no assurance that funds will
be available from any source or, if available, that it can be obtained on terms
acceptable to us. If not available, our operations will be limited to those that
can be financed with our modest capital.
WE MAY IN THE FUTURE ISSUE MORE SHARES WHICH COULD CAUSE A LOSS OF CONTROL BY
OUR PRESENT MANAGEMENT AND CURRENT STOCKHOLDERS.
We may issue further shares as consideration for the cash or assets or services
out of our authorized but unissued common stock that would, upon issuance,
represent a majority of the voting power and equity of our Company. The result
of such an issuance would be those new stockholders and management would control
our Company, and persons unknown could replace our management at this time. Such
an occurrence would result in a greatly reduced percentage of ownership of our
Company by our current shareholders, which could present significant risks to
investors.
WE HAVE A MINIMAL OPERATING HISTORY, SO INVESTORS HAVE NO WAY TO GAUGE OUR LONG
TERM PERFORMANCE.
We were formed on November 17, 2006 and only recently adopted a business plan in
the virtual world internet industry. As evidenced by the financial reports we
have had very limited revenue. We must be regarded as a new or development
venture with all of the unforeseen costs, expenses, problems, and difficulties
to which such ventures are subject. Our venture must be considered highly
speculative.
7
WE ARE NOT DIVERSIFIED AND WE WILL BE DEPENDENT ON ONLY ONE BUSINESS.
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 WILL DEPEND UPON MANAGEMENT BUT WE WILL HAVE LIMITED PARTICIPATION OF
MANAGEMENT.
We currently have one individual who is serving as an officer and director for
up to 40 hours per week each and one director on a part-time basis. Mr. Robert,
one of our directors, is also acting as our officer. We will be heavily
dependent upon their skills, talents, and abilities, as well as several
consultants to us, to implement our business plan, and may, from time to time,
find that the inability of the officers, directors and consultants to devote
their full-time attention to our business results in a delay in progress toward
implementing our business plan. Once we receive the proceeds from this offering,
other consultants may be employed on a part-time basis under a contract to be
determined. See "Management." Because investors will not be able to manage our
business, they should critically assess all of the information concerning our
officers and directors.
OUR OFFICERS AND DIRECTORS ARE NOT EMPLOYED FULL-TIME BY US WHICH COULD BE
DETRIMENTAL TO THE BUSINESS.
Our directors and officers are, or may become, in their individual capacities,
officers, directors, controlling shareholder and/or partners of other entities
engaged in a variety of businesses. Thus, our officers and directors may have
potential conflicts including their time and efforts involved in participation
with other business entities. Each officer and director of our business is
engaged in business activities outside of our business, and the amount of time
they devote as Officers and Directors to our business will be up to 40 hours per
week. (See "Executive Team")
We do not know of any reason other than outside business interests that would
prevent them from devoting full-time to our Company, when the business may
demand such full-time participation.
OUR OFFICERS AND DIRECTORS MAY HAVE CONFLICTS OF INTERESTS AS TO CORPORATE
OPPORTUNITIES WHICH WE MAY NOT BE ABLE OR ALLOWED TO PARTICIPATE IN.
Presently there is no requirement contained in our Articles of Incorporation,
Bylaws, or minutes which requires officers and directors of our business to
disclose to us business opportunities which come to their attention. Our
officers and directors do, however, have a fiduciary duty of loyalty to us to
disclose to us any business opportunities which come to their attention, in
their capacity as an officer and/or director or otherwise. Excluded from this
duty would be opportunities which the person learns about through his
involvement as an officer and director of another company. We have no intention
of merging with or acquiring business opportunity from any affiliate or officer
or director. (See "Conflicts of Interest" at page 41)
RISK FACTORS RELATING TO OUR COMPANY AND OUR BUSINESS
OUR INTERNET VIRTUAL WORLD BUSINESS IS DRIVEN BY THE NUMBER OF "HIT"OR "POPULAR"
GAMES OFFERED. IF WE DO NOT DELIVER "HIT" GAMES, OR IF CONSUMERS PREFER
COMPETING PRODUCTS, OUR SALES COULD SUFFER.
While many new products are regularly introduced in the gaming industry, only a
relatively small number of "hit" games account for a significant portion of the
players on virtual gaming websites. Competitors may develop games that imitate
or compete with our "hit" games, and take players away from us or reduce our
ability to command premium royalties for advertising. Hit products published by
our competitors may take a larger share of consumer spending than anticipated,
which could cause our product sales to fall below expectations. If our
competitors develop more successful products or offer competitive products, or
if we do not develop consistently high-quality and well received products, our
revenue, margins, and profitability will decline.
8
THE INTERACTIVE ENTERTAINMENT INDUSTRY IS HIGHLY COMPETITIVE AND OUR COMPETITORS
MAY SUCCEED IN NARROWING OUR MARKET SHARE AND REDUCING OUR SALES.
We will compete with other publishers of interactive entertainment online
services and with publishers of PC and video game console interactive
entertainment software and peripherals. Those competitors vary in size from
small companies with limited resources to very large corporations with
significantly greater financial, marketing, and product development resources
than we have. Certain of these competitors may spend more money and time on
developing and testing products, undertake more extensive marketing campaigns,
adopt more aggressive pricing policies, pay higher fees to licensors for
desirable motion picture, television, sports, music and character properties,
and pay more to third-party software developers than we do.
Competition in the interactive entertainment industry is intense and new
competitors will continue to emerge.
WE RELY ON INDEPENDENT THIRD PARTIES TO DEVELOP SOME OF OUR SOFTWARE PRODUCTS
AND BECAUSE THESE INDIVIDUALS ARE INDEPENDENT OF THE COMPANY, THEY COULD DECIDE
TO WORK FOR COMPETITORS AND WITHOUT CONTINUED DEVELOPMENT OF OUR SOFTWARE
PRODUCTS, WE COULD SUFFER DELAYS IN DELIVERING OUR PRODUCT TO MARKET.
We rely on and will rely on independent third-party software developers to
develop some of our products. Since we depend on these developers, in the
aggregate, we are subject to the following risks:
o continuing strong demand for developers' resources, combined with the
recognition they receive in connection with their work, may cause
developers who worked for us in the past either to work for a
competitor in the future or to renegotiate our agreements with them on
terms less favorable for us;
o limited financial resources and business expertise and inability to
retain skilled personnel may force developers out of business prior to
completing products or require us to fund additional costs; and
o our competitors may acquire the businesses of key developers or sign
them to exclusive development arrangements. In either case, we would
not be able to continue to engage such developers' services for our
products, except for those that they are contractually obligated to
complete development of for us.
IF OUR GAMES CONTAIN DEFECTS, OUR BUSINESS COULD BE HARMED SIGNIFICANTLY.
Software products, games, we publish and distribute may contain undetected
errors and defects. This risk is often higher when such products are first
introduced or when new versions are released. Failure to avoid, or to timely
detect and correct, such errors or defects could result in loss of, or delay in,
market acceptance, and could significantly harm our business, financial results,
and reputation.
OUR BUSINESS IS SUBJECT TO RISKS GENERALLY ASSOCIATED WITH THE INTERACTIVE
ENTERTAINMENT INDUSTRY, ANY OF WHICH COULD SIGNIFICANTLY HARM OUR FUTURE
OPERATING RESULTS.
Our business is subject to risks that are generally associated with the
interactive entertainment industry, including the popularity, price and timing
of the release of our games and the platforms on which they are played; economic
conditions that adversely affect discretionary consumer spending; changes in
consumer demographics; the availability and popularity of other forms of
entertainment; and critical reviews and public tastes and preferences, which may
change rapidly and cannot necessarily be predicted. Many of these risks are
beyond our control. These risks could negatively impact our business and
financial results.
IF WE DO NOT INNOVATE AND PROVIDE GAMES AND SERVICES THAT ARE USEFUL TO PLAYERS
AND USERS, WE MAY NOT REMAIN COMPETITIVE, AND OUR FUTURE REVENUES AND OPERATING
RESULTS COULD SUFFER.
Our success depends on providing games and services that make using the internet
a more useful and enjoyable experience for users. Our competitors are constantly
developing innovations in web search, online advertising and web based products
and services. As a result, we may have to continue to invest significant
resources in research and development in order to enhance our systems and our
existing games and services and introduce new games and services that people can
easily and effectively use. If we are unable to provide quality products and
services, then our users may become dissatisfied and move to a competitor's
games and services. Our future operating results would also suffer if our
innovations are not responsive to the needs of our users, advertisers and
SunGame members, are not appropriately timed with market opportunities or are
not effectively brought to market. As gaming and entertainment technology
continues to develop, our competitors may be able to offer games and services
that are, or that are seen to be, substantially similar to or better than ours.
This may force us to compete in different ways and expend significant resources
in order to remain competitive.
9
WE WILL GENERATE OUR REVENUE ALMOST ENTIRELY FROM ADVERTISING, AND THE REDUCTION
IN SPENDING BY ADVERTISERS COULD SERIOUSLY AFFECT FUTURE REVENUES.
We anticipate generating the large 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.
OUR BUSINESS DEPENDS ON A STRONG BRAND, AND FAILING TO MAINTAIN AND ENHANCE OUR
BRAND WOULD HURT OUR ABILITY TO EXPAND OUR BASE OF USERS, ADVERTISERS AND
SUNGAME MEMBERS.
The brand identity that we have developed will contribute to the success of our
business. Maintaining and enhancing the "SunGame" and "GameConnect" brands is
critical to expanding our base of users, advertisers, GameConnect members, and
other partners. We believe that the importance of brand recognition will
increase due to the relatively low barriers to entry in the internet market. If
we fail to maintain and enhance the "GameConnect" brand, or if we incur
excessive expenses in this effort, our business, operating results and financial
condition will be materially and adversely affected. Maintaining and enhancing
our brand will depend largely on our ability to be a technology leader and
continue to provide high-quality products and services, which we may not do
successfully.
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY MALICIOUS APPLICATIONS THAT INTERFERE
WITH, OR EXPLOIT SECURITY FLAWS IN, OUR GAMES AND SERVICES.
Our business may be adversely affected by malicious applications that make
changes to our users' computers and interfere with the GameConnect experience.
The interference often occurs without disclosure to or consent from users,
resulting in a negative experience that users may associate with GameConnect.
These applications may be difficult or impossible to uninstall or disable, may
reinstall themselves and may circumvent other applications' efforts to block or
remove them. In addition, we offer a number of products and services that our
users download to their computers or that they rely on to store information and
transmit information to others over the internet. These products and services
are subject to attack by viruses, worms and other malicious software programs,
which could jeopardize the security of information stored in a user's computer
or in our computer systems and networks. The ability to reach users and provide
them with a superior experience is critical to our success. If our efforts to
combat these malicious applications are unsuccessful, or if our products and
services have actual or perceived vulnerabilities, our reputation may be harmed
and our user traffic could decline, which would damage our business.
INTERRUPTION OR FAILURE OF OUR INFORMATION TECHNOLOGY AND COMMUNICATIONS SYSTEMS
COULD HURT OUR ABILITY TO EFFECTIVELY PROVIDE OUR GAMES AND SERVICES, WHICH
COULD DAMAGE OUR REPUTATION AND HARM OUR OPERATING RESULTS.
The availability of our products and services will depend on the continuing
operation of our information technology and communications systems. Any damage
to or failure of our systems could result in interruptions in our service, which
could reduce our revenues and profits, and damage our brand. Our systems are
vulnerable to damage or interruption from earthquakes, terrorist attacks,
floods, fires, power loss, telecommunications failures, computer viruses,
computer denial of service attacks or other attempts to harm our systems. Some
of our data centers are located in areas with a high risk of major earthquakes.
Our data centers are also subject to break-ins, sabotage and intentional acts of
vandalism, and to potential disruptions if the operators of these facilities
have financial difficulties. Some of our systems are not fully redundant, and
our disaster recovery planning cannot account for all eventualities. The
occurrence of a natural disaster, a decision to close a facility we are using
without adequate notice for financial reasons or other unanticipated problems at
our data centers could result in lengthy interruptions in our service.
OUR BUSINESS DEPENDS ON INCREASING USE OF THE INTERNET BY USERS SEARCHING FOR
ON-LINE GAMING, ADVERTISERS MARKETING PRODUCTS AND SERVICES AND WEB SITES
SEEKING TO EARN REVENUE TO SUPPORT THEIR WEB CONTENT. IF THE INTERNET
INFRASTRUCTURE DOES NOT GROW AND IS NOT MAINTAINED TO SUPPORT THESE ACTIVITIES,
OUR BUSINESS WILL BE HARMED.
Our success will depend on the continued growth and maintenance of the internet
infrastructure. This includes maintenance of a reliable network backbone with
the necessary speed, data capacity and security for providing reliable internet
services. Internet infrastructure may be unable to support the demands placed on
it if the number of internet users continues to increase, or if existing or
10
future internet users access the internet more often or increase their bandwidth
requirements. In addition, viruses, worms and similar programs may harm the
performance of the internet. The internet has experienced a variety of outages
and other delays as a result of damage to portions of its infrastructure, and
could face outages and delays in the future. These outages and delays could
reduce the level of internet usage as well as our ability to provide our
solutions.
RISK FACTORS RELATED TO OUR STOCK
THE REGULATION OF PENNY STOCKS BY SEC AND FINRA MAY DISCOURAGE THE TRADABILITY
OF OUR SECURITIES.
We are a "penny stock" company. None of our securities currently trade in any
market and, if ever available for trading, will be subject to a Securities and
Exchange Commission rule that imposes special sales practice requirements upon
broker-dealers who sell such securities to persons other than established
customers or accredited investors. For purposes of the rule, the phrase
"accredited investors" means, in general terms, institutions with assets in
excess of $5,000,000, or individuals having a net worth in excess of $1,000,000
or having an annual income that exceeds $200,000 (or that, when combined with a
spouse's income, exceeds $300,000). For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. Effectively, this discourages broker-dealers from executing trades in
penny stocks. Consequently, the rule will affect the ability of purchasers in
this offering to sell their securities in any market that might develop
therefore because it imposes additional regulatory burdens on penny stock
transactions.
In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks". Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange
Act of 1934, as amended. Because our securities constitute "penny stocks" within
the meaning of the rules, the rules would apply to us and to our securities. The
rules will further affect the ability of owners of shares to sell our securities
in any market that might develop for them because it imposes additional
regulatory burdens on penny stock transactions.
Shareholders should be aware that, according to Securities and Exchange
Commission, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include (i) control of the market for
the security by one or a few broker-dealers that are often related to the
promoter or issuer; (ii) manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases; (iii) "boiler room"
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (iv) excessive and undisclosed
bid-ask differentials and markups by selling broker-dealers; and (v) the
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired consequent investor losses. Our
management is aware of the abuses that have occurred historically in the penny
stock market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our securities.
WE WILL PAY NO FORESEEABLE DIVIDENDS IN THE FUTURE.
We have not paid dividends on our common stock and do not ever anticipate paying
such dividends in the foreseeable future.
NO PUBLIC MARKET EXISTS FOR OUR COMMON STOCK AT THIS TIME, AND THERE IS NO
ASSURANCE OF A FUTURE MARKET.
