Attached files
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| EX-31.1 - EXHIBIT311 - SunGame Corp | exhibit311.htm |
| EX-32.1 - EXHIBIT321 - SunGame Corp | exhibit321.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2014
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: ________________ to _______________
Commission File No. 333-158946
Sungame Corp.
(Exact name of registrant as specified in its charter)
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Delaware
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**-*******
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification Number)
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3091 West Tompkins Avenue, Las Vegas, NV 89103
(Address of principal executive office)
Registrant's telephone number: (702) 789-0848
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ YES ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ YES ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ YES þ NO
Indicate the number of the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
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As of Date
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Outstanding
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June 30, 2014
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177,768,067
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September 18, 2014
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177,793,067
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THE COMPANY IS FILING THIS QUARTERLY REPORT, FOR THE 2ND QUARTER FOR 2014, SUBJECT TO MATERIAL ADJUSTMENTS PENDING THE INTERNAL ACCOUNTING REVIEW, AND ANTICIPATED RESTATEMENTS, FOR THE REPORTING PERIODS OF THE 2013 ANNUAL REPORT, THE 2014 1ST QUARTER REPORT, AND THE 2014 2ND QUARTER REPORT, WHICH WILL PROBABLY RESULT IN IN SIGNIFICANT AND MATERIAL DIFFERENCES IN THE AFOREMENTIONED FINANCIAL STATEMENTS.
THE COMPANY IS MAKING THIS PERIODIC REPORT ANTICIPATING THAT IT WILL BE RESTATED, LIKELY TO A SIGNIFICANT AND MATERIAL DEGREE, BECAUSE UNDER FINRA RULES IF THE COMPANY DOES NOT FILE ITS PERIODIC REPORT FOR THE 2ND QUARTER OF 2014 BY 19 SEPTEMBER 2014, THE COMPANY WILL HAVE ITS LISTING DOWNGRADED TO THE PINKSHEETS FOR A MANDATORY PERIOD OF ONE YEAR. THE COMPANY IS CURRENTLY PERFORMING AN INTERNAL ACCOUNTING REVIEW WHICH IS NOT EXPECTED TO BE COMPLETED BY 19 SEPTEMBER 2014, BUT IS NECESSARY AS A PRECURSOR FOR THE ANTICIPATED RESTATEMENTS OF THE FOLLOWING REPORTS: 10K 2013; Q1 2014; AND Q2 2014. IN THIS FILING, WHICH THE READER IS CAUTIONED NOT TO RELY UPON, THE COMPANY IS ATTEMPTING TO COMPLY WITH FINRA RULES, NOT PROVIDE READERS WITH POTENTIALLY MISLEADING FINANCIAL INFORMATION, AND SIMULTANEOUSLY PRESERVING THE COMPANY’S LISTING INTEGRITY, WHICH IT FEELS IS BENEFICIAL TO THE SHAREHOLDERS.
IN SUMMATION, THE COMPANY IS FILING THIS REPORT TO COMPLY WITH REGULATIONS, AND CAUTIONS READERS NOT TO RELY UPON THE FINANCIAL STATEMENTS HEREIN AS THEY ARE ANTICIPATED TO BE MATERIALLY RESTATED. PLEASE SEE THE FINRA COMMUNICATION EXHIBITED HERETO FOR FURTHER INFORMATION.
The financial information contained herein has not been reviewed by the Company’s independent certifying accountant and is subject to material adjustments,
and anticipated restatements, once the internal accounting review is completed, which is anticipated to result in significant differences from the financial information contained herein.
- 2 -
Sungame Corp.
(A Development Stage Company Commencing 14 November 2006)
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Exhibit 31.1
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Exhibit 32.2
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The financial information contained herein has not been reviewed by the Company’s independent certifying accountant and is subject to material adjustments,
and anticipated restatements, once the internal accounting review is completed, which is anticipated to result in significant differences from the financial information contained herein.
- 3 -
THE FINANCIAL INFORMATION SET FORTH BELOW IS SUBJECT TO MATERIAL ADJUSTMENTS THAT WILL BE IDENTIFIED WHEN THE VOLUNTARY INTERNAL ACCOUNTING REVIEW IS COMPLETED, WHICH IS ANTICIPATED TO RESULT IN SIGNIFICANT DIFFERENCES FROM THE FINANCIAL INFORMATION CONTAINED HEREIN.
This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider,” or similar expressions are used.
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT THE COMPANY AND ITS INDUSTRY. FORWARD-LOOKING STATEMENTS ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE, ACHIEVEMENTS AND PROSPECTS TO BE MATERIALLY DIFFERENT FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.
The financial information contained herein has not been reviewed by the Company’s independent certifying accountant and is subject to material adjustments, and anticipated restatements, once the internal accounting review is completed, which is anticipated to result in significant differences from the financial information contained herein.
