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TMCNet:  SUNGAME CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operation

[November 14, 2012]

SUNGAME CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operation

(Edgar Glimpses Via Acquire Media NewsEdge) Statement Regarding Forward-Looking Information The following discussion should be read in conjunction with our unaudited consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q.

Statement Regarding Forward-Looking Information. This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q, including without limitation, statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations regarding our financial position, estimated working capital, business strategy, the plans and objectives of our management for future operations and those statements preceded by, followed by or that otherwise include the words "believe", "expects", "anticipates", "intends", "estimates", "projects", "target", "goal", "plans", "objective", "should", or similar expressions or variations on such expressions are forward-looking statements. We can give no assurances that the assumptions upon which the forward-looking statements are based will prove to be correct.

Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements, including, but not limited to, the availability and pricing of additional capital to finance operations.

Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. The following discussion should be read in conjunction with our unaudited consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q.

Background Sungame Corporation is a Delaware corporation established on November 14, 2006.

The Company merged with Freevi Corporation on April 15, 2011.

Prior to the merger Sungame were in the process of establishing 3D virtual world communities.

- 11 --------------------------------------------------------------------------------- Table of Contents Our services Since the merger we are offering three services: 1. www.Flightdeck.tv -A forum for social interaction in the genre of Facebook, Myspace, and Google Circles, but with the unique aspect of a) being neutral so that the forum is able to show content and comments from all major social networks which makes it possible for the users to "get all information and share all information" from one place and b) the focus on Video content makes the forum more attractive for users to be on and stay online a longer period of time also.

2. www.Vidirectory.com - A corporate online video directory with 20+ million company listings, offering Social Media Marketing solutions to small and medium sized companies in the United States. We offer online professionally produced commercials to assist online searchers for goods or services to assist in deciding what to purchase in their specific locality. In addition we provide our clients with Social Media Marketing campaigns on all major platforms (Facebook, Twitter, Pinterest, Tumblr), as well as Video Search Engine Optimization to ensure that our clients, and their content, are more visible online.

3. Sungame Casual Game Development - Proprietary Casual Game development is in partnership with Game Aggregators. Since 2010, we have been developing our proprietary casual game engine with the following unique features: a) allowing ourselves as well as the players to upload game assets and create their own missions, b) making it simple to change the theme and artwork to create new games for new audiences c) becoming fully compliant to Facebook game API so that it will run properly on Facebook's social network. We are in the final phase of the first game which will be launched in the future in partnership with the game aggregator Wicked Interactive who has over 7 million active players mainly in North America.

Our Revenue streams The following revenue streams are defined for each service group: www.Flightdeck.tv 1. Advertisement revenues 2. Sales of Virtual goods, for example music, books, applications 3. Casual Games revenues for example buying game improving assets such as ammunition, weapons, energy.

4. Revenues from physical goods, any product where we partner up with a distributor of products we decide to sell.

- 12 --------------------------------------------------------------------------------- Table of Contents www.Vidirectory.com 1. Subscription fees for Social Media services for clients advertising on the site.

2. Setup fees. For all our services in addition to the above subscription fees, we charge a setup fee.

3. Video Production fees Sungame Casual Game Development 1. Shared revenues from Proprietary Casual Game development in partnership with Game Aggregators. Game aggregators are internet portals that normally have exclusive rights to market a number of games within one or many countries. The Game Aggregator has a large number of registered and active players and they are attractive for Game Developers based on the fact that they can speed up the time from launch of a new game to high usage and revenue generation.

[[Image Removed: graphic1]]As shown in the image above, Sungame's Business Units are closely related to each other.

- 13 --------------------------------------------------------------------------------- Table of Contents [[Image Removed: graphic2]] The image above shows how both our Social Advertising platform (Vidirectory) and Social Media Game Development platform (Sungame) are feeding our Social Media Platform (Flightdeck) with content.

Our marketing, sales and target customers For www.Flightdeck.tv, the service is in Open Beta version and we are, during Q3 and Q4, 2012, running our initial Social Media Marketing campaigns. In the beginning of 2013, we expect to begin marketing to our target demographics.

For www.Vidirectory.com, sales were started during Q2, 2012 and this service is expected to become revenue positive at the end of 2012. We have the first team of sales representatives generating sales for the services for this business unit.

For Sungame Casual Game Development, the development of the first game ("SPION") is in its final stage and we believe to be able to launch this game before the end of year 2012.