There is no public market for our common stock, and no assurance can be given
that a market will develop or that a shareholder ever will be able to liquidate
his investment without considerable delay, if at all. If a market should
develop, the price may be highly volatile. Factors such as those discussed in
the "Risk Factors" section may have a significant impact upon the market price
of the shares offered hereby. Due to the low price of our securities, many
brokerage firms may not be willing to effect transactions in our securities.
Even if a purchaser finds a broker willing to effect a transaction in our
shares, the combination of brokerage commissions, state transfer taxes, if any,
and any other selling costs may exceed the selling price. Further, many lending
institutions will not permit the use of our shares as collateral for any loans.
RULE 144 SALES IN THE FUTURE MAY HAVE A DEPRESSIVE EFFECT ON OUR STOCK PRICE.
All of the outstanding shares of common stock held by our present officers,
directors, and affiliate stockholders are "restricted securities" within the
meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted
Shares, these shares may be resold only pursuant to an effective registration
statement or under the requirements of Rule 144 or other applicable exemptions
from registration under the Act and as required under applicable state
securities laws. We are registering 6,400,000 shares of our issued and
11
outstanding common stock so officers, directors and affiliates will be able to
sell their shares if this Registration Statement becomes effective. Rule 144
provides in essence that a person who has held restricted securities for six
months, under certain conditions, sell every three months, in brokerage
transactions, a number of shares that does not exceed the greater of 1.0% of a
company's outstanding common stock or the average weekly trading volume during
the four calendar weeks prior to the sale. There is no limit on the amount of
restricted securities that may be sold by a nonaffiliate after the owner has
held the restricted securities for a period of two years. A sale under Rule 144
or under any other exemption from the Act, if available, or pursuant to
subsequent registration of shares of common stock of present stockholders, may
have a depressive effect upon the price of the common stock in any market that
may develop.
OUR INVESTORS MAY SUFFER FUTURE DILUTION DUE TO ISSUANCES OF SHARES FOR VARIOUS
CONSIDERATIONS IN THE FUTURE.
There may be substantial dilution to our shareholders purchasing in this
Offering as a result of future decisions of the Board to issue shares without
shareholder approval for cash, services, or acquisitions.
OUR STOCK WILL IN ALL LIKELIHOOD BE THINLY TRADED AND AS A RESULT YOU MAY BE
UNABLE TO SELL AT OR NEAR ASK PRICES OR AT ALL IF YOU NEED TO LIQUIDATE YOUR
SHARES.
The shares of our common stock, if listed, may be thinly-traded on the OTC
Bulletin Board, meaning that the number of persons interested in purchasing our
common shares at or near ask prices at any given time may be relatively small or
non-existent. This situation is attributable to a number of factors, including
the fact that we are a small company which is relatively unknown to stock
analysts, stock brokers, institutional investors and others in the investment
community that generate or influence sales volume, and that even if we came to
the attention of such persons, they tend to be risk-averse and would be
reluctant to follow an unproven, early stage company such as ours or purchase or
recommend the purchase of any of our Securities until such time as we became
more seasoned and viable. As a consequence, there may be periods of several days
or more when trading activity in our Securities is minimal or non-existent, as
compared to a seasoned issuer which has a large and steady volume of trading
activity that will generally support continuous sales without an adverse effect
on Securities price. We cannot give you any assurance that a broader or more
active public trading market for our common Securities will develop or be
sustained, or that any trading levels will be sustained. Due to these
conditions, we can give investors no assurance that they will be able to sell
their shares at or near ask prices or at all if they need money or otherwise
desire to liquidate their securities of our Company.
OUR COMMON STOCK MAY BE VOLATILE, WHICH SUBSTANTIALLY INCREASES THE RISK THAT
YOU MAY NOT BE ABLE TO SELL YOUR SECURITIES AT OR ABOVE THE PRICE THAT YOU MAY
PAY FOR THE SECURITY.
Because of the limited trading market expected to develop for our common stock
and because of the possible price volatility, you may not be able to sell your
shares of common stock when you desire to do so. The inability to sell your
Securities in a rapidly declining market may substantially increase your risk of
loss because of such illiquidity and because the price for our Securities may
suffer greater declines because of our price volatility.
The price of our common stock that will prevail in the market after this
offering may be higher or lower than the price you may pay. Certain factors,
some of which are beyond our control, that may cause our share price to
fluctuate significantly include, but are not limited to the following:
o Variations in our quarterly operating results;
o Loss of a key relationship or failure to complete significant
transactions;
o Additions or departures of key personnel; and
o Fluctuations in stock market price and volume.
Additionally, in recent years the stock market in general, and the
over-the-counter markets in particular, have experienced extreme price and
volume fluctuations. In some cases, these fluctuations are unrelated or
disproportionate to the operating performance of the underlying company. These
market and industry factors may materially and adversely affect our stock price,
regardless of our operating performance. In the past, class action litigation
often has been brought against companies following periods of volatility in the
market price of those companies common stock. If we become involved in this type
of litigation in the future, it could result in substantial costs and diversion
of management attention and resources, which could have a further negative
effect on your investment in our stock.
12
MANY OF OUR SHARES OF COMMON STOCK WILL IN THE FUTURE BE AVAILABLE FOR RESALE.
ANY SALES OF OUR COMMON STOCK, IF IN SIGNIFICANT AMOUNTS, ARE LIKELY TO DEPRESS
THE MARKET PRICE OF OUR SECURITIES.
Assuming all of the shares of common stock held by the selling security holders
registered hereby are sold, we would have 6,400,000 shares that are freely
tradable. Even our officers and directors are registering their shares for sale
under this prospectus.
Unrestricted sales of 6,400,000 shares of stock by our selling stockholders
could have a huge negative impact on our share price, and the market for our
shares.
OUR NEW INVESTORS WILL SUFFER A DISPROPORTIONATE RISK AND THERE WILL BE
IMMEDIATE DILUTION OF PURCHASERS' INVESTMENTS.
Our present shareholders have acquired their securities at a cost significantly
less than that which the investors purchasing pursuant to shares will pay for
their stock holdings or at which future purchasers in the market may pay.
Therefore, new investors will bear most of the risk of loss. Further, assuming
all of the shares offered hereby are sold, of which there can be no assurance,
an investment in our common stock by the purchaser will result in an immediate
dilution (in excess of 25%) of the net tangible book value of the common stock
from the offering price which the purchasers will have paid for their shares.
OUR BUSINESS IS HIGHLY SPECULATIVE AND THE INVESTMENT IS THEREFORE RISKY.
Due to the speculative nature of our business, it is probable that the
investment in shares offered hereby will result in a total loss to the investor.
Investors should be able to financially bear the loss of their entire
investment. Investment should, therefore, be limited to that portion of
discretionary funds not needed for normal living purposes or for reserves for
disability and retirement.
WE WILL BE A REPORTING COMPANY, BUT OUR STOCK IS NOT PUBLICLY TRADED SO
INVESTORS MAY HAVE NO LIQUIDITY UNTIL TRADING IS APPROVED, IF EVER.
There is no trading market for our common stock. We will be subject to the
reporting requirements under the Securities and Exchange Act of 1934, Section
13a, pursuant to Section 15d of the Securities Act of 1933 due to the filing of
this Registration Statement. As a result, shareholders will have access to the
information required to be reported by publicly held companies under the
Exchange Act and the regulations thereunder. We intend to provide our
shareholders with quarterly unaudited reports and annual reports containing
financial information prepared in accordance with generally accepted accounting
principles audited by independent certified public accountants and pursuant to
Section 13a and 15d of the Exchange Act.
13
ITEM 4. USE OF PROCEEDS
We will not receive any of the proceeds from the selling stockholder's sale of
the shares offered under this prospectus.
ITEM 5. DETERMINATION OF OFFERING PRICE
We have no established market for our common stock.
Our selling shareholders plan to sell shares at $1.50, until such time as a
market develops for any of the securities and thereafter at such prices as the
market may dictate from time to time.
ITEM 6. DILUTION
We are registering shares of existing shareholders. Other shareholders purchased
shares at an average of $0.18 per share in 2008. Since our inception on November
14, 2006, our founding officers and directors purchased 1,373,500 shares at an
average of $0.07 per share.
COMPARATIVE DATA
The following table sets forth with respect to existing shareholders and new
investors, a comparison of the number of our shares of common stock purchased
the percentage ownership of such shares, the total consideration paid, the
percentage of total consideration paid and the average price per share. All
percentages are computed based upon cumulative shares and consideration assuming
sale of all shares in the line item as compared to maximum in each previous
line.
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
NUMBER PERCENT(2) AMOUNT PERCENT PRICE/SHARE
(3)
-----------------------------------------------------
1) Existing Shareholders 10,000,000 100% $1,628,800 100% $0.18
(1) 10,000,000 shares were issued at $0.18 per share average price.
14
ITEM 7. SELLING SECURITY HOLDERS
The selling shareholders, including officers and directors, obtained their
shares of our stock in exchange for their services on behalf of SunGame, as set
forth below:
Other than the stock transactions discussed herein, we have not entered into any
transaction nor are there any proposed transactions in which any founder,
director, executive officer, significant shareholder of our company or any
member of the immediate family of any of the foregoing had or is to have a
direct or indirect material interest.
No person who may, in the future, be considered a promoter of this offering,
will receive or expect to receive assets, services or other considerations from
us except those persons who are our salaried employees or directors. No assets
will be, nor are expected to be, acquired from any promoter on behalf of us. We
have not entered into any agreements that require disclosure to the
shareholders.
Except for Adversor and Michael Segal, all of the securities listed below are
being registered in this Registration Statement, which is 6,400,000 shares as of
the date hereof. As of the date hereof, we have 10,000,000 shares issued and
outstanding. Adversor, Inc. owns 4,000,000 shares of our shares, but we are only
registering 500,000 of these shares, at this time and Michael Segal owns 100,500
shares, but we are only registering 500 of these shares at this time.
(Remainder of page left blank intentionally.)
15
NAME SECURITIES BY COMMON SHARES % OWNED BEFORE SHARES OWNED % SHARES OWNED
EACH SHARE-HOLDER OFFERED FOR OFFERING AFTER AFTER
BEFORE OFFERING SHAREHOLDERS ACCOUNT OFFERING(1) OFFERING(1)
----------------------------------------------------------------------------------------------------------------------
Adversor, Inc.(1) 4,000,000 500,000 40% 3,500,000 35%
Crystal Vargas(1) 25,000 25,000 0.24% 0 0%
Michael D. Throckmorton(14) 70,000 70,000 0.67% 0 0%
Jill L. Throckmorton(14) 50,000 50,000 0.48% 0 0%
Rhett T. Throckmorton(14) 20,000 20,000 0.19% 0 0%
Robbi D. Throckmorton(14) 20,000 20,000 0.19% 0 0%
Ryan M. Throckmorton(14) 20,000 20,000 0.19% 0 0%
Lafayette 543, LLC (2) (14) 140,000 140,000 1.33% 0 0%
Lorin Cohen for Lily Cohen(14) 20,000 20,000 0.19% 0 0%
Steven Cohen(14) 10,000 10,000 * 0 *
Nancy Baltimore(14) 10,000 10,000 * 0 *
John Kuo (14) 500 500 * 0 *
Deb Weisman (14) 500 500 * 0 *
Michael Segal (1)(14) 100,500 500 1% 100,000 1%
Blaine Zhao (14) 500 500 * 0 *
Delong Zhou (14) 500 500 * 0 *
Eli Warsharger (14) 500 500 * 0 *
Philadelphia New York
Investors (3) (14) 265,750 265,750 2.53% 0 0%
Global Investment Advisers,
LLC (4) (14) 265,750 265,750 2.53% 0 0%
Kathy Friedland (14) 500 500 * 0 *
Jason Friedland (14) 500 500 * 0 *
Lauren Hope Friedland (14) 500 500 * 0 *
Kathy Friedland (14) 500 500 * 0 *
Applecorp, LLC (5) (14) 500 500 * 0 *
Bear Elk, Limited (6) (14) 500 500 * 0 *
China America Holdings (7) (14) 500 500 * 0 *
Strategic Technology
Advisors, LLC (8) (14) 500 500 * 0 *
VAC Edwards, LLC (9) (14) 500 500 * 0 *
Wall Street Global Research,
LLC (10) (14) 500 500 * 0 *
Western Technology Investors,
LLC (11) (14) 500 500 * 0 *
Raul Cesar De Leon (15) 500 500 * 0 *
Michael Lerin Rivero (15) 500 500 * 0 *
Jaclyn Lim (15) 500 500 * 0 *
Edgardo Diesta (15) 500 500 * 0 0%
Ranulf Jose Goss (1)(15) 1,373,000 1,373,000 13.03% 0 0%
Mindzeye Consulting Pte Ltd
(12)(16) 100,000 100,000 0.01% 0 0%
Diamond Star Exports Ltd.(13)(17) 2,500,000 2,500,000 23.81% 0 0%
Sudhir Shah (18) 1,000,000 1,000,000 9.52% 0 0%
---------------------------------------------------------------------------------------------
TOTAL 10,000,000 6,400,000 3,600,000
*Less than 1%
16
MATERIAL RELATIONSHIPS AND ADDITIONAL INFORMATION REGARDING SHAREHOLDINGS
(1) Adversor, Inc. was issued 1,500 shares as founding shares upon formation of
our Company in 2006. In October 2008, we issued 4,123,500 shares of our
restricted common stock to our majority shareholder, Adversor, Inc. 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. The natural person with voting and
dispositive powers for Adversor, Inc. is Mr. Guy M. Robert, an officer and
director of the Company. Adversor subsequently transferred 25,000 shares to
Crystal Vargas. Crystal Vargas is an employee of Adversor. In December
2009, Adversor transferred 100,000 shares to Mr. Michael Segal. Mr. Segal
is a board member of SunGame.
(2) The natural person with voting and dispositive powers for Lafayette 543,
LLC is Ms. Lorin Cohen.
(3) The natural person with voting and dispositive powers for Philadelphia New
York Investors is Mr. Jeffrey and Ms. Hope Friedland.
(4) The natural person with voting and dispositive powers for Global Investment
Advisers, LLC is Mr. Jeffrey Friedland.
(5) The natural person with voting and dispositive powers for Applecorp, LLC is
Ms. Kathy Bankoff-Friedland.
(6) The natural person with voting and dispositive powers for Bear Elk, Limited
is Ms. Kathy Bankoff-Friedland.
(7) The natural person with voting and dispositive powers for China America
Holdings is Mr. Jeffrey Friedland.
(8) The natural person with voting and dispositive powers for Strategic
Technology Advisors, LLC is Mr. Jeffrey Friedland.
(9) The natural person with voting and dispositive powers for VAC Edwards, LLC
is Mr. Jeffrey Friedland.
(10) The natural person with voting and dispositive powers for Wall Street
Global Research, LLC is Mr. Jeffrey Friedland.
(11) The natural person with voting and dispositive powers for Western
Technology Investors, LLC is Mr. Jeffrey Friedland.
(12) The natural person with voting and dispositive powers for Mindzeye
Consulting Pte Ltd. is Amit Anand.
(13) The natural person with voting and dispositive powers for Diamond Star
Exports Ltd. is Sudhir Shah.
(14) In June 2008, we issued 902,000 shares of our restricted common stock to
Friedland Capital, 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. Friedland Capital has since transferred the shares to
individuals who are shareholders and employees of Friedland Capital,
including each shareholder enumerated by this footnote reference.