- 4 -
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
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June 30,
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December 31,
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2014
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2013
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ASSETS:
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Current Assets:
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Cash
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$ | 134,988 | $ | 237,786 | ||||
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Inventory
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996,195 | 27,795 | ||||||
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Prepaid Expenses
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975,550 | 416,000 | ||||||
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Total Current Assets
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2,106,733 | 681,581 | ||||||
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Fixed Assets
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Office Equipment
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2,140 | 2,140 | ||||||
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Accumulated Depreciation
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(2,140 | ) | (1,955 | ) | ||||
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Total Fixed Assets
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- | 185 | ||||||
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Capitalized Software
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Capitalized Software
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652,218 | 341,419 | ||||||
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Accumulated Depreciation
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(232,736 | ) | (136,683 | ) | ||||
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Total Capitalized Software
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419,482 | 204,736 | ||||||
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TOTAL ASSETS
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$ | 2,526,215 | $ | 886,502 | ||||
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LIABILITIES AND STOCKHOLDERS' DEFICIENCY:
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Current Liabilities:
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Accounts Payable
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$ | 602,973 | $ | 397,212 | ||||
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Related party advances
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437,103 | 1,375,967 | ||||||
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Rebates liability
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7,481,559 | 1,875,253 | ||||||
| Notes payable | 207,359 | - | ||||||
| Accrued liabilities | 55,000 | - | ||||||
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Derivative Liability
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100,000 | |||||||
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Total Current Liabilities
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8,883,994 | 3,648,432 | ||||||
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Stockholders' Deficiency:
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Preferred stock, $.001 par value;
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5,000,000 shares authorized with none outstanding
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Common stock subscriptions
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30,000 | |||||||
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Common stock, $.001 par value;
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300,000,000 authorized with:
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177,758,067 shares issued and outstanding, respectively
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177,768 | 177,758 | ||||||
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Additional paid in capital
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181,987 | 151,998 | ||||||
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Accumulated deficit
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(6,717,534 | ) | (3,121,686 | ) | ||||
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Total Stockholders' Deficiency
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(6,357,779 | ) | (2,761,930 | ) | ||||
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY
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$ | 2,526,215 | $ | 886,502 | ||||
The accompanying notes are an integral part of these condensed unaudited financial statements.
The financial information contained herein has not been reviewed by the Company’s independent certifying accountant and is subject to material adjustments,
and anticipated restatements, once the internal accounting review is completed, which is anticipated to result in significant differences from the financial information contained herein.
- 5 -
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Three months ended
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Six months ended
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June 30,
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June 30,
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2014
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2013
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2014
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2013
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Revenues
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$ | 0 | $ | 7,000 | $ | 0 | $ | 7,110 | ||||||||
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Costs and Expenses:
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Cost of goods sold
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0 | 3,118 | 0 | 3,118 | ||||||||||||
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Depreciation & amortization
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54,429 | 15,392 | 96,238 | 30,784 | ||||||||||||
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General & administrative
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2,149,304 | 345,937 | 3,437,645 | 515,939 | ||||||||||||
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Total Expenses
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2,203,733 | 364,447 | 3,533,883 | 549,841 | ||||||||||||
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Loss From Operations
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(2,203,733 | ) | (357,447 | ) | (3,533,883 | ) | (542,731 | ) | ||||||||
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Other Income and (Expenses)
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Interest income
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5,017 | - | 5,017 | - | ||||||||||||
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Interest expense
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(66,982 | ) | (8,563 | ) | (66,982 | ) | (9,408 | ) | ||||||||
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Other income
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- | 16,000 | - | 21,000 | ||||||||||||
| (61,965 | ) | 7,437 | (61,965 | ) | 11,592 | |||||||||||
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Net Loss
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$ | (2,265,698 | ) | $ | (350,010 | ) | $ | (3,595,848 | ) | $ | (531,139 | ) | ||||
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Per Share Information
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Loss per common share
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$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
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Weighted average number
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of shares outstanding
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177,768,067 | 177,592,548 | 177,763,026 | 177,587,794 | ||||||||||||
The accompanying notes are an integral part of these condensed unaudited financial statements.
The financial information contained herein has not been reviewed by the Company’s independent certifying accountant and is subject to material adjustments,
and anticipated restatements, once the internal accounting review is completed, which is anticipated to result in significant differences from the financial information contained herein.
- 6 -
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Period ended
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June 30,
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2014
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2013
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Cash Flows from Operating Activities
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Net Loss
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$ | (3,595,848 | ) | $ | (531,139 | ) | ||
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Adjustments to reconcile net loss to
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net cash provided by (used for)
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operating activities:
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Depreciation and amortization
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96,238 | 30,784 | ||||||
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Compensatory stock issuances
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90,500 | |||||||
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Inventory
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(968,400 | ) | (23,161 | ) | ||||
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Rebates liability
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5,606,306 | |||||||
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Prepaid expenses
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(559,550 | ) | (28,677 | ) | ||||
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Accounts payable
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205,761 | (38,371 | ) | |||||
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Accrued liabilities
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- | (2,269 | ) | |||||
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Net cash provided by (used for)
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839,506 | (421,053 | ) | |||||
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operating activities
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Cash Flows from Investing Activities
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Investment in capitalized
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software
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(310,799 | ) | - | |||||
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Net cash used for investing activities
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(310,799 | ) | - | |||||
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Cash Flows from Financing Activities
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Common stock issued
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31,974 | |||||||
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Common stock subscriptions
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268,000 | |||||||
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Related party advances
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3,690,908 | 282,952 | ||||||
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Related party payments
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(4,629,772 | ) | (150,000 | ) | ||||
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Borrowings on notes payable
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311,275 | 40,000 | ||||||
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Payments on notes payable
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(103,916 | ) | (15,885 | ) | ||||
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Derivative liability
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100,000 | |||||||
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Net cash provided by (used for) financing activities
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(631,505 | ) | 457,041 | |||||
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Net Increase (Decrease) In Cash
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(102,798 | ) | 35,988 | |||||
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Cash At The Beginning Of The Period
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237,786 | 2,604 | ||||||
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Cash At The End Of The Period
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$ | 134,988 | $ | 38,592 | ||||
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
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Cash paid for interest expense
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$ | 41,982 | 9,408 | |||||
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Cash paid for income taxes
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$ | - | $ | - | ||||
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NON-CASH TRANSACTIONS
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Common stock issued on common stock
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subscriptions
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30,000 | - | ||||||
The accompanying notes are an integral part of these condensed unaudited financial statements.
The financial information contained herein has not been reviewed by the Company’s independent certifying accountant and is subject to material adjustments,
and anticipated restatements, once the internal accounting review is completed, which is anticipated to result in significant differences from the financial information contained herein.
