<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
March 31, 1998 0-23672
SMART GAMES INTERACTIVE, INC.
-----------------------------
(Exact name of Small Business Issuer as specified in its charter)
Delaware 34-1692323
-------- ----------
(State of Incorporation) (ERS 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 1O-QSB
FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part 1. Financial Information
Item 1. Financial Statements
Balance Sheets as of March 31, 1998 (unaudited) and December 31, 1997 3
Statements of Operations for the three month period ended March 31, 1998
and 1997 (unaudited) 4
Statements of Cash Flows for the three month period ended March 31, 1998
and 1997 (unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and 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. Exhibits and Reports on Form 8-K
Signatures 9
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
SMART GAMES INTERACTIVE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 15,135 $ 2,578
Accounts receivable, less allowances of $32,284 respectively ---- 1,925
Prepaid expenses and other current assets ---- 1,000
Inventories:
Raw Materials ---- ----
Work-in-process ---- ----
Finished Goods ---- 21,300
----------- -----------
Total inventories ---- 21,300
----------- -----------
Total current assets 15,135 26,803
Property and equipment, net 7,422 9,622
Other noncurrent assets
Trade Credits, net of valuation reserves of $870,200
and $798,000, respectively ---- ----
Other assets, net ---- ----
----------- -----------
---- ----
TOTAL ASSETS $ 22,557 $ 36,425
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of capital lease obligations $ ---- $ ----
Notes Payable 14,000 14,000
Accounts payable 577,252 577,252
Accrued compensation and related liabilities 15,000 15,000
Other accrued expenses 57,078 46,328
----------- -----------
Total current liabilities 663,330 652,580
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION ---- ----
SHAREHOLDERS' EQUITY
Preferred stock, at par value ($. 0002),
5,000,000 shares authorized, 0 shares
issued and outstanding
Common stock, at par value ($0.0002), 50,000,000 shares
authorized; 12,648,244 shares issued and outstanding at
March 31, 1998 and at December 31, 1997 2,530 2,530
Paid in capital 6,262,943 6,262,943
Accumulated deficit (6,906,245) (6,881,628)
----------- -----------
Total shareholders' equity (640,772) (616,155)
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 22,557 $ 36,425
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3
<PAGE> 4
SMART GAMES INTERACTIVE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Net Sales $ 44,143 $ 33,019
Cost of goods sold 23,721 43,404
---------- ---------
Gross Margin 20,422 (10,385)
Selling, general and administrative costs 45,040 198,786
Research and Development Costs ---- 35,058
---------- ---------
Income (Loss) from operations (24,618) (244,229)
Other expense ---- 1,535
---------- ---------
Loss before extraordinary items $ (24,618) $ (242,694)
Extraordinary item ---- 241,004
---------- ---------
Net loss $ (24,618) $ (1,690)
============ ============
Net loss per share before extraordinary items (0.00) (0.03)
---------- ---------
Net loss per common share (0.00) (0.00)
---------- ---------
Shares used in calculation of net
loss per common share 12,648,244 8,534,532
---------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 5
SMART GAMES INTERACTIVE, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months Ended
March 31,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Loss before extraordinary item $ (24,618) $(242,694)
Extraordinary item ---- 41,004
--------- ---------
Net loss (24,618) (1,690)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 2,199 22,659
Loss on sale of property and equipment ---- ----
Accounts receivable allowances ---- (23,840)
Non-recurring charges
Cash provided (used) by the change in:
Accounts receivable 1,925 40,040
Inventories 21,301 1,366
Prepaid expenses and other assets 1,000 (9,869)
Accounts payable ---- (300,830)
Accrued expenses 10,750 (35,454)
--------- ---------
NET CASH USED BY OPERATING ACTIVITIES 12,557 (307,618)
CASH FLOWS FROM INVESTING ACTIVITIES
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of notes payable
Repayment of capital lease obligation ---- 1,264
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES ---- 1,264
--------- ---------
Net decrease in cash 12,557 (308,882)
Cash and cash equivilents at beginning of period 2,578 482,340
--------- ---------
Cash and cash equivilents at end of period $ 15,135 $ 173,458
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
SMART GAMES INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(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 1O-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 period ended March 31, 1998 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. CONSIGNED INVENTORY, WARRANTY AND RIGHT OF RETURN POLICIES
Inventory consigned to customers is included in the company's finished goods
valuation. Revenue from these consignments is recognized when the consignee
sells the product to individual consumers. All products carry a minimum ninety
day manufacturer's warranty. The warranty period begins on the date of purchase
by the individual consumer. Consumers, who purchase product from the Company,
have a right to return the product for either merchandise, credit or refund
(within thirty days of purchase) provided the product is free of damage or abuse
not consistent with the normal use of the product.
NOTE 4. EXTRAORDINARY ITEMS
During the first quarter of 1997, the Company continued a program, which began
during the fourth quarter of 1996, whereby it negotiated settlements of
outstanding trade payable indebtedness owed by the Company. The Company paid
cash of approximately $98,000 in order to settle indebtedness of approximately
$355,000. The Company reduced accounts payable and other accrued expenses on its
balance sheet by approximately $355,000 and recorded an extraordinary after tax
gain of approximately $241,000, net of expenses of approximately $16,000.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended March 31, 1998 Compared to the Three Months Ended March 31,
- ------------------------------------------------------------------------------
1997
- ----
The company has ceased operations, terminated all employees and is not likely to
restart operations with its former business.
Net sales for the three months ended March 31, 1998 were $44,143 as compared to
net sales of $33,019 for the same period in 1998. This decrease in net sales is
attributable to the Company's inability, due to lack of capital resources, to
satisfactorily market its products. International sales, including Canada, for
the three month period ended March 31, 1998 were $ 0 as compared to $7,000 over
the same period in 1997. Product return accruals for the three months ended
March 31, 1998 were $ 0 compared to $3,000 during the same period in 1997.
Gross margin percentage for the three months ended March 31, 1998 was 46% as
compared to -31% for the same period in 1997. This increase in gross margin
percentage was due to the elimination of all overhead and finished goods already
built in stock.
Total operating expenses for the three months ended March 31, 1998 were $45,040,
consisting of selling, general and administrative costs of $45,040, as compared
to total operating expenses of $244,229 for the same period in 1997 consisting
of selling, general and administrative costs of $198,786, and research and
development costs of $35,058.
For the three months ended March 31, 1998 other expense was $0 compared to
$1,535 during the same period in 1997.
Financial Condition and Liquidity
- ----------------------------------
Cash flow generated by operations was $12,557 for the three month period ended
March 31, 1998 compared to cash flow used by operations of $308,882 for the
three month period ended March 31, 1997.
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
written 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 Companys' largest creditor received a
judgment lien against all the Companys' assets, excluding certain intangible
assets.
The Company will not be able to generate or raise sufficient funds to meet
minimum liquidity needs in 1998 and repay any liabilities of the Company.
7
<PAGE> 8
PART 2. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
None
ITEM 6 REPORTS OF FORM 8-K
None
8
<PAGE> 9
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: February 11, 1999 /S/ Nicholas J. Chuma
---------------- ------------------------------------------------
Nicholas J. Chuma, Secretary and Director
9