(15) In September 2008, we issued 1,375,000 shares of our restricted common
stock to a director, Mr. Goss, as payment for services totaling $137,500.
The shares were issued at a price of $0.10 per share. Mr. Goss has since
transferred 2,000 of the shares to the shareholders enumerated by this
footnote reference.
(16) In March 2009 we issued 100,000 to Mindzeye Consulting Pte Ltd. in exchange
for $25,000 worth of development services provided.
(17) In October 2008, we entered into a Services Agreement with Diamond Star
Exports, Ltd. The Services Agreement provides for us to receive services
totaling up to $625,000 in connection with the development of its 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. During the nine months ended September 30, 2009, an
additional 900,000 shares were issued under the Services Agreement. The
shares were issued at a price of $0.25 per share.
(18) In October 2008, we entered into a Security Purchase Agreement (Security
Purchase Agreement) with Mindzeye Consulting Pte Ltd. We received cash of
$125,000 in exchange for 1,000,000 shares of restricted common stock and a
warrant exercisable for 1,000,000 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. Mindzeye Consulting Pte Ltd. has transferred 1,000,000 of the
shares issued to them to Sudhir Shah, a co-founder of Diamond Star Exports.
None of the above listed shareholders are registered broker-dealers or are
associates of a registered broker-dealer. None of the above listed shareholders
are affiliates of any registered broker-dealer.
17
ITEM 8. PLAN OF DISTRIBUTION
Our selling shareholders are offering the common stock at $1.50 per share until
such time as a market develops, and thereafter at prevailing market prices or
privately negotiated prices.
The selling security holders and any of their pledges, donees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock being offered under this prospectus on any stock exchange,
market or trading facility on which shares of our common stock are traded or in
private transactions. These sales may be at the offered price of $1.50 or
negotiated prices. The selling security holders may use any one or more of the
following methods when disposing of shares:
o ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker-dealer as principal and resales by the broker-dealer
for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o broker-dealers may agree with the selling security holders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any of these methods of sale; and
o any other method permitted pursuant to applicable law.
The shares may also be sold under Rule 144 under the Securities Act of
1933, as amended ("Securities Act"), if available, rather than under this
prospectus. The selling security holders have the sole and absolute discretion
not to accept any purchase offer or make any sale of shares if they deem the
purchase price to be unsatisfactory at any particular time.
The selling security holders may pledge their shares to their brokers under
the margin provisions of customer agreements. If a selling security holder
defaults on a margin loan, the broker may, from time to time, offer and sell the
pledged shares.
Broker-dealers engaged by the selling security holders may arrange for
other broker-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling security holders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated, which commissions as to a particular broker or dealer
may be in excess of customary commissions to the extent permitted by applicable
law.
If sales of shares offered under this prospectus are made to broker-dealers
as principals, we would be required to file a post-effective amendment to the
registration statement of which this prospectus is a part. In the post-effective
amendment, we would be required to disclose the names of any participating
broker-dealers and the compensation arrangements relating to such sales.
18
The selling security holders and any broker-dealers or agents that are
involved in selling the shares offered under this prospectus may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with these
sales. Commissions received by these broker-dealers or agents and any profit on
the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Any broker-dealers or agents
that are deemed to be underwriters may not sell shares offered under this
prospectus unless and until we set forth the names of the underwriters and the
material details of their underwriting arrangements in a supplement to this
prospectus or, if required, in a replacement prospectus included in a
post-effective amendment to the registration statement of which this prospectus
is a part.
The selling security holders and any other persons participating in the
sale or distribution of the shares offered under this prospectus will be subject
to applicable provisions of the Exchange Act and the rules and regulations under
that act, including Regulation M. These provisions may restrict activities of
and limit the timing of purchases and sales of any of the shares by the selling
security holders or any other person. Furthermore, under Regulation M, persons
engaged in a distribution of securities are prohibited from simultaneously
engaging in market making and other activities with respect to those securities
for a specified period of time prior to the commencement of such distributions,
subject to specified exceptions or exemptions. All of these limitations may
affect the marketability of the shares.
If any of the shares of common stock offered for sale pursuant to this
prospectus are transferred other than pursuant to a sale under this prospectus,
then subsequent holders could not use this prospectus until a post-effective
amendment or prospectus supplement is filed, naming such holders. We offer no
assurance as to whether any of the selling security holders will sell all or any
portion of the shares offered under this prospectus.
We have agreed to pay all fees and expenses we incur incident to the
registration of the shares being offered under this prospectus. However, each
selling security holder and purchaser are responsible for paying any discounts,
commissions and similar selling expenses they incur.
Under the securities laws of certain states, the shares of common stock may
be sold in such states only through registered or licensed brokers or dealers.
The selling security holders are advised to ensure that any brokers, dealers or
agents effecting transactions on behalf of the selling security holders are
registered to sell securities in all fifty states. In addition, in certain
states the shares of common stock may not be sold unless the shares have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and is complied with.
The selling security holders should be aware that the anti-manipulation
provisions of Regulation M under the Securities Exchange Act of 1934 will apply
to purchases and sales of shares of common stock by the selling security
holders, and that there are restrictions on market-making activities by persons
engaged in the distribution of the shares. Under Regulation M, the selling
security holders or their agents may not bid for, purchase, or attempt to induce
any person to bid for or purchase, shares of common stock of SunGame while such
selling security holders are distributing shares covered by this prospectus.
Accordingly, except as noted below, the selling security holders are not
permitted to cover short sales by purchasing shares while the offering is taking
place. The selling security holders are advised that if a particular offer of
common stock is to be made on terms constituting a material change from the
information set forth above with respect to this Plan of Distribution, then, to
the extent required, a post-effective amendment to the accompanying registration
statement must be filed with the Securities and Exchange Commission.
19
ITEM 9. DESCRIPTION OF SECURITIES
COMMON SHARES
We have authorized 100,000,000 shares of common stock, $0.001 par value, of
which 10,000,000 are issued and outstanding. All shares are equal to each other
with respect to voting, liquidation, and dividend rights. Special shareholders'
meetings may be called by the officers or director, or upon the request of
holders of at least one-tenth (1/10th) of the outstanding shares. Holders of
shares are entitled to one vote at any shareholders' meeting for each share they
own as of the record date fixed by the board of directors. There is no quorum
requirement for shareholders' meetings. Therefore, a vote of the majority of the
shares represented at a meeting will govern even if this is substantially less
than a majority of the shares outstanding. Holders of shares are entitled to
receive such dividends as may be declared by the board of directors out of funds
legally available therefore, and upon liquidation are entitled to participate
pro rata in a distribution of assets available for such a distribution to
shareholders. There are no conversion, pre-emptive or other subscription rights
or privileges with respect to any shares. Reference is made to our Articles of
Incorporation and our By-Laws as well as to the applicable statutes of the State
of Delaware for a more complete description of the rights and liabilities of
holders of shares. It should be noted that the board of directors without notice
to the shareholders may amend the By-Laws. Our shares do not have cumulative
voting rights, which means that the holders of more than fifty percent (50%) of
the shares voting for election of directors may elect all the directors if they
choose to do so. In such event, the holders of the remaining shares aggregating
less than fifty percent (50%) of the shares voting for election of directors may
not be able to elect any director.
PREFERRED SHARES
We are presently authorized to issue five million (5,000,000) shares of our
$0.001 par value preferred stock. Our Board of Directors can set in its
discretion the classes, series and rights, privileges and preferences as it may
determine in the future, when such shares are issued. At this time, we have not
issued any preferred shares.
20
TRANSFER AGENT
The transfer agent for our securities is Mountain Share Transfer, 1625 Abilene
Drive, Broomfield, Colorado.
ITEM 10. INTEREST OF NAMED EXPERTS AND COUNSEL
We have not hired or retained any experts or counsel on a contingent basis, who
would receive a direct or indirect interest in us, or who is, or was, our
promoter, underwriter, voting trustee, director, officer or employee.
ITEM 11. INFORMATION WITH RESPECT TO THE REGISTRANT
a. DESCRIPTION OF BUSINESS
------------------------
HISTORY OF SUNGAME CORPORATION
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.
COMPANY OVERVIEW
We have a limited operating history and no representation is made, nor is any
intended, that we will able to carry on our activities profitably. The viability
of the proposed business effort is dependent upon sufficient funds being
realized from management, current shareholders and future revenues, of which
there is no assurance.
At the time of this filing, our Board of Directors consists of three directors,
none of whom are independent directors.
SunGame Corporation is an early development stage company in the process of
establishing a three dimensional, virtual world community called GameConnect.
Leveraging the increasing popularity of online communities with this proprietary
"virtual world", we intend to capitalize on the ever increasing popularity of
gaming. With an initial focus on casual and tournament skill-based gaming, we
will also offer visitors a broad spectrum of social activities including group
chats, music download, media sharing, content creation and other features
designed to build the community and generate repeat traffic to the Virtual
world.
As each generation of computers become more powerful and affordable, and access
to broadband internet increasingly available within the home, the gaming
industry has become one of the most successful industries online. The most
popular online game, World of Warcraft, a "Massively Multiplayer Online
Role-Playing Game" or "MMORPG" enables over 1 million players from around the
world to play simultaneously. Released in November 2004, it is estimated that
World of Warcraft generated revenues in excess of $100 million in each of
several different markets in its first year alone and recently announced it had
signed its 10 millionth registered user. The potential for success in this
sector has resulted in a perpetual delivery of new games to the market, much to
the delight of the consumers, who seem to have a strong appetite for product.
21
The other component of the GameConnect experience is the social networking
aspect. The original web-based communities were formed to serve people with
shared interests and activities, enabling them to communicate through message
boards and email services. Relevant content is created and posted by the
members. Within relatively short order, social networking revolutionized the way
we communicate and share information on an everyday basis. Networks such as
MySpace and Facebook now boast millions of 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. The
leader in this new social network is SecondLife, which opened in June 2003.
However, while people around the world participate in these communities every
day, few social networks have been able to establish a successful business
model. We intend to capitalize on the social networking, gaming and virtual
world trends, providing users with a wide variety of skill games through
GameConnect, a Virtual World online community where the members can socialize,
play games, share content and compete in tournament with cash prices. We will
work to balance the more popular "standard" games such as bowling and golf, with
original content created by independent game developers. Like many of the
traditional gaming sites, ours has instituted an "outsourcing" strategy,
allowing members of the community to develop the content -- for gamers, by
gamers. The developer friendly culture is expected to result in continual
generation of original and challenging games to keep residents within the world.
Initial response to the "soft launch" of our world has been very positive and
management is now preparing to the official system launch , which is not
incorporated as part of this report. We have created a targeted launch campaign
which will provide for managed growth of the SunGame community, prizes and
increased viewership.
In October 2008, we secured a $250,000 investment from Singapore based Mindzeye
Consulting Pte, Ltd (Mindzeye) and India based Diamond Star Exports Pvt. Ltd.
(Diamond Star). As a result such investment, we have deployed the core system of
SunGame and new servers in Singapore. Customers have begun to participate in the
games available in the world and loading money into their eWallets. We have not
recognized sales from the activities at this time, but we have had users of the
product.
Since January 2009, we have established a development center in the Philippines.
We have also developed a proprietary Virtual world center with BC2 and B2B
provisioning. These developments have allowed us to deploy our B2C brand
GameConnect and have launched the WWW.GAMECONNECT.COM website.
We currently have 5 games in the final stage of development:
1. Golf
2. Bowling
3. Basketball
4. Dogs with attitude
5. Dragon fighting game
We are currently working to build a presence on the internet through such
communities as MySpace.com, in order to actively market GameConnect to end
users. We believe that this presence will be firmly in place in late August
2009.
Our Goals for the next year are as follows:
MILESTONES
1st Quarter 2010 Completion and filing of Registration Statement.
Complete Development of Version 1.1 of
GameConnect Virtual World Launch Beta-version for
existing members
2nd Quarter 2010 Refine initial launch, broaden to global marketplace
Pursue the transmedia social networking and virtual
goods marketplace
3rd Quarter 2010 Market campaign towards the business 2 business
segment. Increased partnerships within core market
segments.
22
MARKET OPPORTUNITY
Despite the popularity of game console systems such as the Wii and Nintendo, the
number one platform for games in 2007 was still personal computer. This is
largely attributed to online gaming, and this trend is expected to continue as
computer graphics and memory increases and prices decline.
The "average" game player is no longer the 25 year old male. As consumer
exposure to computers and the internet increases, so does this player base.
According to the Entertainment Software Association's 2007 ESSENTIAL FACTS ABOUT
THE COMPUTER AND VIDEO GAME INDUSTRY, the average gamer is 33 years old and has
been playing for 12 years. The following facts from that report provide insight
with regard to our target audience.
o 40% of all players are women, and women over 18 years of age are one
of the industry's fastest growing demographics, today adult women a
greater portion of the game-playing population 33% than boys age 17 or
younger 18%.
o 26% of game players are over the age of 50, an increase from 9% in
1999. This figure is sure to rise in coming years with nursing homes
and senior centers across the nation now incorporating video games
into their activities.
o 51% of most frequent game players say they play games online at least
one hour per week, up from 31 percent in 2002.
o The average adult woman plays games 7.4 hours per week and the average
adult man plays 7.6 hours per week.
o 45% of parents say they play computer and video games with their kids
weekly.
Traditional online, virtual world games require players to pay a monthly fee to
take part in the virtual world. In order to participate in these worlds, users
must create an avatar - a character that will represent them in the virtual
world. This endeavor, in and of itself has spawned an industry; there are
businesses devoted solely to the creation of customized avatars and their
accessories and eBay regularly auctions "turnkey" avatars. The maintenance of a
virtual designee is an art that many individuals take great pride in, with some
participants logging substantial amounts of time and money to create.
The general strategy of the virtual communities is to create a virtual world
around a game on a massive scale, so that millions can use it at any time. Games
are initially free, enabling the community to develop, then as the audience
reaches critical mass, retailer and advertising revenue will follow. It seems
that this strategy is working quite effectively.
In May of 2007, IBM announced a new virtual IBM Business Center offering a place
for IBM sales people, clients and partners to meet and conduct business
together. The center has six divisions: Reception; Sales Center; Technical
Support Library; Innovation Center; Client Briefing Center; and Conference
Center, all accessible through Second Life. Staffed by real IBM sales
representatives from around the world, their avatars can chat with visitors in
several languages and build business relationships.
WWW.SUNGAME.COM
The GameConnect virtual world is based on a proprietary, fully owned system
designed specifically for our company. Joining the sungame.com community is fast
and easy, requiring three simple steps:
Please see Exhibit 99.1(a) for diagram.
23
Our website is the portal to all of the GameConnect activities. To establish a
presence, users simply register at the site, after which they will be invited to
download the SunGame Application. Once they have selected a user name, password
and avatar, they will be redirected to GameConnect, where they can immediately
start interacting with other residents.
The following diagram illustrates the architecture of this network.
Please see Exhibit 99.1(b) for diagram.
For much of the rest of the function of the website, we will work in close
partnership with "best solution" providers to integrate, host, localize and
operate our technical system. Our key focus will be to modify and enhance these
applications to enhance the GameConnect experience for its members.