- 7 -
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013
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.
The Company, trading under the symbol “SGMZ”, is the Company behind the Flighteck.tv content management and discovery platform. Sungame also uses the brand “Freevi” as a d.b.a., as it acquired Freevi Corp. and the brand has retained its value sufficient to keep using the brand Freevi. Sungame’s mission is simple: to enrich people’s lives by becoming a leading social networking, content creation, content discovery and distribution platform. Integral to the site’s functionality is a central aggregation engine that excels at servicing targeted, focused and high quality content and social media interactions based on the user’s specific interests and past usage history. Other tools available on the website are designed to simplify content creation and distribution for content producers, while providing these artists an engaged audience interested in consuming this content. Sungame is also the Company behind Vidirectory, a video based business directory that simplifies online marketing for small businesses. The Company is making efforts to offer an innovative 3D line of tablets. This new tablet line, due to the proprietary and patented glass viewing screen assembly, has the ability to display HD quality glasses-free 3D pictures and videos, as well as maintaining the ability to act as standard 2D tablets to take full advantage of the existing content currently available.
Sungame shapes products that support its mission by creating utility for users, developers and advertisers as follows:
1. Flightdeck enables people to stay connected, access and discover new content as well as socialize with their friends and family across different social medial platforms. The platform allows its users to create, discover, share, and fund content they care about.
2. Flightdeck allows developers to use the Flightdeck Platform to create audio, video, editorial content and applications (apps) that they can market and distribute to the platform’s global network of users.
3. Sungame enables advertisers to engage subsets of users based on information the users have chosen to share with the platform such as their age, location, gender or interests. Flightdeck’s content focused strategy gives advertisers a unique combination of reach, relevance, social context, and engagement to enhance the value of their ads.
The Company merged with Freevi Corporation on April 15, 2011. Freevi brings a rich media platform to the Company revolving around its core product the “Freevi Flightdeck” ™, a graphical user interface that allows users to consume video and audio content, network with other Freevi users, engage in e-commerce transactions, and access games and other applications. Freevi’s proprietary technologies were licensed from Chandran Holding Media, Inc., its majority shareholder at the time of its acquisition by the Company.
The Company was incorporated in Delaware on November 14, 2006. The Company’s fiscal year end is December 31st.
Basis of Presentation
The interim financial statements of Sungame Corporation (“we”, “us”, “our” or the “Company”) are unaudited and contain all adjustments (consisting primarily of normal recurring accruals) necessary for a fair statement of the results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for a full year or for previously reported periods. These interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended.
The financial information contained herein has not been reviewed by the Company’s independent certifying accountant and is subject to material adjustments,
and anticipated restatements, once the internal accounting review is completed, which is anticipated to result in significant differences from the financial information contained herein.
- 8 -
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(continued)
December 31, 2013 as filed with the Securities and Exchange Commission (“SEC”) on April 15, 2014. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
The financial statements of the Company have been prepared pursuant to the rules and regulations of the SEC for Quarterly Reports on Form 10-Q and in accordance with US GAAP. Accordingly, these financial statements do not include all of the information and footnotes required by US GAAP for annual financial statements.
The financial statements are unaudited, but, in management's opinion, include all adjustments (which, unless otherwise noted, include only normal recurring adjustments) necessary for a fair presentation of such financial statements. The results of operations for the six months ended June 30, 2014 and 2013 are not necessarily indicative of the entire fiscal year or for any other period.
Summary of Significant Accounting Policies
Development Stage Company
We are in the development stage as defined under the then current Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915-205 “Development-Stage Entities” and among the additional disclosures required as a development stage company are that our financial statements were identified as those of a development stage company, and that the statement of operations, stockholders’ deficit and cash flows disclosed activity since the date of our Inception (October 21, 2010) as a development stage company. Effective June 10, 2014 FASB changed its regulations with respect to Development Stage Entities and these additional disclosures are no longer required for annual reporting periods beginning after December 15, 2014 with the option for entities to early adopt these new provisions. We have elected to early adopt these provisions and consequently these additional disclosures are not included in these financial statements.
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.
Revenue Recognition
We recognize revenue from tablet sales when the products are shipped since title to the products has passed when the tablets leave our shipping area.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents.
The financial information contained herein has not been reviewed by the Company’s independent certifying accountant and is subject to material adjustments,
and anticipated restatements, once the internal accounting review is completed, which is anticipated to result in significant differences from the financial information contained herein.
- 9 -
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(continued)
Inventory
Inventory consists of 3-D tablets produced in Asia and are stated at cost, on a first-in, first-out basis, at the lower of cost or market.
Equipment
Equipment, when acquired, is 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.
Capitalized Software Costs
Capitalized software costs are capitalized when technological feasibility is proven. These costs are amortized over the estimated life of the related assets. Capitalized software costs were $341,419 in prior years for two products that have proven technological feasibility. There was $310,799 of capitalized software costs for the development of the tablet platform portal during the six months ended June 30, 2014.
Long Lived Assets
“Long-lived assets” are reviewed for impairment of value whenever events or changes in circumstances indicate that the carrying value of the assets might not be recoverable or at least at the end of each reporting period. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying value of an asset is not recoverable. For long-lived assets to be held and used, management measures fair value based on quoted market prices or based on discounted estimates of future cash flows.
Concentration of Credit Risk
The Company’s financial instruments that are exposed to concentrations and credit risk primarily consist of amounts due to related parties. (see Note 4).
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 June 30, 2014 and 2013, the Company had net operating loss carry-forwards of approximately $6,718,000 and $3,122,000, which begin to expire in 2026. At June 30, 2014 and 2013 the Company had deferred tax assets of approximately $2,351,000 and $1,093,000 created by the net operating losses, which have been offset by a 100% valuation allowance.
