<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended: Commission File Number
June 30, 1999 0-23672
SMART GAMES INTERACTIVE, INC.
-----------------------------
(Exact name of Small Business Issuer as specified in its charter)
Delaware 34-1692323
-------- ----------
(State of Incorporation) (IRS Employer Identification Number)
2075 Case Parkway South
Twinsburg, OH 44087
(216) 963-0660
(Address of principal executive offices and telephone number)
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.0002 par value
Common Stock Purchase Warrants
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 12,648,244 SHARES OF COMMON STOCK,
$.0002 PAR VALUE, AT FEBRUARY 9, 1999.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 12 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [X]
Traditional Small Business Disclosure Format (Check One):
Yes [ ] No [X]
<PAGE> 2
Smart Games Interactive, Inc.
Form 10 QSB
For the Quarter Ended June 30, 1999
Index
Page
----
Item 1 Financial Statements
Balance Sheets 6/30/99, 12/31/98 & 6/30/98 2
Statements of Operation 6/30.99, 12/31/98 3
And 6/30/98
Statements of Shareholders Equity 4
Statements of Cash Flow 5
Notes to Financial Statements 6
Item 2 Management Discussion & Analysis 7
Part 2 Other Information 8
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Default upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Reports of Form 8 - K
Signatures 9
- 1 -
<PAGE> 3
Smart Games Interactive, Inc.
Balance Sheet
12/31/98 and 6/30/98
<TABLE>
<CAPTION>
Unaudited Audited
Assets 06/30/1999 12/31/1998
Current Assets
Property, Plant & Equipment
<S> <C> <C>
Furniture & Fixtures $ 29,170.00 $ 29,170.00
Less Accumulated Depreciation $ (25,799.00) $ (23,715.00)
Total Property, Plant & Equipment $ 3,371.00 $ 5,455.00
Total Assets $ 3,371.00 $ 5,455.00
Liabilities and Shareholders
Current Liabilities
Note Payable $ 14,000.00 $ 14,000.00
Accounts Payable $ 151,604.00 $ 151,604.00
Other Accured Expenses $ 14,900.00 $ 14,600.00
Total Current Liabilities $ 180,504.00 $ 180,204.00
Shareholders Equity
Preferred Stock at par value (s.0002), 5,000,000 shares authorized
0 shares issud and outstanding
Common Stock at par value (s.0002), 50,000,000 shares authorized, 12,648,244 $ --
Shares issued and Outstanding in 1997 and 1998, respectively $ 2,530.00 $ 2,530.00
Paid- Capital $ 6,262,943.00 $ 6,262,943.00
Accumulated Deficit $ (6,442,606.00) $ (6,440,222.00)
Total Shareholders' Equity ( Deficit) $ (177,133.00) $ (174,749.00)
Total Liabilities & Shareholders' Equity (Deficit) $ 3,371.00 $ 5,455.00
</TABLE>
2
<PAGE> 4
<TABLE>
<CAPTION>
Smart Games Interactive, Inc
Statements of Operations
For the Year Ended 12/31/99 Unaudited Audited Unaudited
For the 6 months ended 6/30 99 6/30/1999 12/31/1999 6/30/1998
<S> <C> <C> <C>
Net Sales 0 44468 44468
Cost of Goods Sold 0 21300 23721
Gross Margin 0 23168 20747
Selling, G & A Costs 2084 54988 53566
Research and Development 0 0 0
Non Recurring Charges 0 0 0
Loss from operations -2084 -31820 -32819
Other Expenses 300 -1200
Loss before Extradordinary Items -2343 -33020 -32819
Extradordinary Items 0 474126 0
Net Income (loss) -2342 441406 -32819
Net Income (loss) per common share before extraordinary item 0 0 0
Net Income (loss) per common share 0 0.03 0
Shares used in calculation of net income (loss) per share 12648244 12648244 12648244
</TABLE>
3
<PAGE> 5
Smart Games Interactive, Inc.