The chart on the following page gives an overview of the applications available
to visitors of the world. The site is essentially divided to serve two customer
groups; consumers and businesses. The consumer areas are the most widely viewed
sections, while the business areas will largely be utilized by the employees and
customers of each given venture.
24
Please see Exhibit 99.1(c) for diagram.
CONSUMER APPLICATIONS
As a member of SunGame, residents utilize their avatar to access a multitude of
activities. Navigation is intuitive and the site is designed to attract member
to the profit centers such as tournaments and music download.
GameConnect's currency is the Sun Buck, which can be earned by players as they
spend time in the virtual world. While many residents will elect this option, as
the average age of gamers rises and they assume the responsibilities of families
and jobs, gamers have less time and more money, many prefer spending "real"
money to build a bank account, likening it to renting a pay-per-view movie. To
that end, residents can also purchase Sun Bucks at a rate of 100 for each $1.
GAME PLAY
The primary focus of the GameConnect community is gaming. Visitors will be able
to select from a broad spectrum of chance and skill-based games. They will be
able to challenge one or more other visitors to enter tournaments for cash
prizes.
TOURNAMENTS
Once logged into the world, users will, in future versions, be able to search
upcoming tournaments to determine which they would like to participate in. Each
tournament will have an entry cost, which will be deducted from the player's
account or paid for before the start with an accepted payment method, such as a
credit card.
Games can last from two to five minutes, and can include from two to hundreds of
players at a single event. Once a winner has been established, the prize will be
awarded as a deposit directly into their accounts. Prizes can be awarded in cash
or Sun Bucks, depending on the method of payment used to enter the tournament.
For each tournament played we retain 20% of the "pot" with 80% going to the
winner. Upon completion of each tournament, all participants will be notified of
the results via email.
25
CONTENT SHARING
Long recognized as the Golden Rule of the internet, "Content Is King." Visitors
will surely be impressed by "cool" applications and try the latest thing, but if
the content is not worthwhile and appealing, they will not stay.
GAME CREATION
GameConnect's community will highlight gaming. To that end, we have, and will
continue to established relationships with independent gamer developers around
the world. Game developers will be able to register and be certified to upload
their games to the GameConnect portfolio. Once there, our incentive program
offers registered programmers 10% of the revenue generated by their games, in
addition to technical support with regard to system requirements, site code,
etc. Management is confident this structure will attract a substantial number of
developers to the virtual world.
MUSIC DOWNLOADING
Music is a highly popular online media which will be offered to visitors in a
number of ways on GameConnect. Music is streamed continuously over the site with
a feature that enables visitors to click on the details of a title and/or
download the song at any time.
The world features a music management application similar to iTunes(R), which
will allow users to program and play music from their MP3 player and their
GameConnect residence.
In addition to this advertising sponsored music offering, users will be able to
download music for a fee.
MEDIA UPLOAD
Users will be able to upload and share their own photos, music, documents and
videos for display in their virtual residence on GameConnect.
NETWORKING
CHAT
Community is the backbone of the GameConnect virtual world. While many visitors
will come to play games, residents are also there to socialize with others.
EVENTS
Once a resident has established their avatar and "personal space" i.e., a home
or apartment, they may invite other residents, alone or in groups, to visit
their GameConnect home, host an event, or go visit other GameConnect features
together.
ADMINISTRATIVE
PROFILE MANAGEMENT
Subscribers will be able to create their own content online, including the
design of their room, changes to their avatar and updating of their profile.
Rather than having each individual create their own unique avatar, we provide
users with a broad range of "fixed" avatars with some variables to change -
i.e., hair color, outfit etc. This structure provides us with some control with
regard to the server capacity and speed, in addition to reducing the general
system requirements for all users (i.e., not all residents will have the
capacity on their system to interact with high resolution.
26
SUN WALLET
A critical factor to the generating continuous revenue is the ease and security
with which payments can be made. The online game industry consists of an
enormous variety of player demographics, each with their own payment
preferences. Some use credit cards, while others prefer bank account debiting,
prepaid cards, or eWallets.
To this end, we have established several alternatives for residents to access
and make payments to their accounts, through its relationship with Global
Collect, a leader in the industry. With Global Collect, we are able to process
orders through credit cards, pre-paid cards, money orders and a "Sun Wallet" (we
have established a relationship with MoneyBookers, a leading eWallet provider to
manage the SunWallet). We can also offer bank-based payments such as direct
debits and off-line bank transfer solutions.
Global Collect also enables us to generate online and electronic reporting of
all payment types from a single source. We can create customized reports to
manage and review its accounts on a real-time basis. Sophisticated fraud
screening services protect us from enabling non-paying customers from playing.
ACCOUNT MANAGEMENT
Once registered, users can manage their finances, including adding SunBucks to
their Wallet, purchasing real estate, collecting tournament winnings, upgrading
their membership, paying subscription fees or submitting cash tournament entry
fees.
Basic membership is available at no charge to visitors; however users will also
in next version have the option of a VIP membership for a monthly fee. As a VIP
member, users will have access to premier real estate, be granted a monthly Sun
Bucks allowance, secure priority reservations for high profile tournaments,
early notification of special events and new features.
BUSINESS APPLICATIONS
The substantial opportunities in the interactive market give corporations a
significant economic incentive to develop multi-media marketing campaigns. This
"Transmedia" approach is particularly popular within the entertainment industry
as it enables producers to convey a story through a myriad of layers,
encouraging fan participation and interaction.
Conventional websites are no longer adequate for success. Television shows such
as LOST and Heroes are the definitive examples, offering their audience an
"experience" including ancillary materials, wikis, exploration games, back
stories, cast bios, blogs, fan discussions, spoiler rumors, and screenshots.
Sun Game will pursue this sector, offering its development services to companies
looking to utilize a multi-media marketing strategy. Anticipated activities
include the following.
THIRD PARTY/PRIVATE LABEL DEVELOPMENT
We will create turnkey virtual worlds for companies seeking to establish a
presence in this sector. Initially our focus will be the entertainment sector.
Management believes this market represents a significant opportunity as their
focus on promotion is well established, and a virtual presence provides a
distinct marketing advantage. Longer term it is expected that a virtual
component will be commonplace within many market sectors, particularly those
websites looking to appeal to a younger or computer savvy audience. We offer a
natural outsourcing alternative for those firms with the desire but without the
capabilities to develop or maintain such an operation.
OPERATIONAL
Companies can build private, secure, virtual "corporate headquarters" on
GameConnect. Business residents will essentially enter their own "world" as
created for them by us. The activities and features of these worlds will be
determined by the host.
27
ACCESS ADMINISTRATION
Our platform will enable each business to remotely control the entry to their
own virtual world. Office administrators can establish passwords and clearance
levels to ensure that only the proper employees gain access to confidential
information.
COMMERCIAL
Product placement is common in all forms of media, however brand marketing in
the virtual world provides customers with a significantly improved product
interaction, and many companies and organizations now incorporate virtual worlds
in their advertising budget.
E-COMMERCE
By creating an online store within GameConnect, users will be able to "interact"
with products. For example, IBM has built a virtual store for Sears, where users
can mock up a kitchen with Sears' appliances.
GAMING
As virtual worlds continue to gain in popularity, corporations will continue to
seek ways to participate in this media. SunGame will work with corporate clients
to develop online games for consumers. Games will be designed to generate brand
and product awareness.
ADVERTISING
While the use of advertising within "virtual worlds" is a comparatively new
idea. Management expects advertisement placement within its GameConnect games
will make a contribution to revenue in the relatively near term.
COMPETITION
There are a number of companies active in the virtual world and gaming sectors
that are already established. These companies include:
- SecondLife.com
- Zynga.com
- Pogo.com
- King.com
- Gameaccount.com
These established sites each have targeted a very specific genre of internet
users. For example SecondLife is developed more towards technical users and
Zynga has launched Social Networking games on Facebook.
There are 3 main market segments within the virtual world industry:
1. Virtual world provisioning to end users
2. White label provisioning of virtual worlds to corporations using own
proprietary software
3. Virtual world customization (branding) to corporations using own or
3rd party virtual world systems
We are in a position to be able to offer a solution to all three markets
segments. We have already launched the first Virtual World to end users and will
ensure successful growth of this business. We have developed software and will
begin the marketing of White Label provisioning of Virtual Worlds starting from
August 2009. Each corporate customer that buys a White Label Virtual World
System from us will have the opportunity to customize and brand the virtual
world using their own resources or place that branding project in conjunction
with us. In many cases, it will be more natural to place most or all of the
customization/branding project with the Company.
28
EXPANSION STRATEGY
We have developed a focused, multi-pronged expansion strategy. The following
tactics will be used to achieve our objectives.
INCREASE MEMBERSHIP THROUGH MANAGED GROWTH
We have implemented a controlled approach to growth; seeking to increase
membership at rates that will enable it to support its membership and maintain
appropriate server to customer ratios. Management estimates it can service
approximately 5,000 registered users per server, which it anticipates will
correspond to 200 simultaneous users. Management also anticipates the current
software platform will support approximately 1 million registered users which
should allow for one year to 18 months of growth.
We intend to promote the world through several channels. As the vast majority of
virtual world communities achieve critical mass through word-of-mouth and grass
roots "buzz", we will promote SunGames through other virtual communities. We
will also look to reach potential residents through related blogs, gaming
societies and conferences.
SOLICIT GAME DEVELOPERS
The initial game selection at GameConnect comprises three traditional
skill-based games, including bowling, golf and jewel catcher. In keeping with
our strategy to outsource the development of content, we expect the majority of
its new gaming content will be created by independent game developers. As new
and exciting offerings will be critical to our success, the world's culture will
seek to nurture the creative abilities of the independent developer, providing
an environment that facilitates their efforts to develop a following.
We have created a package for game developers who become certified to provide
content. In addition to retaining ownership of their intellectual property,
developers will be entitled to 10% of the revenues generated by their product.
PURSUE THE BUSINESS TO BUSINESS MARKET
Management anticipates the business to business ("B2B") sector represents a
significant opportunity for us. It is estimated that 170 high profile companies,
such as Coke, Dell, Ben and Jerry's, and Sun Microsystems have set up virtual
worlds. We anticipate the B2B sector will be attracted to our less technical
interface, along with our ability to deliver customized, turn-key virtual
worlds.
As an early entrant in the market, we are looking to establish a presence within
the corporate marketplace by providing a comprehensive package for users. Beyond
the creation of the virtual world, we will be able to provide a variety of user
activities, including back-end provisioning, customer relations management,
hardware and software setup, registration pages, profile pages, etc.
BACKLOG OF ORDERS.
We currently have no orders for sales at this time.
GOVERNMENT CONTRACTS.
We have no government contracts.
COMPANY SPONSORED RESEARCH AND DEVELOPMENT.
We are not conducting any research.
29
NUMBER OF PERSONS EMPLOYED.
As of September 30, 2009, we have 1 full-time employee, Guy M. Robert and 1
part-time administrative employee. Mr. Robert works up to 40 hours per week and
other Directors work on an as needed basis up to 40 hours per week.
PLAN OF OPERATIONS
We had no operations prior to and we did not have any revenues during the fiscal
year ended December 31, 2008. We did not recognize any income in the year ended
December 31, 2007. We have minimal capital, minimal cash, and only our
intangible assets consist of our business plan, relationships, and contacts. We
are illiquid and need cash infusions from investors or shareholders to provide
capital, or loans from any sources.
The following represents our projected operations time line:
MILESTONES
1st Quarter 2010 Completion of Registration Statement
Complete Development of Version 1.1 of GameConnect
Virtual World Launch Beta-version for existing members
2nd Quarter 2010 Refine initial launch, broaden to global marketplace
Pursue the transmedia social networking and virtual
goods marketplace.
3rd Quarter 2010 Refine initial launch, broaden to global marketplace
Market campaign towards the business 2 business segment.
Increased partnerships within core market segments.
We require funds to enable us to address our minimum current and ongoing
expenses. Presently, we have no revenue or other committed source of funds from
which we can meet our operating and capital expenses. Management projects that
we may require an additional $300,000 to fund our operating expenditures for the
next twelve month period as follows:
System Development and Integration $150,000
Professional Fees $50,000
Sales, Marketing, Strategic Partnerships $50,000
General & Administrative $25,000
Working Capital $25,000
---------
Total $300,000
We will need substantial additional capital to support our proposed future
operations. We have NO revenues. We have NO committed source for any funds as of
the date of this Registration Statement. No representation is made that any
funds will be available when needed. Although we are hoping to generate revenue
income, 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". We do not anticipate such
costs to be material after the effectiveness of this Registration Statement.
31
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, none of which we currently have any arrangements
for, 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.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
B. DESCRIPTION OF PROPERTY
DESCRIPTION OF PROPERTIES/ASSETS
(a) Real Estate. None.
(b) Title to properties. None.
(c) Oil and Gas Prospects. None.
(d) Patents. None.
We do not own any property, real or otherwise. SunGame operations are
principally located at 501 Silverside Road, Suite 105, Wilmington, DE 19809.
SunGame pays monthly rent or fees for the use of this office and related
facilities of $90.
C. LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings, nor are we aware of any
civil proceeding or government authority contemplating any legal proceeding.
D. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Currently there is no public trading market for our common stock, and we have
not applied to have the common stock quoted for trading in any venue. We intend
to apply to have the common stock quoted on the OTC Bulletin Board immediately
after filing this registration statement. No trading symbol has yet been
assigned.
32
RULES GOVERNING LOW-PRICE STOCKS THAT MAY AFFECT OUR SHAREHOLDERS' ABILITY TO
RESELL SHARES OF OUR COMMON STOCK
Our stock currently is not traded on any stock exchange or quoted on any stock
quotation system. After filing the registration statement in which this
prospectus is included, we intend to solicit a broker to apply for quotation of
common stock on the FINRA's OTC/BB.
Quotations on the OTC/BB reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not reflect actual transactions. Our common stock
will be subject to certain rules adopted by the SEC that regulate broker-dealer
practices in connection with transactions in "penny stocks." Penny stocks
generally are securities with a price of less than $5.00, other than securities
registered on certain national exchanges or quoted on the Nasdaq system,
provided that the exchange or system provides current price and volume
information with respect to transaction in such securities. The additional sales
practice and disclosure requirements imposed upon broker-dealers are and may
discourage broker-dealers from effecting transactions in our shares which could
severely limit the market liquidity of the shares and impede the sale of shares
in the secondary market.
The penny stock rules require broker-dealers, prior to a transaction in a penny
stock not otherwise exempt from the rules, to make a special suitability
determination for the purchaser to receive the purchaser's written consent to
the transaction prior to sale, to deliver standardized risk disclosure documents
prepared by the SEC that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer must also
provide the customer with current bid and offer quotations for the penny stock.
In addition, the penny stock regulations require the broker-dealer to deliver,
prior to any transaction involving a penny stock, a disclosure schedule prepared
by the SEC relating to the penny stock market, unless the broker-dealer or the
transaction is otherwise exempt. A broker-dealer is also required to disclose
commissions payable to the broker-dealer and the registered representative and
current quotations for the securities. Finally, a broker-dealer is required to
send monthly statements disclosing recent price information with respect to the
penny stock held in a customer's account and information with respect to the
limited market in penny stocks.