The financial information contained herein has not been reviewed by the Company’s independent certifying accountant and is subject to material adjustments,
and anticipated restatements, once the internal accounting review is completed, which is anticipated to result in significant differences from the financial information contained herein.
- 10 -
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(continued)
Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the year. Potentially dilutive securities are stock options for 11,001,000 shares (see Note 10) which were not considered outstanding shares because the effect would have been anti-dilutive.
2. Reverse Merger
Effective April 15, 2011 Sungame Corporation entered into a merger agreement (the "Agreement") with Freevi Corporation, acquiring 100% of the outstanding common stock of Freevi Corporation through the issuance of 177,000,000 shares of its common stock with no readily available market price. Freevi Corporation was incorporated in Nevada on October 21, 2010. The transaction was accounted for as a reverse merger as the shareholders of Freevi Corporation retained the majority of the outstanding common stock of Sungame Corporation after the share exchange. Effective with the Agreement, the Company's stockholders' equity was recapitalized as that of Freevi Corporation, while 100% of the assets and liabilities of Sungame Corporation valued at $(282,045), consisting of cash $231, net fixed assets $1,361, accounts payable $121,265, and related party advances $162,372, were recorded as being acquired in the reverse merger for its outstanding common shares (250,000) on the merger date. Subsequent to the April 15, 2011 recapitalization Freevi Corporation ceased to exist, with Sungame Corporation as the sole surviving entity.
3. Going Concern Uncertainty and Managements’ Plans
In the Company’s audited financial statements for the fiscal year ended December 31, 2013, 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 six months ended June 30, 2014 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 $3,595,848 and $531,139 for the six months ended June 30, 2014 and 2013, respectively, and an accumulated deficit of $6,717,534 as of June 30, 2014. As of December 31, 2013 the accumulated deficit was $3,121,686. At June 30, 2014, the Company’s total current liabilities exceed total current assets by $6,777,261. At December 31, 2013 this amount was $2,966,851.
The future success of the Company is likely dependent on its ability to attain additional capital, or to find an acquisition to add value to its present shareholders and ultimately, upon its ability to attain future profitable operations. There can be no assurance that the Company will be successful in obtaining such financing, or that it will attain positive cash flow from operations. Management believes that actions presently being taken to revise the Company’s operating and financial requirements provide the opportunity for the Company to continue as a going concern.
4. Related Party Transactions
Two former principals of Freevi Corporation and shareholders of the Company have consulting agreements with the Company. Guy Robert, the Company’s Chief Development Officer, entered into an independent contractor agreement with the Company on September 23, 2011 for three years at an annual payment of $120,000 which is paid to Adversor, a company 49% owned by Guy Robert. Neil Chandran, the Company’s Chief Executive Officer provides monthly consulting services to the Company and was paid $260,454 and $109,747 for the six months ended June 30, 2014 and 2013, respectively.
At June 30, 2014 and December 31, 2013 the Company had working capital advances due to a related party shareholder, Adversor, Inc. (“Adversor”) of $162,372. These funds are non-interest bearing and are due on demand. Included in the Company’s accounts payable at June 30, 2014 and December 31, 2013 was $282,087 owed to Adversor. Due to the merger with Freevi Corporation on April 15, 2011, Adversor is a minority shareholder.
The financial information contained herein has not been reviewed by the Company’s independent certifying accountant and is subject to material adjustments,
and anticipated restatements, once the internal accounting review is completed, which is anticipated to result in significant differences from the financial information contained herein.
- 11 -
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(continued)
During the six months ended June 30, 2014 and 2013, the Company’s majority shareholder, Chandran Holding Media, Inc. (Chandran) advanced funds to the Company to finance operations. The Company and Chandran also share certain members of executive management and certain employees. At June 30, 2014 and 2013, the Company owed Chandran $274,731 and $1,213,595. These funds are non-interest bearing and due on demand. During the six months ended June 30, 2014, Chandran advanced funds of $3,690,908 to the Company and the Company paid back $4,629,772 to Chandran. During the six months ended June 30, 2013, Chandran advanced $282,952 to the Company.
5. Notes Payable
The Company has four short-term notes payable outstanding at June 30, 2014 as follows:
|
Date Borrowed
|
Note Amount
|
Interest Rate
|
Maturity Date
|
|
6/17/14
|
$ 40,000
|
60%
|
12/17/14
|
|
4/24/14
|
150,000
|
108%
|
8/24/14
|
|
6/15/14
|
125,000
|
110%
|
8/24/14
|
|
6/17/14
|
75,000
|
141%
|
6/17/15
|
Neil Chandran, the Company’s CEO and President, has personally guaranteed the $40,000 note by pledging 315,000,000 Class B shares of Chandran.
The $150,000 note is a pledge of future receivables and has been accounted for as a borrowing. The Company remits 10.251% of its products and receives sales each day or a minimum of $2,552 per day until the Company has paid back a total of $207,000. The note matures on August 24, 2014. The $125,000 note is also a pledge of future receivables and has been accounted for as a borrowing. The Company remits $2999 daily for 63 business days until the Company has paid back $187,375. The $75,000 note is an 8% Convertible Redeemable Note maturing on June 17, 2015. The note holder is entitled, at its option, at any time after 180 days to convert all or any amount of the principal face amount of this Note outstanding into shares of the Company’s company stock at a price for each share of common stock equal to 58% of the lowest closing bid price of the common stock as reported on the OTCQB marketplace, which the Company’s shares are traded or any market upon which the common stock may be traded in the future, for the ten prior trading days, including the day upon which the Notice of Conversion is delivered by fax or other electronic method. This conversion feature into shares of common stock at a discounted market price is a derivative with a fair value of $100,000 using the recorded Black Sholes formula with an interest rate of .12%, a one year term and at a volatility of 204%. The related discount of $100,000 has been bifocated with $75,000 of discount offsetting the $75,000 note payable and interest expense of $25,000 being amortized.