- 14 --------------------------------------------------------------------------------- Table of Contents Based on our market studies, we have identified four general types of users that we will be our focus on during 2012-2016: 1. Social Media e-commerce consumers 2. Smartphone and Tablet users 3. Online Video consumers 4. The North American market [[Image Removed: graphic3]] More specifically, for our market campaigns, we will prioritize the following target customers during 2012-2013: 1. The 10 largest cities in USA 2. The age group 18 - 30 years of age 3. Users of at least one social network (e.g. Facebook) 4. Users that are online in average not less than 1 hour/day 5. Users that spend in average not less than $20/month online All our marketing activities will be focusing on consumers meeting one or more of the above definitions.

- 15 --------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2012 (Q3 2012) COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2011 (Q3 2011) Revenues For the three months ended September 30, 2012 we generated revenue of $3,260 compared to $602 for the three months ended September 30, 2011. The increase of $2,658 is due to the product launch of Vidirectory.com.

Operating Expense Operating expenses for the three months ended September 30, 2012 were $184,366 compared to $227,846 for the three months ended September 30, 2011. This net decrease of $43,480 was due to less web development costs during the three months ended September 30, 2012 versus the same period in the prior year.

Net Loss The net loss for the three months ended September 30, 2012 was $181,959 compared to a net loss of $227,533 for the three months ended September 30, 2011. The $45,574 decrease in net loss is directly attributable to the decrease in operating expenses described above. As of September 30, 2012, we have an accumulated deficit of $1,548,641.

Net Loss Applicable to Common Stock Net loss applicable to common stock was $0.01 for the three months ended September 30, 2012 and $0.01 for the three months ended September 30, 2011.

RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2012 (Q3 2012) COMPARED TO SIX MONTHS ENDED SEPTEMBER 30, 2011 (Q3 2011)Revenues For the nine months ended September 30, 2012, we generated revenue of $15,695 compared to $32,854 for the nine months ended September 30, 2011. The decrease of $17,159 was due to nonrecurring development work performed for a customer during the nine months ended September 30, 2011.

- 16 --------------------------------------------------------------------------------- Table of Contents Operating Expenses Operating expenses for the nine months ended September 30, 2012 were $544,377 compared to $448,194 for the nine months ended September 30, 2011. The increase of $96,183 is primarily due to an increase in payroll costs post merger of $81,500 during the nine months ended September 30, 2012 versus the same period in the prior year.

Net Loss The net loss for the nine months ended September 30, 2012 was $330,692 compared to a net loss of $486,281 for the nine months ended September 30, 2011. The $114,411 increase in net loss is directly attributable to the increase in operating expenses described above and an increase in depreciation and amortization of $38,853 as we capitalized $180,644 of software development costs in the fourth quarter of 2011 and the first and third quarter of 2012 offset by a decrease in web development costs of $69,836.

Net Loss Applicable to Common Stock Net loss applicable to common stock was $0.01 for the nine months ended September 30, 2012 and $0.01 for the nine months ended September 30, 2011.

LIQUIDITY AND CAPITAL RESOURCESAt September 30, 2012, we had cash on hand of $629 and total assets of $141,170; consisting of cash of $629, net fixed assets of $719 and capitalized software of $133,322. At September 30, 2012, we had total current liabilities of $1,794,831; consisting of $272,722 of accounts payable, and related party advances of $1,522,109. At September 30, 2012, we had a working capital deficit of $1,787,402.

During the nine months ended September 30, 2012, cash used in operating activities was ($465,392) compared to ($375,260) during the nine months ended September 30, 2011. The increase is primarily due to the increase in net loss of $114,411 for the nine months ended September 30, 2012 versus the same period in the prior year.

During the nine months ended September 30, 2012, investment in capitalized software was $180,644 compared to $0 during the nine months ended September 30, 2011. During the nine months ended September 30, 2012, we increased our advances from related parties by $509,883 in financing activities. During the nine months ended September 30, 2011, we increased our related party advances by $388,078 in financing activities.

- 17 --------------------------------------------------------------------------------- Table of Contents Outlook The United States has been experiencing a widespread and severe economic recession that, among other things, has reduced availability of credit and capital financing and heightened economic risks. We have been grossly undercapitalized in 2012 and unable to raise a significant amount of capital, other than receiving $509,833 in advances from our majority shareholder.

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

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

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

Other than the insignificant revenue realized, we do not expect to begin to realize revenue from our Facebook games until the third quarter of 2012. So far though, we cannot provide assurance that the market will ever accept our games. Any failure by us to sell our games within our expected schedule or on terms acceptable to us will likely have a material adverse impact on our cash flow, results of operations and financial condition. In addition, we expect to face competition from larger, more formidable competitors as we enter the Facebook games market. A lack of market acceptance of our Facebook games, failure to obtain additional financing, or unforeseen adverse competitive, economic, or other factors may adversely impact our cash position, and thereby materially adversely affect our financial condition and business operations.