HOLDERS
As of the filing of this prospectus, we have 38 shareholders of record of our
common stock. Sales under Rule 144 are also subject to manner of sale provisions
and notice requirements and to the availability of current public information
about us. Under Rule 144(k), a person who has not been one of our affiliates at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least 6 months, is entitled to sell
shares without complying with the manner of sale, volume limitation or notice
provisions of Rule 144.
As of the date of this prospectus, our selling shareholders hold 10,000,000
Shares, 6,400,000 of which may be sold pursuant to this Registration Statement,
including those of affiliates who own 8,573,500 and officers/directors who own
5,473,500 in the aggregate.
DIVIDENDS
As of the filing of this prospectus, we have not paid any dividends to
shareholders. There are no restrictions which would limit our ability to pay
dividends on common equity or that are likely to do so in the future. The
Delaware Revised Statutes, however, do prohibit us from declaring dividends
where, after giving effect to the distribution of the dividend; we would not be
able to pay our debts as they become due in the usual course of business; or our
total assets would be less than the sum of the total liabilities plus the amount
that would be needed to satisfy the rights of shareholders who have preferential
rights superior to those receiving the distribution.
E. FINANCIAL STATEMENTS
The audited financial statements of SunGame Corporation for the years ended
December 31, 2008 and 2007 appear on pages F-1 through F-10. The unaudited
financial statements for the nine and three month period ended September 30,
2009 appear as pages F-11 through F-20.
33
RONALD R. CHADWICK, P.C.
Certified Public Accountant
2851 South Parker Road, Suite 720
Aurora, Colorado 80014
Telephone (303)306-1967
Fax (303)306-1944
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Sungame Corporation
Wilmington, Delaware
I have audited the accompanying balance sheets of Sungame Corporation (a
development stage company) as of December 31, 2008 and 2007, and the related
statements of operations, stockholders' equity and cash flows for the years then
ended and for the period from November 14, 2006 (inception of the development
stage) through December 31, 2008 . These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audit provides a reasonable
basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Sungame Corporation as of December
31, 2008 and 2007, and the results of its operations and its cash flows for the
years then ended and for the period from November 14, 2006 (inception of the
development stage) through December 31, 2008 in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a working capital deficit and stockholders' deficit. These conditions
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Aurora, Colorado /s/Ronald R. Chadwick, P.C.
March 23, 2009 RONALD R. CHADWICK, P.C.
F-1
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Balance Sheets
December 31,
2008 2007
------------- -------------
ASSETS:
Current Assets:
Cash $ 22,286 $ 2,926
- -
------------- -------------
Total Current Assets 22,286 2,926
------------- -------------
Fixed Assets
Office Equipment 1,373
Accumulated Depreciation (46)
------------- -------------
Total Fixed Assets 1,327 -
------------- -------------
TOTAL ASSETS $ 23,613 $ 2,926
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY:
Current Liabilities:
Related Party Payable $ - $ 775,000
Contracts Payable 190,000 -
Loans Payable - Stockholder 110,000 118,369
------------- -------------
Total Current Liabilities 300,000 893,369
------------- -------------
Stockholders' Deficiency:
Common stock, par value, $0.001 8,500 1
100,000,000 authorized with:
8,500,000 issued and outstanding at December 31, 2008
and 1,500 issued and outstanding at Dec. 31, 2007 & 2006
Paid in Capital 1,587,409 1,499
Preferred Stock, par value $0.001
5,000,000 authorized with none outstanding
Accumulated deficit (1,872,296) (891,943)
------------- -------------
Total Stockholders' Deficiency (276,387) (890,443)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 23,613 $ 2,926
============= =============
The accompanying notes are an integral part of these financial statements
F-2
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Statements of Operations
November 14,
Year ended 2006, (Inception)
December 31, to December 31,
----------------------------------- -------------------
2008 2007 2008
--------------- -------------- -------------------
REVENUE: $ - $ - $ -
--------------- -------------- -------------------
TOTAL INCOME - - -
--------------- -------------- -------------------
COSTS AND EXPENSES:
Software development 120,500 864,549 985,049
Stock based compensation 587,300 587,300
Depreciation 46 46
Consulting fees 257,500 257,500
Startup costs 15,007 25,894 42,401
--------------- -------------- -------------------
TOTAL EXPENSES 980,353 890,443 1,872,296
--------------- -------------- -------------------
NET LOSS FROM OPERATIONS (980,353) (890,443) (1,872,296)
--------------- -------------- -------------------
OTHER INCOME AND (EXPENSES)
- - -
--------------- -------------- -------------------
NET LOSS $ (980,353) $ (890,443) $ (1,872,296)
=============== ============== ===================
Per Share Information
Loss per common share $ (0.46) $ (593.63)
=============== ==============
Weighted average number
of shares outstanding 2,126,125 1,500
=============== ==============
The accompanying notes are an integral part of these financial statements
F-3
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Statements of Stockholder's Equity (Deficit)
Common Preferred Common Stock
Common Dollars at Paid in Preferred Dollars Stock Subscription Retained Stockholders'
Shares $0.001 Par Capital Shares $0.001 Par Subscribed Receivable Earnings Equity
-------------------------------------------------------------------------------------------------------
Balances 11/14/06 - $ - $ - - $ - $ - $ - $ - $ -
Shares to parent
for services 1,500 1 1,499 1,500
Net loss for year (1,500) (1,500)
----------- ---------- ---------- --------- --------- --------- ---------- ---------- -----------
Balances at
December 31, 2006 1,500 1 1,499 - - - - (1,500) -
Net loss for year (890,443) (890,443)
----------- ---------- ---------- --------- --------- --------- ---------- ---------- -----------
Balances at
December 31, 2007 1,500 1 1,499 - - - - (891,943) (890,443)
Shares issued to
parent for debt relief 4,123,500 4,124 770,876 775,000
Shares issued for services 3,875,000 3,875 583,425 587,300
Shares issued for cash 500,000 500 119,500 120,000
Warrants issued for cash 5,000 5,000
Additional paid-in capital
from parent 107,109 107,109
Net loss for year (980,353) (980,353)
----------- ---------- ---------- --------- --------- --------- ---------- ---------- -----------
Balances at
December 31, 2008 8,500,000 $ 8,500 $1,587,409 $ - $ - $ - $(1,872,296) $ (276,387)
=========== ========== ========== ========= ========= ========= ========== ========== ===========
The accompanying notes are an integral part of these financial statements
F-4
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Statements of Cash Flows
November 14,
Year ended 2006, (Inception)
December 31, to December 31,
----------- ---------- --------------
2008 2007 2008
----------- ---------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (980,353) $ (890,443) $ (1,872,296)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 46 46
Increase in accrued expenses 190,000 - 190,000
Increase in accounts payable 775,000 -
Compensatory stock issuances 587,300 - 1,362,300
----------- ---------- --------------
NET CASH USED BY OPERATING ACTIVITIES (203,007) (115,443) (319,950)
----------- ---------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) in Fixed Assets (1,373) - (1,373)
----------- ---------- --------------
NET CASH USED FOR INVESTING ACTIVITIES (1,373) - (1,373)
----------- ---------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of Common Stock and Warrants 125,000 126,500
Paid in capital 107,109 107,109
(Decrease) Increase in Loans Payable (8,369) 118,369 110,000
----------- ---------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 223,740 118,369 343,609
----------- ---------- --------------
NET INCREASE IN CASH & CASH EQUIVALENTS 19,360 2,926 22,286
BEGINNING CASH & CASH EQUIVALENTS 2,926 - -
----------- ---------- --------------
ENDING CASH & CASH EQUIVALENTS $ 22,286 $ 2,926 $ 22,286
=========== ========== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest expense $ - $ - $ -
=========== ========== ==============
Cash paid for income taxes $ - $ - $ -
=========== ========== ==============
NON-CASH TRANSACTIONS
Stock issued for services $ 587,300 $ - $ 587,300
Stock issued for debt relief 775,000 - 775,000
----------- ---------- --------------
$ 1,362,300 $ - $ 1,362,300
=========== ========== ==============
The accompanying notes are an integral part of these financial statements
F-5
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The accompanying financial statements include the accounts of SunGame
Corporation ("the Company"), a Delaware corporation. The Company is an
early development stage company that intends to become a leader in
providing seamless gambling and skill gaming in a virtual world. The
Company believes that it can exploit the market that is at the
confluence of gaming and gambling, and that this market is very
significant. The Company will provide various types of Skill Games in
an online Virtual World where the users, regardless of location can
compete and place bets, using virtual money or real money and where the
end users can be individuals or corporations.
The main activity will be to provide a network that attracts players
who interact in a seamless environment. The main goal will be to
introduce competitive and unique products in an already established
market place. The Company will be a premier marketer of money related
activities that will have distinct comparative advantages compared to
both direct and indirect competitors.
The Company was incorporated in Delaware on November 14, 2006. The
Company's fiscal year end is December 31st.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEVELOPMENT STAGE COMPANY
The Company is a development stage company as defined by Financial
Accounting Standards No. 7. The Company is devoting substantially all
of its present efforts to establish a new business. All losses
accumulated since inceptions have been considered as part of the
Company's development stage activities.
RISKS AND UNCERTAINTIES
The Company operates in an emerging industry that is subject to market
acceptance and technological change. The Company's operations are
subject to significant risks and uncertainties, including financial,
operational, technological and other risks associated with operating an
emerging business, including the potential risk of business failure.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make certain estimates and assumptions that affect the
reported amounts and timing of revenue and expenses, the reported
amounts and classification of assets and liabilities, and disclosure of
contingent assets and liabilities. These estimates and assumptions are
based on management's future expectations for the Company's operations.
The Company's actual results could vary materially from management's
estimates and assumptions.
F-6
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
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.
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.
F-7
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
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 December 31, 2007 the Company had no net operating loss
carryforwards due to book/tax differences of $890,443. At December 31,
2008 the Company had a no net operating loss carryforward of
approximately $980,000 which expires in 2028. The deferred tax asset of
$382,000 created by the net operating loss has been offset by a 100%
valuation allowance. The change in the valuation allowance in 2008 was
$382,000.
2. GOING CONCERN UNCERTAINTY AND MANAGEMENTS' PLANS
In the Company's audited financial statements for the fiscal years
ended December 31, 2007 and 2008, 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
2007 and 2008 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 $890,443 and $980,353 for the years
ended December 31, 2007 and 2008, and an accumulated deficit of
$891,943 and $1,872,296 as of December 31, 2007 and 2008. At December
31, 2007 and 2008, the Company's total current liabilities exceed total
current assets by $890,443 and $277,714.
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 cumulative amount of $985,049 at December 31,
2008. Per the discussion under "Software Costs" this amount has been
expensed.
F-8
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
4. ACCOUNTS PAYABLE
At December 31, 2007 accounts payable totaled $775,000 and was owed to
one creditor, Adversor, Inc., a majority shareholder of the Company.
During the year ended December 31, 2008 the creditor agreed to forgive
the $775,000 in exchange for 4,123,500 shares of the Company's
restricted common stock (See Note 7).
5. CONTRACTS PAYABLE
During the year ended December 31, 2008 the Company entered into a
Corporate Finance Advisory Services Agreement with Friedland Global
Capital Markets, LLC ("Friedland"). The Agreement provides that the
Company will pay a remaining total of $190,000 for services as set
forth in the Agreement. These funds payable are non-interest bearing
and due on demand.
6. ADVANCE PAYABLE, RELATED PARTY
During the year ended December 31, 2007, the Company's majority
shareholder, Adversor, Inc. ("Adversor") advanced funds of $118,369 to
the Company for operations. During the year ended December 31, 2008
Adversor advanced an additional $98,740 to support operations. In 2008
Adversor donated $107,109 to the Company's capital, leaving a year end
balance owed to Adversor of $110,000. These amounts owed are
non-interest bearing and due on demand.
7. STOCKHOLDERS' DEFICIENCY
COMMON STOCK
In October 2008, the Company entered into a Security Purchase Agreement
(Security Purchase Agreement) with a third party. The Company received
cash of $125,000 in exchange for 500,000 shares of restricted common
stock and a warrant exercisable for 500,000 shares of the Company's
restricted common stock. The warrant has an exercise price of $0.80 per
share and a term of three years. The shares were sold at a price of
$0.25 per share with $0.24 per share allocated to the common stock and
$0.01 per share allocated to the warrant.
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 system 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.
F-9
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
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 1,375,000 shares of its
restricted common stock to a director, Mr. Goss, of the Company as
payment for services totaling $137,5,00. 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.
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
50,000 $0.80 October 2011
-------------
50,000
OTHER CAPITAL TRANSACTIONS
During the year ended December 31, 2008, the majority shareholder,
Adversor, paid $20,000 for services on the Company's behalf. In
addition, during the year ended December 31, 2008, Adversor forgave
$87,109 in debt owed to them. The Company has treated such amounts as
capital contributions and as such has increased Additional Paid in
Capital by $107,109.