6. Rebates Liability
During the year ended December 31, 2013, the Company entered into a Master Distribution Agreement for its 3D tablets. This Master Distributor incentivized many potential resellers with the promise of a 3D tablet for each $1,000 advanced to the Company, an additional rebate for this same advanced amount to the Company, and a few potential resellers were also promised $500 educational grants. The Company has incurred a rebates liability of $7,481,559 and $1,875,253 at June 30, 2014 and December 31, 2013, respectively, and an educational grant liability of $55,000 at June 30, 2014. The Company has used $975,550 and $416,000 at June 30, 2014 and December 31, 2013, respectively, of the tablet advances to prepay tablet production with an Asian manufacturer to be delivered later in 2014. The promotional 3D tablet, rebate, and educational grants are the subject of an internal accounting review, the results of which will lead to material restatements of the annual report for 2013, and the first and second quarterly reports of 2014.
The financial information contained herein has not been reviewed by the Company’s independent certifying accountant and is subject to material adjustments,
and anticipated restatements, once the internal accounting review is completed, which is anticipated to result in significant differences from the financial information contained herein.
- 12 -
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(continued)
7. Equity
An investor has subscribed for 10,000 shares at $3 per share, which has been included in the balance sheet as common stock subscriptions at December 31, 2013. These shares were issued in early April, 2014.
8. Lease and Obligation Commitments
The Company had an operating lease for building space with monthly payments of $3,466, which expired in April, 2013. The Company leases its corporate headquarters on a month-to-month basis for $1,650. The Company also leases office space in Beverly Hills, California for $2,220 per month under a one-year operating lease, which began in February, 2014. The Company has preordered approximately 1,700 tablets at $400 per unit and will take delivery in the second
quarter of 2014. The Company also has a $120,000 annual obligation to Guy Robert, a consultant, for future development services through September 2014. Details of the lease commitment and future payments in 2014 and beyond are as follows:
|
Future
|
Total
|
|||||||||||||
|
Expense
|
Expenses
|
After
|
Future
|
|||||||||||
|
2014
|
2014
|
2015
|
2016
|
2017
|
2018
|
Expenses
|
||||||||
|
Tablet purchase obligations
|
975,500 | 975,500 | ||||||||||||
|
Adversor consulting agreement
|
60,000 | 30,000 | 30,000 | |||||||||||
|
Office lease
|
11,100 | 13,920 | 2,220 | 15,540 | ||||||||||
|
TOTAL
|
71,100 | 1,019,470 | 2,220 |
0
|
0
|
0
|
1,021,090 |
9. Legal Matters
The Company was involved in litigation in Colorado. Broadway Holdings, Inc. (Broadway) vs. Sungame Corporation. The suit was a breach of contract by Broadway Holdings, Inc. filed on or about August 2, 2011, in the District Court, Denver County, Colorado. The case was settled on December 24, 2012. All claims and counterclaims were dismissed in the confidential settlement. All Sungame shares held by the Broadway Plaintiffs shareholders, which amounted to 10,780 shares, were cancelled in 2013.
10. Commitments and Contingencies
On September 23, 2011, the Company entered into an independent contractor agreement with Guy Robert, a Board member and key development consultant. The term of the agreement was for three years at an annual payment of $120,000 to Adversor, a company 49% owned by Guy Robert, with an option agreement granting the following tranches of contingent stock options with an exercise price of $0.001 per share: 3,000,000 on April 1, 2011, 2,667,000 on April 1, 2012, 2,667,000 on April 1, 2013, 2,667,000 on April 1, 2014, and 2,667,000 upon severance of this agreement, excluding severance of the term of this agreement. The options will be issued and exercised upon the average daily trading volume exceeding 500,000 for the prior 90 days, which has never occurred since the inception of this agreement. Guy Robert is also to receive performance based compensation for all deals, projects, and assets that he initiates. The performance compensation shall be 2.5% of the net realizable value brought into the Company, which has been zero thus far.
The financial information contained herein has not been reviewed by the Company’s independent certifying accountant and is subject to material adjustments,
and anticipated restatements, once the internal accounting review is completed, which is anticipated to result in significant differences from the financial information contained herein.
- 13 -
SUNGAME CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(continued)
11. Subsequent Events
In accordance with ASC 855, Subsequent Events, the Company has evaluated events that occurred subsequent to the balance sheet date through September 18, 2014, the date of available issuance of these unaudited financial statements. On Thursday, August 14, 2014, Sungame’s Board of Directors and management concluded that previously issued financial statements and related disclosures in the Company’s annual report on form 10K for the period ended December 31, 2013, filed with the SEC on April 15, 2014, and the Company’s quarterly report filed on form 10-Q for the period ended March 3,1 2014, filed with the SEC on May 23, 2014, should not be relied upon.
The Company’s independent public accountants raised concerns with the Company as to the effective operation of its controls and procedures relating to revenue recognition. The Company engaged outside counsel to conduct an internal investigation once it became aware of the situation. The internal investigation concluded that due to lack of communication between departments, the accounting department had been unaware of all the terms and conditions in respect of right to return product, rebate programs and educational grant incentives associated with funds received by the Company. As a consequence of this material accounting error, all items previously recognized as revenue and deferred revenue for the above-mentioned periods will be restated as rebate liability, advances payable, or debt. Further clarification as to the legal ownership and the quality of product shipped in return for funds received is in progress.