- 18 --------------------------------------------------------------------------------- Table of Contents We anticipate funding operations through private investments and loans made by our current shareholders. However, we have no commitments for such funding as of the date of this report. In addition, we anticipate generating revenue in the near future, however, we have no current commitments or contracts that could result in such revenue. Management will have complete discretionary control over the actual utilization of said funds and there can be no assurance as to the manner or time in which said funds will be utilized.

We foresee that we will need a minimum of $1,500,000 to fund our operations for the next 12 months as follows: System Development and Integration $ 700,000 Professional Fees $ 100,000 Sales, Marketing, Strategic Partnerships $ 100,000 General & Administrative $ 500,000 Working Capital $ 100,000 Total $ 1,500,000 We will need substantial additional capital to support our proposed future operations. We have no significant revenues from operations. We have no committed source for any funds as of the date hereof. No representation is made that any funds will be available when needed. In the event funds cannot be raised when needed, we may not be able to carry out our business plan, may never achieve sales or royalty income, and could fail in business as a result of these uncertainties.

Because of the limited financial resources that we have, it is unlikely that we will be able to diversify our operations.

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.

- 19 --------------------------------------------------------------------------------- Table of Contents Going Concern The independent registered public accounting firm's report on our financial statements as of December 31, 2011 and 2010 includes a "going concern" explanatory paragraph that describes substantial doubt about our ability to continue as a going concern.

We are dependent on raising additional equity and/or, debt to fund any negotiated settlements with our outstanding creditors and meet our ongoing operating expenses. There is no assurance that we will be able to raise the necessary equity and/or debt that we will need to be able to negotiate acceptable settlements with our outstanding creditors or fund our ongoing operating expenses. We cannot make any assurances that we will be able to raise funds through such activities.

Capital Resources We have only common stock as our capital resource.

We have no material commitments for capital expenditures within the next year, however, if operations are commenced, substantial capital will be needed to pay for software development, possible acquisitions and working capital.

Need For Additional Financing We do not have capital sufficient to meet our cash needs. We have not generated revenue and have minimal resources to conduct planned operations. We estimate that our monthly expenses to commence planned operations within the next 12 months are approximately $125,000 (approximately $1,500,000 per year). Thus, using currently available capital resources (the primary source of which is non-binding commitments and expectations from management and current shareholders), we expect to be able to conduct planned operations for a minimum period of 3 to 4 months. We are currently relying solely on current shareholders and management to provide the necessary funds to continue operations. We do not have any commitments for such funding from shareholders or management.

At the present time, we have not made any arrangements to raise additional cash.

Management and current shareholders are expected, but have not committed, to provide the necessary working capital so as to permit us to conduct planned operations until such time as we have begun to generate revenue and/or have become sufficiently funded. However, if we do not begin to generate revenue or cannot raise additional needed funds, we will either have to suspend development operations until we do raise the funds, or cease operations entirely.

- 20 --------------------------------------------------------------------------------- Table of Contents In addition, the United States and the global business community is experiencing severe instability in the commercial and investment banking systems which is likely to continue to have far-reaching effects on the economic activity in the country for an indeterminable period. The long-term impact on the United States economy and our operating activities and ability to raise capital cannot be predicted at this time, but may be substantial.

Critical Accounting Policies We have identified the policies below as critical to its business operations and the understanding of our results from operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management's Discussion and Analysis of Financial Conditions and Results of Operations where such policies affect our reported and expected financial results. Note that our preparation of this document requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of expenses during the reporting periods. There can be no assurance that actual results will not differ from those estimates. During the nine months ended September 30, 2012, there were no significant changes in our critical accounting policies and estimates. You should refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2011 for a more complete discussion of our critical accounting policies and estimates.

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 amortized when we begin recording revenue the deemed date that the software is placed in service.

- 21 --------------------------------------------------------------------------------- Table of Contents Income Taxes We have effectively provided a full valuation allowance for the tax effects of our net operating losses during the nine months ended September 30, 2012 and for the period from inception (October 21, 2010) to September 30, 2012 to offset the deferred tax asset that might otherwise have been recognized as a result of operating losses in the current period and prior periods since, because of our history of operating losses, management is unable to conclude at this time that realization of such benefit is currently more likely than not.

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

Off-Balance Sheet Arrangements As of September 30, 2012, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, that had been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we were engaged in such relationships.

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