F-10
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
SEPTEMBER 30, 2009
FINANCIAL STATEMENTS
(UNAUDITED)
F-11
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
September 30, December 31,
2009 2008
----------------- -----------------
Unaudited
ASSETS:
Current Assets:
Cash $ 3,252 $ 22,286
----------------- -----------------
Total Current Assets 3,252 22,286
Fixed Assets 1,373 1,373
Depreciation (252) (46)
----------------- -----------------
Total Fixed Assets 1,121 1,327
TOTAL ASSETS $ 4,373 $ 23,613
================= =================
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current Liabilities:
Accounts Payable $ 17,950 $ -
Contract Payable 165,000 190,000
Loans Payable - Stockholder 117,470 110,000
----------------- -----------------
Total Current Liabilities 300,420 300,000
----------------- -----------------
Stockholders' Deficit:
Common stock, par value $0.001
100,000,000 shares authorized; 9,600,000 and 8,500,000 9,600 8,500
issued and outstanding respectively
Preferred stock, par value $0.001
5,000,000 shares authorized; no shares issued or
outstanding - -
Paid in capital 1,861,309 1,587,409
Accumulated deficit (2,166,956) (1,872,296)
----------------- -----------------
Total Stockholders' Deficit (296,047) (276,387)
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 4,373 $ 23,613
================= =================
The accompanying notes are an integral part of these financial statements
F-12
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
November 14,
Three Months ended Nine Months ended 2006, (Inception)
September 30, September 30, September 30,
2009 2008 2009 2008 2009
----------- ----------- ------------ ----------- -----------------
Unaudited Unaudited Unaudited Unaudited Unaudited
REVENUE:
Miscellaneous Income $ 25,000 $ - $ 25,000 $ - $ -
----------- ----------- ------------ ----------- -----------------
TOTAL INCOME 25,000 - 25,000 - -
----------- ----------- ------------ ----------- -----------------
COSTS AND EXPENSES:
Consulting - - 25,000 3,698 844,800
Depreciation 69 - 206 252
General and Administrative 13,592 35 18,925 1,632 54,730
Legal and professional 19,390 40,980 40,980
Travel - 1,016 7,612
Website development 24,853 10,000 233,533 75,000 1,218,582
----------- ----------- ------------ ----------- -----------------
TOTAL EXPENSES 57,904 10,035 319,660 80,330 2,166,956
----------- ----------- ------------ ----------- -----------------
NET LOSS FROM OPERATIONS (32,904) (10,035) (294,660) (80,330) (2,166,956)
----------- ----------- ------------ ----------- -----------------
OTHER INCOME AND (EXPENSES)
- - - - -
----------- ----------- ------------ ----------- -----------------
- - - - -
----------- ----------- ------------ ----------- -----------------
NET LOSS $ (32,904) $ (10,035) $ (294,660) $ (80,330) $ (2,166,956)
=========== =========== ============ =========== =================
Per Share Information
Loss per common share $ (0.00) $ (6.69) $ (0.03) $ (53.55)
=========== =========== ============ ===========
Weighted average number
of shares outstanding 9,600,000 1,500 9,233,333 1,500
----------- ----------- ------------ -----------
The accompanying notes are an integral part of these financial statements
F-13
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
November 14,
Nine Months ended Nine Months ended 2006, (Inception)
September 30, September 30, to September 30,
2009 2008 2009
------------------ ------------------- ---------------
(Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (294,660) $ (80,330) $ (2,166,956)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 207 253
Increase/(Decrease) in accounts payable 17,950 - 17,950
Contracts payable (25,000) 165,000
Compensatory stock issuances 150,000 737,300
------------------ ------------------- ---------------
NET CASH USED BY OPERATING ACTIVITIES (151,503) (80,330) (1,246,453)
------------------ ------------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Fixed Assets - - (1,373)
- - -
------------------ ------------------- ---------------
NET CASH USED FOR INVESTING ACTIVITIES - - (1,373)
------------------ ------------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of Common Stock 500 9,000
Increase in Paid in Capital 124,500 - 1,124,608
Increase in Loans Payable - Stockholder 7,470 78,740 117,470
------------------ ------------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 132,470 78,740 1,251,078
------------------ ------------------- ---------------
NET INCREASE IN CASH & CASH EQUIVALENTS (19,033) (1,590) 3,252
BEGINNING CASH & CASH EQUIVALENTS 22,285 2,926 -
------------------ ------------------- ---------------
ENDING CASH & CASH EQUIVALENTS $ 3,252 $ 1,336 $ 3,252
================== =================== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest expense $ - $ - $ -
================== =================== ===============
Cash paid for income taxes $ - $ - $ -
================== =================== ===============
NON-CASH TRANSACTIONS
Stock issued for services $ 150,000 $ - $ 738,800
================== =================== ===============
Paid in capital from debt relief $ - $ - $ 775,000
================== =================== ===============
The accompanying notes are an integral part of these financial statements
F-14
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
Common Stockholders'
Common Dollars at Paid in Preferred Preferred Retained Equity/
Shares No Par Capital Shares Par ($.10) Earnings (Deficit)
----------- ---------- ----------- ---------- ---------- ------------ -------------
BALANCES 11/14/06 - $ - $ - - $ - $ - $ -
11/15/06 Shares issued to Adversor, Inc. (parent)
for services valued at $1,500 1,500 1 1,499 1,500
Gain (loss) for period (1,500) (1,500)
------------------------------------------------------------------------------------
BALANCES 12/31/2006 1,500 1 1,499 - - (1,500) -
Gain (loss) for period (890,443) (890,443)
------------------------------------------------------------------------------------
BALANCES 12/31/2007 1,500 1 1,499 - - (891,943) (890,443)
9/30/08 Paid in Capital - Parent Corp 107,109 107,109
10/1/08 Stock issued to parent in connection with
services provided for debt relief 4,123,500 4,124 770,876 775,000
10/1/08 Stock issued for services 2,275,000 2,275 185,025 187,300
Stock issued for cash 500,000 500 119,500 120,000
500,000 warrants issued @ $0.01 5,000 5,000
10/9/08 Stock issued for services 1,600,000 1,600 398,400 400,000
Gain (loss) for period (980,353) (980,353)
------------------------------------------------------------------------------------
BALANCES 12/31/08 8,500,000 8,500 1,587,409 - - (1,872,296) (276,387)
Stock issued for cash 500,000 500 119,500 120,000
500,000 warrants issued @ $0.01 5,000 5,000
Stock issued for services per agreement 600,000 600 149,400 150,000
Gain (loss) for period (294,660) (294,660)
------------------------------------------------------------------------------------
BALANCES 9/30/09 - UNAUDITDED 9,600,000 $ 9,600 $1,861,309 - $ - $ (2,166,956)$ (296,047)
====================================================================================
The accompanying notes are an integral part of these financial statements
F-15
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The accompanying financial statements include the accounts of SunGame
Corporation ("the Company"), a Delaware corporation. The Company is an
early development stage company that intends to become a leader in
providing seamless gambling and skill gaming in a virtual world. The
Company believes that it can exploit the market that is at the
confluence of gaming and gambling, and that this market is very
significant. The Company will provide various types of Skill Games in
an online Virtual World where the users, regardless of location can
compete and place bets, using virtual money or real money and where the
end users can be individuals or corporations.
The main activity will be to provide a network that attracts players
who interact in a seamless environment. The main goal will be to
introduce competitive and unique products in an already established
market place. The Company will be a premier marketer of money related
activities that will have distinct comparative advantages compared to
both direct and indirect competitors.
The Company was incorporated in Delaware on November 14, 2006. The
Company's fiscal year end is December 31st.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEVELOPMENT STAGE COMPANY
The Company is a development stage company as defined by Financial
Accounting Standards No. 7. The Company is devoting substantially all
of its present efforts to establish a new business. All losses
accumulated since inceptions have been considered as part of the
Company's development stage activities.
INTERIM PRESENTATION
In the opinion of the management of the Company, the accompanying
unaudited financial statements include all material adjustments,
including all normal and recurring adjustments, considered necessary to
present fairly the financial position and operating results of the
Company for the periods presented. The financial statements and notes
do not contain certain information included in the Company's financial
statements for the year ended December 31, 2008. It is the Company's
opinion that when the interim financial statements are read in
conjunction with the December 31, 2008 Audited Financial Statements,
the disclosures are adequate to make the information presented not
misleading. Interim results are not necessarily indicative of results
for a full year or any future period.
F-16
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
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.
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
F-17
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
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 December 31, 2008 the Company had a no net operating loss
carryforward of approximately $980,000 which expires in 2028. The
deferred tax asset of $382,000 created by the net operating loss has
been offset by a 100% valuation allowance. The change in the valuation
allowance in 2008 was $382,000.
2. GOING CONCERN UNCERTAINTY AND MANAGEMENTS' PLANS
In the Company's audited financial statements for the fiscal years
ended December 31, 2007 and 2008, 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
year ended December 31, 2008 and the nine months ended September 30,
2009, 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 $294,660 during the nine months ended September 30, 2009,
and an accumulated deficit of $2,166,956 as of September 30, 2009. At
September 30, 2009, the Company's total current liabilities exceed
total current assets by $296,047.
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.
F-18
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
3. PROPERTY AND EQUIPMENT
The Company has incurred software costs in the development of its
virtual world in the cumulative amount of $985,049 at December 31, 2008
and $233,533 at September 30, 2009. Per the discussion under "Software
Costs" this amount has been expensed.
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 will pay a remaining total of $190,000, at December 31, 2008,
for services as set forth in the Agreement. These funds payable are
non-interest bearing and due on demand. During the nine months ended
September 30, 2009, the Company paid $25,000 on the outstanding amount.
6. ADVANCE PAYABLE, RELATED PARTY
During the year ended December 31, 2008, the Company's majority
shareholder, Adversor, Inc. ("Adveror") advanced funds of $98,740 to
support operations. In 2008 Adversor donated $107,109 to the Company's
capital, leaving a year end balance owed to Adversor of $110,000.
During the nine months ended September 30, 2009, Adversor advanced an
additional $7,470 to support operations. The balance owed to Adversor
at September 30, 2009 is $117,470. The amounts owed are non-interest
bearing and due on demand.
7. STOCKHOLDERS' DEFICIENCY
COMMON STOCK
In October 2008, the Company entered into a Security Purchase Agreement
(Security Purchase Agreement) with a third party. The Company received
cash of $125,000 in exchange for 500,000 shares of restricted common
stock and a warrant exercisable for 500,000 shares of the Company's
restricted common stock. The warrant has an exercise price of $0.80 per
share and a term of three years. The shares were sold at a price of
$0.25 per share with $0.24 per share allocated to the common stock and
$0.01 per share allocated to the warrant.
In March 2009, per the Security Purchase Agreement, the Company
received additional 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 system and gaming software to be paid for by the
issuance of up to 2,500,000 shares of the Company's common stock.
F-19
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
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. During the nine months ended September 30, 2009, the Company
issued 600,000 of these shares in exchange for services performed
totaling $150,000. The shares were issued at a price of $0.25 per
share. In October 2009, the remaining 900,000 shares were issued.
WARRANTS
At September 30, 2009, 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
------------------------------
Total 1,000,000
F-20
F. SELECTED FINANCIAL INFORMATION
Not applicable.
G. SUPPLEMENTARY FINANCIAL INFORMATION
Not applicable.
H. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR AUDITED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED HEREIN. FORWARD-LOOKING
STATEMENTS ARE STATEMENTS NOT BASED ON HISTORICAL INFORMATION AND WHICH RELATE
TO FUTURE OPERATIONS, STRATEGIES, FINANCIAL RESULTS OR OTHER DEVELOPMENTS.
FORWARD LOOKING STATEMENTS ARE NECESSARILY BASED UPON ESTIMATES AND ASSUMPTIONS
THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE
UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND OUR CONTROL AND MANY
OF WHICH, WITH RESPECT TO FUTURE BUSINESS DECISIONS, ARE SUBJECT TO CHANGE.
THESE UNCERTAINTIES AND CONTINGENCIES CAN AFFECT ACTUAL RESULTS AND COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD LOOKING
STATEMENTS MADE BY, OR ON OUR BEHALF. WE DISCLAIM ANY OBLIGATION TO UPDATE
FORWARD-LOOKING STATEMENTS.
Since January 1, 2009, the Company has focus on making improvements to its
network architecture. The Company has enhanced the overall appearance of the
world; what was formerly SunIsland is now GameConnect.com, and has a world view.
This updated version features landmarks and buildings from around the world,
such as the Great Wall of China, the Pyramids, the Hollywood sign, etc.
In an effort to optimize and manage our growth, the Company has segregated its
operation into two divisions, consumer and business to business.
The consumer division, now branded as GameConnect.com (GameConnect), continues
to focus on the continued development and implementation of SunGame's Virtual
World Systems for individuals. GameConnect is available to users in both the
United States and Canada. The world focuses on targeting men and women, ages 18
to 28, the primary focus is on the development of a virtual community through
casual games and other social networking activities.
GameConnect now offers a number of free applications, including, game play,
chat, music download, and limited customization of their virtual world.
Subscribers have access to a growing number of features, currently including;
significant customization of their virtual world and avatar, including
accessories, furniture, clothing, etc. Subscribers can download music, upload
videos and pictures, challenge friends to and compete in online game
tournaments, earning SunGameBucks for further use in the GameConnect community.
The system now includes a cross platform solution where mobile users with Java
and Internet can log in to the Virtual World, see a list over the friends that
are on line and are able to chat with them.
In addition to working on the continued development of the GameConnect virtual
world, the Company continues to establish its capabilities to offer virtual
world development and support functions for third parties.
RESULTS OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2009 COMPARED WITH THE NINE MONTH
PERIOD ENDED SEPTEMBER 30, 2008
During the nine months ended September 30, 2009 we recognized revenue in the
amount of $25,000 compared to the nine months ended September 30, 2008, in which
we did not recognize any revenues from our operational activities. The $25,000
revenue for the nine months ended September 30, 2009 resulted from the one time
sale of the rights to use one of our many 3D objects contained in our Virtual
World to a third party. This sale of the rights to use 3D objects was not
exclusive and did not effect our ownership rights or our rights to these 3D
objects. In addition, this sale does not effect our business plan or plan of
operations.
During the nine months ended September 30, 2009, we incurred a total operational
expense of $294,660 compared to $80,330 for the nine months ended September 30,
2008. The increase of $214,330 was a result of the increase of $158,533 in
website development costs, combined with increases of $40,980 in legal and
professional expenses and $21,302 in consulting expenses. These increases are a
result of our increased operational activities and our efforts to file a
Registration Statement of Form S-1 with the Securities and Exchange Commission.
34
During the nine months ended September 30, 2009, we incurred a net loss of
$294,660 compared to a net loss of $80,330 for the nine months ended September
30, 2008. The increase of $214,330 was a result of the increase in operational
expenses as discussed in the preceding paragraph.
During the nine months ended September 30, 2009, recognized a net loss per share
of $0.03 and during the nine months ended September 30, 2008, we recognized a
net loss per share of $53.55 per share.
FOR THE YEAR ENDED DECEMBER 31, 2008 COMPARED WITH THE YEAR ENDED DECEMBER 31,
2007
During the years ended December 31, 2008 and 2007, we did not recognize revenue
from our operational activities.
During the year ended December 31, 2008, we incurred total expenses of $980,353
compared to total expenses of $890,443 for the year ended December 31, 2007. The
increase of $89,910 was a result of the $587,300 increase in stock based
compensation and the $257,500 increase in consulting expenses offset by the
$744,049 decrease in software development costs compared to the prior year. Such
increases were a result of our increased operational activities with the beta
testing and launching of our virtual world.
During the year ended December 31, 2008, we recognized a net loss of $980,353
compared to $890,443 in net losses for the year ended December 31, 2008. The
$89,910 increase was a result of the increases discussed in the preceding
paragraph.
During the year ended December 31, 2008, we recognized a net loss per share of
$0.46 and during the year ended December 31, 2007 a net loss per share of
$593.63.
LIQUIDITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2009
At September 30, 2008, we had cash on hand of $3,252 and total assets of $4,373,
consisting of cash of $3,252 and net fixed assets of $1,121. At September 30,
2009, we had total current liabilities of $300,420, consisting of $165,000 in
contract payables and $117,470 loan payable to a shareholder. At September 30,
2009, we had a working capital deficit of $297,168.
During the nine months ended September 30, 2009, cash used in operating
activities was $151,503 compared to $80,330 during the nine months ended
September 30, 2008. During the nine months ended September 30, 2009, net losses
of $294,660 were adjusted for non-cash items of $207 in depreciation and
compensatory stock issuances of $150,000. During the nine months ended September
30, 2008, there were not any adjustments for non-cash items.
During the nine months ended September 30, 2009 and 2008, we did not receive or
use cash in investing activities.
During the nine months ended September 30, 2009, we received $132,470 from our
financing activities. During the nine months ended September 30, 2008, we
received $78,740 from our financing activities.
In March 2009, per the existing Security Purchase Agreement, we received cash of
$125,000 in exchange for 500,000 shares of restricted common stock. The shares
were sold at a price of $0.25 per share.
During the year ended December 31, 2008, the Company's majority shareholder,
Adversor advanced funds of $98,740 to support operations. In 2008 Adversor
donated $107,109 to the Company's capital, leaving a year end balance owed to
Adversor of $110,000. During the nine months ended September 30, 2009, Adversor
advanced an additional $7,470 to support operations. The balance owed to
Adversor at September 30, 2009 is $117,470. The amounts owed are non-interest
bearing and due on demand.