Based on the findings of the internal investigation, the Company’s independent public accountant advised the Company on Wednesday, August 13, 2014, that disclosure should be made to prevent future reliance on previously issued financial statements and related disclosures in the Company’s annual report for form 10K for the period ended December 3,1 2013, filed with the SEC on April 15, 2014, and the Company’s quarterly report filed on form 10-Q for the period ended March 31, 2014, filed with the SEC on May 23, 2014. This matter was disclosed in an 8-K filed on August 28, 2014.
The Company is undertaking a full review of every transaction previously recorded as revenue or deferred revenue that occurred during the relevant periods and legal ownership of all product shipped in return for funds received by the Company. The Company is working diligently to prepare and file restated reports for the above-mentioned periods as quickly as possible.
The Company will also begin a thorough reevaluation, re-drafting, and reimplementation of its internal controls and procedures.
The financial information contained herein has not been reviewed by the Company’s independent certifying accountant and is subject to material adjustments,
and anticipated restatements, once the internal accounting review is completed, which is anticipated to result in significant differences from the financial information contained herein.
- 14 -
Forward Looking Statements
This report contains forward looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) and Section 27A of the Securities Act of 1933 (the “Securities Act”). Statements contained in this report which are not statements of historical facts may be considered forward-looking information with respect to plans, projections, or future performance of the Company as defined under the Private Securities litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those projected. The words “anticipate”, “believe”, “estimate”, “expect”, “objective”, and “think” or similar expressions used herein are intended to identify forward-looking statements. The forward-looking statements are based on the Company’s current views and assumptions and involve risks and uncertainties that include, among other things, national and international economic and market conditions; our ability to raise capital and complete the acquisition of certain assets; our ability to operate mining assets; our ability to sustain, manage, or forecast growth; existing government regulations and the changes in, or the failure to comply with, government regulations; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Except as may be required by applicable law, we do not undertake or intend to update or revise our forward-looking statements, and we assume no obligation to update any forward-looking statements contained in this report as a result of new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. You should carefully review and consider the various disclosures we make in this report and our other reports filed with the SEC that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business. The following discussion and analysis should be read in conjunction with the financial statements and related footnotes included elsewhere in this quarterly report which provide additional information concerning the Company’s financial activities and condition.
Description of Business
We are an early development stage company. Prior to the merger with Freevi Corporation, Sungame was in the process of establishing a 3D virtual world communities. Sungame (also known as the “Company”), trading under the symbol “SGMZ”, is the Company behind the Flightdeck.tv content management and discovery platform. Sungame also uses the brand “Freevi” from time to time as a d.b.a., as it acquired Freevi Corp. and the brand has retained its value sufficient to keep using the brand Freevi. Sungame’s mission is simple: to enrich people’s lives by becoming a leading social networking, content creation, content discovery and distribution platform. Integral to the site’s functionality is a central aggregation engine that excels at serving targeted, focused and high quality content and social medial interactions based on the user’s specific interests and past usage history. Other tools available on the website are designed to simplify content creation and distribution for content producers, while providing these artists an engaged audience interested in consuming this content. Sungame is also the Company behind Vidirectory, a video based business directory that simplifies online marketing for small businesses.
The Company had four full time employees as of June 30, 2014.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates. We based our estimates on historical experiences and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions provide a basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and these differences may be material.
The financial information contained herein has not been reviewed by the Company’s independent certifying accountant and is subject to material adjustments,
and anticipated restatements, once the internal accounting review is completed, which is anticipated to result in significant differences from the financial information contained herein.
- 15 -
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.
Capitalized Software Costs
Capitalized software costs are capitalized when technological feasibility is proven. These costs are amortized over the life of the related assets.
Revenue Recognition
We recognize revenue from tablet sales when the products are shipped since title to the products has passed when the tablets leave our shipping area.
Long-Lived Assets
“Long-lived assets” are reviewed for impairment of value whenever events or changes in circumstances indicate that the carrying value of the assets might not be recoverable or at least at the end of each reporting period. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying value of an asset is not recoverable. For Long-lived assets to be held and used, management measures fair value based on quoted market prices or based on discounted estimates of future cash flows.
Income Taxes
We have effectively provided a full valuation allowance for the tax effects of our net operating losses during the quarter ended June 30, 2014 and June 30, 2013 and for the period from inception (October 21, 2010) to June 30, 2014 to offset the deferred tax asset that might otherwise have been recognized as a result of operating losses in the current period and prior periods since, because of our history of operating losses, management is unable to conclude at this time that realization of such benefit is currently more likely than not.
Recent Accounting Pronouncements
There were no recent accounting pronouncements that would have a significant effect on our future financial position, results of operations, and operating cash flows.
Liquidity and Capital Resources
We had $134,988 cash as of June 30, 2014 compared to $237,786 at December 31, 2013. This net decrease of $102,798 consisted of cash provided by operating activities of $839,506 offset by cash used for investing activities of $310,799 and cash used for financing activities of $631,505. Cash provided by operating activities consisted of advances for tablets from possible resellers of $5,606,306, depreciation and amortization of $96,238, and an increase in accounts payable of $205,761 offset by our operating loss of $3,595,848 an increase in inventory of $968,400 and an increase in our deposits with our Asian manufacturer of $559,550. Cash used for investing activities consisted of $310,799 of capitalized software costs for the development of the tablet platform portal. Cash used for financing activities of $631,505 consisted of related party payments of $4,629,772 offset by related party advances of $3,690,908 and notes payable borrowings of $311,275 and a derivative liability of $100,000 offset by notes payable payments of $103,916.
We have incurred significant losses and negative cash flows from operations since our inception in on November 14, 2006. We have an accumulated deficit of $6,124,953 and a working capital deficiency $6,717,534 as of June 30, 2014. These conditions raise substantial doubt about our ability to continue as a going concern. We have historically financed our activities through the private placement of equity securities and through related party advances. Through June 30, 2014, we have dedicated our financial resources to the development of Flightdeck and Vidirectory and the expansion of our tablet business and general and administrative expenses as described later in the section titled Results of Operations.