Statement of Shareholders Equity (Deficit)
For year ended 12/31/98 (Audited)
6 months ended 6/30/99 (Unaudited)
<TABLE>
<CAPTION>
Common Stock Accumulated Total Shareholders
Shares Amount Paid in Capial Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance 12/31/96 12648244 $2,530.00 $6,262,943.00 $ (5,570,179.00) $ 695,294.00
Net Loss $ (1,311,449.00) $ (1,311,449.00)
Balance 12/31/97
12648244 $2,530.00 $6,262,943.00 $ (6,881,620.00) $ (616,155.00)
Net Loss $ 441,406.00 $ 441,100.00
Balance 12/31/98 12648244 $2,530.00 $6,262,943.00 $ (6,440,222.00) $ (174,749.00)
Net Loss $ (2,384.00) $ (2,384.00)
Balance 6/30/99 12648244 $2,530.00 $6,262,943.00 $ (6,442,606.00) $ (177,133.00)
</TABLE>
4
<PAGE> 6
<TABLE>
<CAPTION>
Smart Games Interactive, Inc
Statement of cash Flow
For year ended 12/31/98 (Audited)
6 months ended 6/30/99 (Unaudited) Unaudited Audited Unaudited
06/30/1999 12/31/1999 06/30/1998
<S> <C> <C> <C>
Cash Flow form operating
Loss before Extradordinary Activities $ (2,384.00) $ (33,020.00) $ (32,819.00)
$ 474,426.00
Extraordinary item $ (2,384.00) $ (32,819.00)
Adjustments to reconcile net loss to net cash
used by operating activities
Depreciation and amortization $ 2,084.00 $ 4,167.00 $ 4,398.00
Cash provided (used) by the change in:
Accounts receivable $ -- $ 1,925.00 $ 1,925.00
Inventories $ -- $ 21,300.00 $ 21,301.00
Prepaid expenses and other assets $ -- $ 1,000.00 $ 1,000.00
Note payable
Accounts payable $ (425,648.00) $ --
Accrued expenses $ 300.00 $ (46,728.00) $ 16,750.00
Net Cash used by operating activities $ -- $ (2,578.00) $ --
Cash flow from investing activities $ -- $ -- $ --
Cash flow from financing activities $ -- $ -- $ --
Net increase (decrease) in cash $ -- $ (2,578.00) $ 12,555.00
Cash and Cash equivalents, beginning of year $ 2,578.00 $ 2,578.00
Cash and Cash equivalents, end of year $ -- $ -- $ 15,133.00
</TABLE>
5
<PAGE> 7
SMART GAMES INTERACTIVE, INC.
Notes to Financial Statements
June 30, 1999
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. The statements are unaudited but,
in the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. For further information, refer to the financial statements
and footnotes thereto for the year ended December 31, 1997 included in the
registrant's Annual Report on Form 10-KSB filed on February 11, 1999.
NOTE 2. NET LOSS PER COMMON SHARE
Net loss per common share is computed using the weighted average number of
shares of common stock and common equivalent shares outstanding.
NOTE 3. EXTRAORINARY ITEM
The Company significantly reduced the level of operations during the second
quarter of 1997 and accordingly proceeded to close down all operations of the
Company in the last half of 1997 which has continued through June 30, 1999.
Accordingly, the Company terminated all employees, including the president and
chief executive officer, John D. Lipps. Due to this termination, all patents
assigned by Mr. Lipps to the Company reverted back to Mr. Lipps.
In addition, the Company submitted to the Board of Directors a draft of an
Acquisition and Merger Agreement whereby in a reverse merger, the Company would
acquire Brandmakers, Inc. a Georgia corporation. Under the terms of the
agreements Brandmakers, Inc. would be merged into the Company. The Smart Games
Board of Directors approved the merger in February 1999.
Prior to and in anticipation of the merger, the principals of Brandmakers Inc.
have, on the Company's behalf, continued the program whereby it negotiated
settlements of outstanding trade payable indebtedness owed by the Company.
Brandmakers has executed notes payable and/or agreed to issue cash of
approximately $155,000 in order to settle indebtedness of approximately
$577,000. Because it is more likely than not that these payables will be paid by
Brandmakers Inc. a third party, the Company reduced its accounts payable and
other accrued expenses by approximately $476,000 and recorded an extraordinary
after tax gain of approximately $476,000 in 1998.
-6-
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999.
The Company has ceased operations, terminated all employees and is not likely to
restart operations with its former business.
FINANCIAL CONDITION AND LIQUIDITY
Cash flow used by operations was zero for the six month period ended June 30,
1999 compared to cash flow used by operations of $12,557 for the six month
period ended June 30, 1998.
During the third quarter of 1997, the Company terminated all employees,
including the president and chief executive officer, Mr. John D. Lipps. Due to
this termination, all patents assigned by Mr. Lipps to the Company reverted back
to Mr. Lipps. Since the Company has ceased operations it will not operate as a
going concern with its former business. As a consequence, the Company has
incurred unusual, non-recurring charges related to reducing the value of
inventories and certain assets to net realizable value.
During the third quarter of 1997, the Company's largest creditor received a
judgement lien against all the Company's assets, excluding certain intangible
assets.
The Company will not be able to generate or raise sufficient funds to meet
minimum liquidity needs in 1999 or future years and repay any liabilities of the
Company. The Smart Games Board of Directors approved a merger with Brandmakers
Inc. in February 1999.
-7-
<PAGE> 9
PART 2. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITES
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
The Company has ceased operations, terminated all employees
and is not likely to restart operations with its former
business. The Smart Games Board of Directors approved a merger
with Brandmakers Inc.
ITEM 6 REPORTS OF FORM 8-K
On February 1999 the Board of Directors approved a merger with
Brandmakers Inc. The Board further authorized a proxy for
submission to all shareowners after a final review by the
Securities and Exchange Commission.
-8-
<PAGE> 10
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized:
SMART GAMES INTERACTIVE, INC.
Date: August 17, 1999 /s/Nicholas J. Chuma
--------------- --------------------
Nicholas J. Chuma, Director
-9-