35
FOR THE YEAR ENDED DECEMBER 31, 2008
At December 31, 2008, we had cash on hand of $22,286 and total assets of
$23,613, consisting of cash of $22,286 and net fixed assets of $1,327. At
December 31, 2008, we had total current liabilities of $300,000, consisting of
$190,000 in contracts payable and $110,000 loan payable to a shareholder. At
December 31, 2008, we had a working capital deficit of $277,714.
During the year ended December 31, 2008, cash used in operating activities was
$203,007 compared to $115,443 during the year ended December 31, 2007. During
the year ended December 31, 2008, net losses of $980,353 were adjusted for
non-cash items consisting of $46 in depreciation, and $587,300 in compensatory
stock issuances. During the year ended December 31, 2007, net losses of $890,443
were not adjusted for non-cash items.
During the year ended December 31, 2008, we used $1,373 in our investing
activities. The $1,373 was used to purchase office equipment. During the year
ended December 31, 2007, we did not use or receive funds from investing
activities.
During the year ended December 31, 2008, we received $223,740 from our financing
activities. During the year ended December 31, 2007, we received $118,396 from
our financing activities.
During the year ended December 31, 2007, our majority shareholder, Adversor,
Inc. (Adversor) advanced funds of $118,369 to us for operations. During the year
ended December 31, 2008, we repaid $8,369 of the outstanding amount. December
31, 2008, Adversor is owed $110,000. These funds are non-interest bearing and
due on demand.
During the year ended December 31, 2008, Adversor advanced $107,109 to support
operations. Adversor forgave the total $107,109 and the Company has treated it
as capital contribution and an increase the Additional Paid In Capital.
In October 2008, we entered into a Security Purchase Agreement (Security
Purchase Agreement) with a third party, we received cash of $125,000 in exchange
for 500,000 shares of restricted common stock and a warrant exercisable for
500,000 shares of our restricted common stock. The warrant has an exercise price
of $0.80 per share and a term of three years. The shares were sold at a price of
$0.25 per share with $0.24 per share allocated to the common stock and $0.01 per
share allocated to the warrant.
In October 2008, we entered into a Services Agreements with two parties. The
Services Agreements provides for us to receive services totaling up to $625,000
in connection with the development of our 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 $137,5,00. 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.
During the year ended December 31, 2008, our majority shareholder, Adversor,
paid $20,000 for services on our behalf. In addition, during the year ended
December 31, 2008, Adversor forgave $87,109 in debt owed to them. We have
treated such amounts as capital contributions and as such have increased
Additional Paid in Capital by $107,109.
36
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 Registration Statement. In addition, we
anticipate generating revenue in the near future, however, we have no current
commitments or contracts that could result in such revenue. Management will have
complete discretionary control over the actual utilization of said funds and
there can be no assurance as to the manner or time in which said funds will be
utilized.
We foresee that we will need a minimum of $300,000 to fund our operations for
the next 12 months as follows:
System Development and Integration $150,000
Professional Fees $50,000
Sales, Marketing, Strategic Partnerships $50,000
General & Administrative $25,000
Working Capital $25,000
--------
Total $300,000
We will need substantial additional capital to support our proposed future
operations. We have NO 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". We do not anticipate such
costs to be material after the effectiveness of this Registration Statement.
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, 2008 and 2007 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 $24,000 (approximately $300,000 per year). Thus, using
currently available capital resources (the primary source of which is
non-binding commitments and expectations from management and current
shareholders), we expect to be able to conduct planned operations for a minimum
period of 2-3 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.
We will not receive any proceeds from the sales of stock pursuant to this
Registration Statement. 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.
38
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. For a detailed discussion on the application of these and
other accounting policies, see Note 1 in the Notes to the Consolidated Financial
Statements beginning on page F-6 for the years ended December 31, 2008 and 2007.
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.
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.
I. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
Not applicable.
J. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
K. DIRECTORS AND EXECUTIVE OFFICERS
NAME AGE POSITION TERM
--------------------------------------------------------------------------------
Guy M. Robert 46 President, CEO and Director Annual
Michael Segal 67 Secretary/Treasurer and Annual
Director
Ranulf Jose Goss 31 Director Annual
39
Our President, Mr. Robert, and our Director, Mr. Goss, are spending up to 40
hours per week on our business at this time, and our controller and technical
manager are part-time, as needed.
GUY M. ROBERT - PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
Mr. Robert has served as the President, Chief Executive Officer and a Director
of SunGame since inception. He also serves as President of Adversor, Inc., a
beneficial owner of SunGame Corporation, since incorporation. After a career in
IT consulting and Global Product Management for Ericsson 1989-1992 and Vodafone
from 1992-1995, Mr. Robert has focused his entrepreneurial spirit and management
capabilities within the international IT community. He established and was a
Director or CEO of companies such as XPonCard Thailand Ltd.1999-2004, MobylNet
SL, Spain, 2002-2005 and Communication Information Services 2000-2004 which was
acquired by a publicly listed group. Mr. Robert is a Market Economist, graduated
from the Stockholm Market Institute.
MICHAEL SEGAL - SECRETARY/TREASURER AND DIRECTOR
Michael Segal has been our director since June 8, 2007. Since 2001, he has been
President of Segal Cirone Services Inc., a financial consulting company that
advises institutions, banks and high net worth individuals. He is a Principal,
Options Compliance Principal and Branch Office Manager of Whitaker Securities
LLC, a member of the Financial Industry Regulatory Authority (FINRA) since
October 23, 2006. Prior to that, Mr. Segal had served as President of Alexander
Westcott & Co., Inc., a Broker/Dealer registered with NASD and Secretary of the
board of directors of its parent company, President of the Financial Commerce
Network Inc., a public company, President of Lamborn Securities Inc., a
Broker/Dealer registered with NASD, Branch Manager of Geldermann Securities
Inc., President of Greentree Commodities, a Branch Manager at REFCO, Inc., and a
Senior Vice President at Shearson American Express. He is also individually
registered as an Introducing Broker with the Commodity Futures Trading
Commission and a member of the National Futures Association and a founding
member of the Managed Funds Association. Mr. Segal received a B.B.A. in
marketing and economics from the University of Miami in Florida. Mr. Segal sits
on the board of directors of China Agri Business Inc. (CHBU.BB), and Biostar
Pharmaceuticals, Inc. (BSPM.BB), public companies traded on the US OTC Bulletin
Board. Additionally Mr. Segal sits on the board of directors of the following
privately held companies: China Power Equipment Inc.; Jiali Pharmaceuticals
Inc.; and Asia Nutracueticals Consulting Co. Ltd.
RANULF JOSE GOSS - DIRECTOR
Mr. Goss has been a Director of SunGame Corporation since October 2008. As CEO
of SunGame SEA, Mr. Goss manages online virtual world and walkthrough
development for SunGame US. Prior to joining the Company, he was a Producer at
Matahari Studios, a leading game development company in the Philippines. As the
senior project manager he oversaw supplier relationships, academic relationships
and technical research. From February to May 2006, Mr. Goss was Chief Game
Architect at E-commerce Percs, where he lead the PC game development team, and
was Project Manager for Online MMORPG being Co-developed with a Korean Online
Game. In August 2005, he founded SlyceSoft Games Development, the premier 3-D
Digital game producer company in the Philippines. Directly managed the artistic
and technical team that planned, designed, and developed the Away-Agila, the
upcoming first and only 3-D Filipino folklore-based adventure game in the
Philippines. The game was released in prototype in May 2005 and is expected to
be published in late 2009. From 1999 to July 2005, Mr. Goss held several
positions with TrendMicro, Inc. His senior position was Global Database
Administrator where he managed the day-to-day operations of multiple,
multi-tier, distributed, large-scale SQL server databases to service the
real-time technical support needs of customers in the United States, Europe, and
Philippines. Prior to that he was the Quality Assurance Engineer, where he was
responsible for leading the QA project team that was involved in the planning
and executing testing efforts of specific software upgrades for multiple,
multi-tier, distributed, large-scale SQL server databases environment. His first
position with the company was as a Systems Engineer, providing customer support
for the installation and use of Trend Micro products. Wrote advanced T-SQL
ueries, complex joins, indexes, Data Transformation Services (DTS), triggers,
stored procedures, data extraction, transformation, and validation of SQL
queries.
Mr. Goss is currently Chairperson, Manila Chapter, International Game Developers
Association. He attended La Salle University where he obtained a B.S. in
Computer Studies.
40
CONFLICTS OF INTEREST - GENERAL.
Our directors and officers are, or may become, in their individual capacities,
officers, directors, controlling shareholder and/or partners of other entities
engaged in a variety of businesses. Thus, there exist potential conflicts of
interest including, among other things, time, efforts and corporation
opportunity, involved in participation with such other business entities. While
each officer and director of our business is engaged in business activities
outside of our business, the amount of time they devote to our business will be
up to approximately 40 hours per week.
CONFLICTS OF INTEREST - CORPORATE OPPORTUNITIES
Presently no requirement contained in our Articles of Incorporation, Bylaws, or
minutes which requires officers and directors of our business to disclose to us
business opportunities which come to their attention. Our officers and directors
do, however, have a fiduciary duty of loyalty to us to disclose to us any
business opportunities which come to their attention, in their capacity as an
officer and/or director or otherwise. Excluded from this duty would be
opportunities which the person learns about through his involvement as an
officer and director of another company. We have no intention of merging with or
acquiring an affiliate, associate person or business opportunity from any
affiliate or any client of any such person.
PROJECTED STAFF
STAFFING
Currently, we have no employees except our President, Mr. Robert, and a
Director, Mr. Goss, who work up to 40 hours per week. This lean staffing is
possible in this phase because of our determination to outsource all operating
functions. Our staff positions will be filled as budget allows and business
demands require, and the positions may be altered in response to business needs.
L. EXECUTIVE AND DIRECTORS COMPENSATION
COMPENSATION
The following table sets forth certain information concerning compensation of
the President and our most highly compensated executive officers for the fiscal
years ended December 31, 2009, 2008 and 2007 the ("Named Executive Officers"):
SUMMARY EXECUTIVES COMPENSATION TABLE
NON-QUALIFIED
NON-EQUITY DEFERRED
OPTION INCENTIVE PLAN COMPENSATION ALL OTHER
NAME & SALARY BONUS STOCK AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
POSITION YEAR ($) ($) ($) ($) ($) ($) ($) ($)
----------------------------------------------------------------------------------------------------------------------
Guy M.
Robert,
President(1) 2007 0 0 0 0 0 0 $6,000 $6,000
2008 0 0 0 0 0 0 $6,000 $6,000
2009 0 0 0 0 0 0 0 0
--------------------
(1) Mr. Robert does not receive a salary for his services from SunGame.
Mr. Robert is an employed as an executive officer of the Company by
Adversor, Inc., a majority shareholder of the Company. Mr. Robert owns
49% of Adversor, Inc. and receives 49% of any dividends paid by
Adversor as compensation for his services. Mr. Robert does not have an
employment agreement with Adversor. Mr. Robert's dividend payments by
Adversor are shown as other compensation in the above table.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table sets forth certain information concerning outstanding equity
awards held by the President and our most highly compensated executive officers
for the fiscal year ended December 31, 2009 (the "Named Executive Officers"):
41
OPTION AWARDS STOCK AWARDS
---------------------------------------------------------- ---------------------------------------------
Equity
incentive
Equity Equity plan
incentive incentive awards:
plan plan Market or
awards: awards: payout
Number of Number of Number of Market Number of value of
securities securities securities Number of value of unearned unearned
underlying underlying underlying shares or shares of shares, shares,
unexercised unexercised unexercised Option units of units of units or units or
options (#) options (#) unearned expiration stock that stock that other others
Name exercisable unexercisable options Option date have not have not rights that rights
(#) exercise vested vested have not that have
price (#) ($) vested (#) not vested
($) ($)
----------------------------------------------------------------------------------------------------------------------
Guy M. 0 0 0 0 0 0 0 0 0
Robert,
President
and CEO
Michael 0 0 0 0 0 0 0 0 0
Segal,
Secretary
and
Treasurer
DIRECTOR COMPENSATION
The following table sets forth certain information concerning compensation paid
to our directors for services as directors, but not including compensation for
services as officers reported in the "Summary Executives Compensation Table"
during the year ended December 31, 2009:
Non-qualified
Non-equity deferred
Fees earned incentive plan compensation All other
or paid in Stock awards Option awards compensation ($) earnings compensation Total
Name cash ($) ($) ($) ($) ($)
($)
----------------------------------------------------------------------------------------------------------------------
Guy M. Robert $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
(1)
Michael $ -0- $ -0- $ -0- $ -0- $ -0- $ -0 $ -0-
Segal
Ranulf Jose $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
Goss
----------------------
(1) Mr. Robert does not receive a salary for his services from SunGame. Mr.
Robert is an employed as an executive officer of the Company by Adversor,
Inc., a majority shareholder of the Company. Adversor, Inc. compensates Mr.
Robert for his services. Mr. Robert is an owner of Adversor, Inc.
Our directors do not receive compensation for their attendance at meetings of
the board of directors.
All of our officers and/or directors will continue to be active in other
companies. All officers and directors have retained the right to conduct their
own independent business interests.
It is possible that situations may arise in the future where the personal
interests of the officers and directors may conflict with our interests. Such
conflicts could include determining what portion of their working time will be
spent on our business and what portion on other business interest. To the best
ability and in the best judgment of our officers and directors, any conflicts of
interest between us and the personal interests of our officers and directors
42
will be resolved in a fair manner which will protect our interests. Any
transactions between us and entities affiliated with our officers and directors
will be on terms which are fair and equitable to us. Our Board of Directors
intends to continually review all corporate opportunities to further attempt to
safeguard against conflicts of interest between their business interests and our
interests.
We have no intention of merging with or acquiring an affiliate, associated
person or business opportunity from any affiliate or any client of any such
person.
Directors receive no compensation for serving.
M. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AS OF
SEPTEMBER 30, 2009
There are currently 100,000,000 common shares authorized of which 10,000,000 are
outstanding.
The following sets forth information with respect to ownership by Officers and
Directors individually, Officers and Directors as a Group, and by holders of
more than five percent (5%) of our common stock:
TITLE OF CLASS NAME AND ADDRESS OF AMOUNT AND NATURE OF PRE-OFFERING PERCENT POST-OFFERING PERCENT
BENEFICIAL OWNER(1) BENEFICIAL OWNER(2) OF CLASS OF CLASS
(POST RESALE)
----------------------------------------------------------------------------------------------------------------------
Common shares Guy M. Robert, President and 4,100,000 39.04% 33.88%
CEO (beneficially through
Adversor, Inc. as President)
Common shares Adversor, Inc. 4,100,000 39.04% 30.37%
Common shares Michael Segal, 500 <0.01% <0.01%
Secretary/Treasurer
Common shares Ranulf Jose Goss, Director 1,373,000 13.08% 10.17%
Common shares Sudhir Shah 1,000,000 9.52% 7.41%
Common shares Diamond Star Exports LTD (3) 2,500,000 23.81% 18.52%
Common shares Mindzeye Consulting Pte, Ltd. 100,000 0.01% <0.01%
Common Shares Jeffrey Friedland (4) 535,000 5.10% 3.96%
Officers and Directors as a 5,473,500 52.13% 40.54%
Group (3 people)
---------------------
(1) Unless otherwise stated above, the address of beneficial owner is c/o
SunGame Corporation, 501 Silverside Road, Suite 105, Wilmington, DE 19809.