The financial information contained herein has not been reviewed by the Company’s independent certifying accountant and is subject to material adjustments,
and anticipated restatements, once the internal accounting review is completed, which is anticipated to result in significant differences from the financial information contained herein.
- 16 -
Results of Operations - For the six months ended June 30, 2014 compared to the three months ended June 30, 2013;
Revenues
We generated revenue of $0 for the six months ended June 30, 2014, versus revenue of $7,110 for the six months ended June 30, 2013. The revenue of $7,110 for the six months ended June 30, 2013 was our initial tablet sales.
Tablet related Revenue and Cost of Sales
Tablet related revenue and cost of sales were $0 and $0 for the six months ended June 30, 2014 and tablet related sales and costs of sales were $7,110 and $3,118 for the six months ended, June 30, 2013.
General and Administrative Expenses
General and administrative expenses were $3,437,646 and $515,939 for the six months ended June 30, 2014 and 2013, respectively. This increase of $2,921,707 was primarily due to an increase in consulting fees of $1,001,561 primarily due to capital raising activities, an increase in marketing expenses of $819,400, an increase in selling and support services for tablet sales in Canada of $254,848, an increase in travel, and entertainment expense of $221,783, an increase in legal fees of $164,044 and an increase in our merchant bank fees and bank charges of $119,843.
Interest Expense
Interest expense was $66,982 and $9,408 for the six months ended June 30, 2014 and 2013, respectively. This increase of $57,574 was primarily due to additional short term borrowings of $311,275 on four notes payable to various lenders and a derivative liability of $100,000 during the six months ended June 30, 2014. There was only one smaller borrowing during the six months ended June 30, 2013 and was paid back before June 30, 2013.
Net Loss
Net loss was $3,595,848 and $531,139 for the six months ended June 30, 2014 and 2013, respectively. This increase in net loss of $3,064,609 was attributable to the changes in the revenue and expense captions as described above.
Results of Operations - For the three months ended June 30, 2014 compared to the three months ended June 30, 2013
Revenues
We generated revenues for the three months ended June 30, 2014 and three months ended June 30, 2013 of $0 and $7,000, respectively. The revenue of $7,000 for the three months ended June 30, 2013 was for our initial tablet sales.
Tablet related Revenue and Cost of Sales
Tablet related revenue and cost of sales were $0 and $0 for the three months ended June 30, 2014. Tablet related revenues and cost of sales during the three months ended June 30, 2013 were $7,000 and $3,118.
General and Administrative Expenses
General and administrative expenses were $2,149,304 and $345,937 for the three months ended June 30, 2014 and the three months ended June 30, 2013, respectively. This increase of $1,803,367 was primarily due to an increase of $619,744 in consulting expenses primarily related to capital raising activities, an increase in marketing expenses of $519,917, an increase of $254,848 in selling and support services for tablet sales in Canada, an increase of $142,618 in in travel and entertainment expenses, an increase in legal fees of $29,979, and an increase in our merchant banking fees and bank charges of $76,992.
The financial information contained herein has not been reviewed by the Company’s independent certifying accountant and is subject to material adjustments,
and anticipated restatements, once the internal accounting review is completed, which is anticipated to result in significant differences from the financial information contained herein.
- 17 -
Interest Expense
Interest expense was $66,982 and $8,563 for the three months ended June 30, 2014 and the three months ended June 30, 2013, respectively. This change of $58,419 was primarily due to additional short term borrowings of $271,275 on three notes payable to various lenders and a derivative liability of $100,000 during the three months ended June 30, 2014.
Net Loss
Net loss was $2,265,698 and $350,010 for the three months ended June 30, 2014 and the three months ended June 30, 2013, respectively. This increase in net loss of $1,915,688 was attributable to the changes in the revenue and expense captions as described above.
Off-Balance Sheet Arrangements
The Company has no Off-Balance Sheet Arrangements.
Tabular Disclosure of Contractual Obligations
| Payments due by Period | |||||
|
Contractual Obligations
|
Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years |
|
Short Term Debt Obligations
|
282,359
|
282,359
|
|||
|
Adversor Consulting Obligation
|
30,000
|
30,000
|
|||
|
Operating Lease Obligations
|
15,540
|
15,540
|
|||
|
Purchase Obligations
|
975,550
|
975,550
|
|||
|
Derivative Liability
|
100,000
|
100,000
|
|||
|
Totals
|
1,403,449
|
1,403,449
|
|||
Going Concern
The accompanying condensed financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred operating losses and negative operating cash flow since inception and future losses are anticipated. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s plan of operations, even if successful, may not result in cash flow sufficient to finance and expand its business.
Realization of assets is dependent upon continued operations of the Company, which in turn is dependent upon management’s plans to meet its financing requirements and the success of its future operations. The ability of the Company to continue as a going concern is dependent on improving the Company’s profitability and cash flow and securing additional financing.
Management is presently seeking to raise permanent equity capital in the capital markets to eliminate negative working capital and raise the necessary funds to satisfy its operations. Failure to raise equity capital or secure some other form of long-term debt arrangement will cause the Company to further increase its negative working capital deficit and increase its operating losses.
The Company believes in the viability of its strategy to generate revenues and profitability and in its ability to raise additional funds, and believes that the actions presently being taken by the Company provide the opportunity for it to continue as a going concern. However, the Company can give no assurance that such financing will be available on terms advantageous to it, or at all. Should the Company not be successful in obtaining the necessary financing to fund its operations, the Company would need to curtail certain or all of its operational activities. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
The financial information contained herein has not been reviewed by the Company’s independent certifying accountant and is subject to material adjustments,
and anticipated restatements, once the internal accounting review is completed, which is anticipated to result in significant differences from the financial information contained herein.