(2) Beneficial ownership of each person is shown as calculated in accordance
with Rule 13d-3 of the Securities Exchange Act of 1934, which includes all
securities that the person, directly, or indirectly through an contract,
arrangement, understanding, relationship or otherwise has or shares voting
power which includes the power to vote or direct the voting of a security,
or investment power, which includes the power to dispose, or direct the
disposition of such security.
(3) Mr. Sudhir Shah holds the voting and dispositive powers for Diamond Star
Exports, Ltd. (4) Mr. Freidland holds the voting power and dispositive
powers over 535,000 shares of our common stock through the following
entities; Philadelphia New York Investors, Global Investment Advisers, LLC,
China America Holdings, Strategic Technology Advisors, LLC, VAC Edwards,
LLC, Wall Street Global Research, LLC, and Western Technology Investors,
LLC.
43
N. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, PROMOTERS AND CONTROL PERSONS
Other than the stock transactions discussed below, we have not entered into any
transaction nor are there any proposed transactions in which any of our
founders, directors, executive officers, shareholders or any members of the
immediate family of any of the foregoing had or is to have a direct or indirect
material interest.
Mr. Roberts, our Chief Executive Officer and a director of the Company, is the
founder and organizer of SunGame. Mr. Robert does not receive a salary for his
services from SunGame. Mr. Robert is an employed as an executive officer of the
Company by Adversor, Inc., a majority shareholder of the Company. Adversor, Inc.
compensates Mr. Robert for his services. Mr. Robert is an owner of Adversor,
Inc.
Because of his present management positions with, his organizational efforts on
behalf of and his percentage share ownership in our company, Mr. Robert may be
deemed to be a "promoter," as that term is defined in Rule 405 of the Securities
Act of 1933.
In October 2008, Diamond Star Export, Ltd. and Adversor, Inc., greater than 10%
shareholders of our Company, entered into Lock Up Agreements with us whereby
they agreed to that, until the earlier of 1) 90 days after the shareholder's
stock has been registered under an effective Registration Statement with the
SEC, 2) the second anniversary of the date of the agreement or a 3) 90 days
after Change in Control (as defined in the Securities Exchange Act of 1934),
that they will not make or cause any sale more than 5% of shares outstanding per
quarter, irrespective of whether their shares are subsequently registered. In
exchange each received $100.
In October 2008, Mr. Ranulf Goss, our director, entered into a LockUp Agreement
with us whereby they agreed to that, until the earlier of 1) 90 days after the
shareholder's stock has been registered under an effective Registration
Statement with the SEC, 2) the second anniversary of the date of the agreement
or a 3) 90 days after Change in Control (as defined in the Securities Exchange
Act of 1934), that they will not make or cause any sale more than 5% of shares
outstanding per quarter, irrespective of whether their shares are subsequently
registered. In exchange he received $100.
In March 2009, per the Security Purchase Agreement with Mindzeye Consulting Pte,
Ltd., we received cash of $125,000 in exchange for 500,000 shares of restricted
common stock. The shares were sold at a price of $0.25 per share.
During the year ended December 31, 2008, our majority shareholder, Adversor,
paid $20,000 for services on our behalf. In addition, during the year ended
December 31, 2008, Adversor forgave $87,109 in debt owed to them. We have
treated such amounts as capital contributions and as such have increased
Additional Paid in Capital by $107,109.
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 $1,373,000. The shares
were issued at a price of $0.10 per share.
During the year ended December 31, 2008, we entered into a Corporate Finance
Advisory Services Agreement with Friedland Global Capital Markets, LLC
("Friedland"). The Agreement provides that we will pay a remaining total of
$65,000 for services as set forth in the Agreement and $140,000 upon the
commencement of the trading of our stock. These funds payable are non-interest
bearing and due on demand. At September 30, 2009, we owe Friedland a total of
$65,000. On December 31, 2009, by mutual consent, the Agreement between
Friedland Global Capital Markets, LLC and the Company was terminated. In
addition, in accordance with the termination, no further funds are owed by the
Company to Friedland.
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.
During the year ended December 31, 2008, Adversor advanced $107,109 to support
operations. Adversor forgave the total $107,109 and the Company has treated it
as capital contribution and an increase the Additional Paid In Capital.
44
During the year ended December 31, 2007, our majority shareholder, Adversor,
Inc. (Adversor) advanced funds of $118,369 to us for operations. During the year
ended December 31, 2008, we repaid $8,369 of the outstanding amount. At December
31, 2008, Adversor is owed $110,000. These funds are non-interest bearing and
due on demand. During the nine months ended September 30, 2009, Adversor
advanced funds of $7,470 to us for operations. At September 30, 2009, Adversor
is owed $117,470.
ITEM 11A. MATERIAL CHANGES
Not applicable.
ITEM 12. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
Not Applicable
ITEM 12A. DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
The Delaware General Corporation Law us to indemnify officers and directors for
any expenses incurred by any officer or director in connection with any actions
or proceedings, whether civil, criminal, administrative, or investigative,
brought against such officer or director because of his or her status as an
officer or director, to the extent that the director or officer has been
successful on the merits or otherwise in defense of the action or proceeding.
The Delaware General Corporation Law permits a corporation to indemnify an
officer or director, even in the absence of an agreement to do so, for expenses
incurred in connection with any action or proceeding if such officer or director
acted in good faith and in a manner in which he or she reasonably believed to be
in or not opposed to the best interests of us and such indemnification is
authorized by the stockholders, by a quorum of disinterested directors, by
independent legal counsel in a written opinion authorized by a majority vote of
a quorum of directors consisting of disinterested directors, or by independent
legal counsel in a written opinion if a quorum of disinterested directors cannot
be obtained.
The Delaware General Corporation Law prohibits indemnification of a director or
officer if a final adjudication establishes that the officer's or director's
acts or omissions involved intentional misconduct, fraud, or a knowing violation
of the law and were material to the cause of action. Despite the foregoing
limitations on indemnification, the Delaware General Corporation Law may permit
an officer or director to apply to the court for approval of indemnification
even if the officer or director is adjudged to have committed intentional
misconduct, fraud, or a knowing violation of the law.
The Delaware General Corporation Law also provides that indemnification of
directors is not permitted for the unlawful payment of distributions, except for
those directors registering their dissent to the payment of the distribution.
According to our bylaws, we are authorized to indemnify our directors to the
fullest extent authorized under Delaware Law subject to certain specified
limitations.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and persons controlling
us pursuant to the foregoing provisions or otherwise, we are advised that, in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
45
[OUTSIDE BACK COVER PAGE OF PROSPECTUS]
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution 49
ITEM 14. Indemnification of Directors and Officers 49
ITEM 15. Recent Sales of Unregistered Securities 50
ITEM 16. Exhibits and Financial Statement Schedules 51
ITEM 17. Undertakings 51
Signatures 53
DEALER PROSPECTUS DELIVERY REQUIREMENTS
Until one hundred twenty (120) days from the effective date of this registration
statement, all dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We have expended, or will expend fees in relation to this registration statement
as detailed below:
EXPENDITURE ITEM AMOUNT
--------------------------------------------------------------------------------
Attorney Fees $13,000
Audit Fees $7,500
Transfer Agent Fees $2,000
SEC Registration and Blue Sky Registration fees (estimated) $1,000
Printing Costs and Miscellaneous Expenses (estimated) $1,500
------
TOTAL $25,000
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our officers and directors are indemnified as provided by the Delaware Revised
Statutes and the bylaws.
Under the Delaware Revised Statutes, director immunity from liability to a
company or its shareholders for monetary liabilities applies automatically
unless it is specifically limited by a company's Articles of Incorporation. Our
Articles of Incorporation do not specifically limit the directors' immunity.
Excepted from that immunity are: (a) a willful failure to deal fairly with us or
our shareholders in connection with a matter in which the director has a
material conflict of interest; (b) a violation of criminal law, unless the
director had reasonable cause to believe that his or her conduct was lawful or
no reasonable cause to believe that his or her conduct was unlawful; (c) a
transaction from which the director derived an improper personal profit; and (d)
willful misconduct.
Our bylaws provide that it will indemnify the directors to the fullest extent
not prohibited by Delaware law; provided, however, that we may modify the extent
of such indemnification by individual contracts with the directors and officers;
and, provided, further, that we shall not be required to indemnify any director
or officer in connection with any proceeding, or part thereof, initiated by such
person unless such indemnification: (a) is expressly required to be made by law,
(b) the proceeding was authorized by the board of directors, (c) is provided by
us, in sole discretion, pursuant to the powers vested under Delaware law or (d)
is required to be made pursuant to the bylaws.
46
Our bylaws provide that it will advance to any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director or officer of us, or is or was
serving at the request of us as a director or executive officer of another
company, partnership, joint venture, trust or other enterprise, prior to the
final disposition of the proceeding, promptly following request therefore, all
expenses incurred by any director or officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under the bylaws or otherwise.
Our bylaws provide that no advance shall be made by us to an officer except by
reason of the fact that such officer is or was our director in which event this
paragraph shall not apply, in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made: (a) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (b) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of us.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
We have sold securities within the past three years without registering the
securities under the Securities Act of 1933 as shown in the following table:
NAME EQUITY ($) PAID PER SECURITY DATE OF PURCHASE ACCREDITED OR
SOPHISTICATED
------------------------------------------------------------------------------------------------------------------------
Adversor, Inc. 1,500 $1,500 services - 2006 Accredited
Common Shares formation of Company
Adversor, Inc. 4,123,500 $775,000 debt relief 2008 Accredited
Common Shares
Friedland Capital 902,000 $50,000 corporate 2008 Accredited
Common Shares advisory finance services
Ranulf Jose Goss 1,375,000 $137,500 development 2008 Accredited
Common Shares services
Mindzeye Consulting Pte, Ltd. 500,000 $125,000 cash 2008 Accredited
Common Shares
Mindzeye Consulting Pte, Ltd. 500,000 $125,000 cash 2008 Accredited
Warrant
Diamond Star Exports, Ltd. 1,600,000 $400,000 in programming 2008 Accredited
Common Shares services
Mindzeye Consulting Pte. Ltd. 500,000 $125,000 cash 2009 Accredited
Common Shares
Mindzeye Consulting Pte. Ltd. 100,000 $25,000 development 2009 Accredited
Common Shares services
Diamond Star Exports, Ltd. 900,000 Common Shares Payment of services 2009 Accredited
under agreement
EXEMPTIONS FROM REGISTRATION FOR UNREGISTERED SALES
All of the sales by Company of the unregistered securities listed immediately
above were made by the Company in reliance upon Section 4(2) of the Act. All of
the individuals and/or entities listed above that purchased the unregistered
securities were all known to the Company and its management, through
pre-existing business relationships, as long standing business associates,
friends, and employees. All purchasers were provided access to all material
information, which they requested, and all information necessary to verify such
information and were afforded access to management of the Company in connection
with their purchases. All purchasers of the unregistered securities acquired
such securities for investment and not with a view toward distribution,
acknowledging such intent to the Company. All certificates or agreements
representing such securities that were issued contained restrictive legends,
prohibiting further transfer of the certificates or agreements representing such
47
securities, without such securities either being first registered or otherwise
exempt from registration in any further resale or disposition.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
--------------------------------------------------------------------------------
EXHIBIT DESCRIPTION
NUMBER
3.1 Certificate of Incorporation (1)
3.2 Certificate of Amendment (1)
3.3 Bylaws of SunGame Corporation (1)
3.4 Certificate of Amendment Filed Herewith
5.1 Opinion re: Legality Filed Herewith
10.1 Guy M. Robert/SunGame Corporation (1)
Employment Agreement
10.2 Lock-Up Agreement with Jeffrey Friedland, Lorin (1)
Cohen, JL Penn Investments, Global Investment
Advisors, LLC re: Adversor Incorporated
10.3 Lock-Up Agreement with Jeffrey Friedland, Lorin (1)
Cohen, JL Penn Investments, Global Investment
Advisors, LLC re: Diamond Star Export Ltd.
10.4 Lock-Up Agreement with Jeffrey Friedland, Lorin (1)
Cohen, JL Penn Investments, Global Investment
Advisors, LLC re: Ranulf Jose Goss
10.5 Lock-Up Agreement with Lafayette 543, LLC, (1)
Philadelphia New York Investors, and Global
Investment Advisors, LLC
10.6 Securities Purchase Agreement with Mindzeye (1)
Consulting Pte Ltd
10.7 Services Agreement with Diamond Star Exports LTD (1)
10.11 Confidentiality, Shareholders and Development
Agreement Dated January 15, 2008 (3)
10.12 Amendment to Confidentiality, Shareholders and
Development Agreement Dated September 4, 2008 (3)
21 List of Subsidiaries (2)
23.1 Consent of Attorney Included in 5.1
23.2 Consent of Accountant Filed Herewith
--------------------------------------------------------------------------------
(1) Incorporated by reference to the Form S-1 Registration Statement
(#333-158946) filed with the Securities and Exchange Commission on May 1, 2009.
(2) Incorporated by reference to the Form S-1 Registration Statement
(#333-158946) filed with the Securities and Exchange Commission on August 7,
2009.
(3) Incorporated by reference to the Form S-1 Registration Statement
(#333-158946) filed with the Securities and Exchange Commission on December 4,
2009
ITEM 17. UNDERTAKINGS
We hereby undertake the following:
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after the
effective date of this registration statement, or most recent
post-effective amendment, which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) (ss.230.424(b) of this chapter) if,
in the aggregate, the changes in volume and price represent no more
than 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement.
(c) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement
or any material change to such information in the registration
statement.
That, for the purpose of determining any liability under the Securities Act,
each post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
That, for the purpose of determining any liability under the Securities Act, to
any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a
registration statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of an included in the registration
statement as of the date it is first used after effectiveness. Provided,
however, that no statement made in a registration statement or prospectus that
is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time
of contract of sale prior to such first use, supersede or modify any statement
that was made in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately prior to such
date of first use.
To remove from registration by means of a post-effective amendment any of the
securities being registered hereby which remain unsold at the termination of the
Offering.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to the directors, officers and controlling persons pursuant to the
provisions above, or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities, other
than the payment by us of expenses incurred or paid by one of the directors,
officers, or controlling persons in the successful defense of any action, suit
or proceeding, is asserted by one of the directors, officers, or controlling
persons in connection with the securities being registered, we will unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification is against public policy as expressed in the Securities Act, and
we will be governed by the final adjudication of such issue.
49
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing a Post-Effective Amendment on Form S-1 and
authorized this Registration Statement to be signed on our behalf by the
undersigned, thereunto duly authorized, in the City of Wilmington, State of
Delaware, on January 19, 2010.
SUNGAME CORPORATION
/s/ Guy M. Robert January 19, 2010
---------------------------------------------------------
Guy M. Robert
(Principal Executive Officer, President and Chief Executive Officer, Chief
Financial Officer and Principal Accounting Officer)
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
/s/ Guy M. Robert January 19, 2010
---------------------------------------------------------
Guy M. Robert, Director
/s/ Michael Segal January 19, 2010
---------------------------------------------------------
Michael Segal, Director
/s/ Ranulf Jose Goss January 19, 2010
---------------------------------------------------------
Ranulf Jose Goss, Director
50