- 18 -
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of June 30, 2014. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were ineffective as of such date, at a reasonable level of assurance, in ensuring that the information required to be disclosed by our company in the reports we file or submit under the Exchange Act is: (i) accumulated and communicated to our management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission . Based on our evaluation, management has concluded that our internal control over financial reporting was ineffective as of June 30, 2014. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. This report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting pursuant to temporary rules of the Securities and Exchange Commission.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. On Thursday, August 14, 2014, Sungame’s Board of Directors and management concluded that previously issued financial statements and related disclosures in the Company’s annual report on Form 10K for the period ended December 31, 2013, filed with the SEC on April 15, 2014, and the Company’s quarterly report filed on Form 10Q for the period ended March 31, 2014, filed with the SEC on May 23, 2014, should not be relied upon.
The Company’s independent public accountants raised concerns with the Company as to the effective operation of its controls and procedures relating to revenue recognition. The Company engaged outside counsel to conduct an internal investigation once it became aware of the situation. The internal investigation concluded that due to a lack of communication between departments, the accounting department had been unaware of all the terms and conditions in respect of right of return product, rebate programs and educational grant incentives associated with funds received by the Company. This is considered a material weakness in internal controls. As a consequence of this material accounting error, all items previously recognized as revenue and deferred revenue for the above-mentioned periods will be restated as rebate liability, advances payable, or debt. Further clarification as to the legal ownership and the quality of product shipped in return for funds received is in progress.
Based on the findings of the internal investigation, the Company’s independent public accountant advised the Company that disclosure should be made to prevent future reliance on previously issued financial statements and related disclosures in the Company’s annual report on Form 10K for the period ended December 31, 2013, filed with the SEC on April 15, 2014, and the Company’s quarterly report filed on Form 10Q for the period March 31, 2014 filed with the SEC on May 23, 2014. An 8-K with respect to this matter was filed on August 28, 2014.
The Company is undertaking a full review of every transaction previously recorded as revenue or deferred revenue that occurred during the relevant periods and legal ownership of all product shipped in return for funds received by the Company. The Company is working diligently to prepare and file restated reports for the above-mentioned periods as quickly as possible. The Company will also begin a thorough reevaluation, redrafting, and reimplementation of its internal controls and procedures.
The financial information contained herein has not been reviewed by the Company’s independent certifying accountant and is subject to material adjustments,
and anticipated restatements, once the internal accounting review is completed, which is anticipated to result in significant differences from the financial information contained herein.
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The Company is not a party to, or the subject of, any material pending legal proceedings.
The Company is a Smaller Reporting Company. A Smaller Reporting Company is not required to provide the risk factor disclosure required by this form.
|
Securities sold by the Issuer within the past three years which were not registered
|
||||||||
|
Date
|
Class
|
Amount
|
Underwriter
|
Consideration1
|
Exemption
|
Conversion
|
Use of Proceeds
|
|
|
4/1/14
|
CS
|
10,000
|
None
|
$30,000
|
4 (a) (2)
|
N/A
|
OPEX & Inv.
|
|
|
11/20/13
|
CS
|
79,333
|
None
|
$238,000
|
4 (a) (2)
|
N/A
|
OPEX & Inv.
|
|
|
9/13/13
|
CS
|
10,000
|
None
|
$30,000
|
4 (a) (2)
|
N/A
|
OPEX & Inv.
|
|
|
8/23/13
|
CS
|
18,000
|
None
|
$54,000
|
4 (a) (2)
|
N/A
|
OPEX & Inv.
|
|
|
6/13/13
|
CS
|
1,000
|
None
|
$3,000
|
4 (a) (2)
|
N/A
|
OPEX & Inv.
|
|
|
5/29/13
|
CS
|
7,500
|
None
|
$22,500
|
4 (a) (2)
|
N/A
|
OPEX & Inv.
|
|
|
5/23/13
|
CS
|
10,000
|
None
|
$30,000
|
4 (a) (2)
|
N/A
|
OPEX & Inv.
|
|
|
4/24/13
|
CS
|
68,000
|
None
|
$204,000
|
4 (a) (2)
|
N/A
|
OPEX & Inv.
|
|
|
4/15/2011
|
CS
|
300,000
|
None
|
Merger related services
|
4 (a) (2)
|
N/A
|
OPEX2
|
|
|
4/15/2011
|
CS
|
25,000
|
None
|
Merger related services
|
4 (a) (2)
|
N/A
|
OPEX6
|
|
1 No underwriting discounts or commissions are applicable.
2 Shares were issued for services which were expensed by Sungame
None
Not Applicable
The financial information contained herein has not been reviewed by the Company’s independent certifying accountant and is subject to material adjustments,
and anticipated restatements, once the internal accounting review is completed, which is anticipated to result in significant differences from the financial information contained herein.
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No material changes have been made to the procedures by which securities holders may recommend nominees to the Company’s Board of Directors.
(a) Exhibits and Reports on Form 8-K
|
EXHIBIT
|
||
|
NUMBER
|
DESCRIPTION
|
|
The financial information contained herein has not been reviewed by the Company’s independent certifying accountant and is subject to material adjustments,
and anticipated restatements, once the internal accounting review is completed, which is anticipated to result in significant differences from the financial information contained herein.
- 21 -
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: September 18, 2014
Las Vegas, Nevada
SUNGAME CORPORATION
By: /s/ Neil Chandran
Name: Neil Chandran
Title: Principal Executive Officer,
Principal Accounting Officer, Director
The financial information contained herein has not been reviewed by the Company’s independent certifying accountant and is subject to material adjustments,
and anticipated restatements, once the internal accounting review is completed, which is anticipated to result in significant differences from the financial information contained herein.
- 22 -