<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-KSB/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER 0 - 23672
SMART GAMES INTERACTIVE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 34-1692323
(state or other jurisdiction of (I.R.S. Employer
incorporation of organization) identification No.)
1633 17TH STREET
CUYAHOGA FALLS, OHIO 44223
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (330) 929 3682
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT COMMON STOCK,
PAR VALUE $.001 PER SHARE
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).
Yes No. X
------ ----
--------
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No X
--- ---
The number of shares outstanding of the Registrant's common stock is
12,648,244. The Registrant is an inactive company. Accordingly, no estimate can
be made of the market value.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I
ITEM 1. BUSINESS
The Registrant was incorporated in October, 1991 as an Ohio corporation.
At its last Annual Meeting on August 21, 1996, approval was given by the
shareholders to move its domicile to Delaware. Technically, the shareholders
approved of a merger whereby the Ohio corporation, Sports Sciences, Inc., was
merged into a newly formed Delaware corporation called Smart Games Interactive,
Inc. Sports Sciences, Inc. was the constituent corporation and Smart Games
Interactive was the surviving corporation. This transaction was consummated in
late 1996. There have been no further changes to the registrant's corporate
structure since that time.
The Company's business formerly consisted of the consumer electronics
industry. The Company created, designed, developed and assembled interactive
electronic game simulators that incorporated Company owned hardware and software
technology. These products were marketed under the trade names Pro Swing, TeeV
Golf, PC Golf, Batter Up and PC Batter Up. These game simulators enable the
player to use skills similar to those the player would use if he or she were to
play golf on a golf course or baseball on a baseball field. The Company designed
its game simulators to be instructive, entertaining and capable of use by people
of all ages.
Since September of 1997, the Company has not been active. Although
dormant, the Company has not filed for bankruptcy protection nor has it been
placed into receivership. The Company has not been dissolved. Before going
dormant, the Company's largest creditor, Miles Rubber, did obtain a Judgment
against all of the Company's assets from the Court of Common Pleas in Summit
County, Ohio [Case # 96 07 2853]. At year's end 1997, Miles Rubber had not
pursued any further enforcement of its Judgment lien.
The Judgment held by Miles Rubber is sufficiently sweeping as to
constitute a material reclassification of the Company's assets not in the
ordinary course of business, as this term is employed in S-B Regulation 101
(a)(3).
The Company has conducted no business since September of 1997.
Accordingly, it has not produced any products or services, nor has it worked
upon any new product, and it has not distributed any other company's product.
Given these circumstances, the Company can make no comment about the competitive
business conditions of its industry during this time, since it is no longer a
participant; it has no customers; and it has no sources for raw materials and
other supplies.
At year end 1997, management of the registrant neglected to file its
10K with the SEC. As a result, the Company remained a Registrant under the
Exchange Act but was delinquent in its SEC reporting obligations. According to
the last published quotation for the Company's Common Stock, the published bid
is 0.006 and the ask is 0.009. There has been no trading activity for the past
year.
<PAGE> 3
John D. Lipps, the Company's former Chairman and Chief Executive
Officer, received a patent for the Pro Swing in November, 1990, before the
Company was formed. This patent was assigned to the Company in December, 1991.
Mr. Lipps executed an agreement whereby he was obligated to assign to the
Company any rights he may receive during his employment for any new products or
inventions related to the Company's business. Subsequently, Mr. Lipps secured
additional patents, including a patent entitled "Sensing Spatial Movement." All
of these patents were assigned to the Company. Under the terms of the
assignment, the assignment obligation ended upon the termination of Mr. Lipps
employment. Subsequently, Mr. Lipps submitted a notice of resignation to the
Board and this notice of resignation was accepted. At the same time, Mr. Lipps
employment agreement was terminated and Mr. Lipps took back all rights relating
to his patents. As a consequence, the Company no longer holds any of the rights
to any of the patents that were previously assigned and / or developed by the
Company.
The Company has no full time employees and no part time employees.
ITEM 2. PROPERTIES
During 1996 and a portion of 1997, the Company leased its office,
manufacturing facility and certain office equipment under noncellable operating
leases. The office and manufacturing facility lease expired in May 1997 and the
Company did not exercise its option to renew. The Company also leased two
commercial storage units at USA Storage in Kent, Ohio. At year's end, these
commercial storage units were still being leased by the Company.
ITEM 3. LEGAL PROCEEDINGS
None. The Company does have outstanding judgments for overdue taxes owed
to Summit County and a Judgment held by Miles Rubber and Packaging on
substantially all of the Company's assets.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Security Holders. The year 1997 passed
without an Annual Meeting.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
The Company's trading symbol is SSCI. The prinicipal market for the
Issuer's common equity is the Over the Counter / Bulletin Board exchange
operated by NASD. A review of the Yahoo data base of financial information
indicates that there are no historical charts available and the records which
can be retrived were last updated on November 13, 1997. In lieu of providing the
Issuer's high and low for each quarter in the last two years, it is submitted
that the price has fluctuated between 6 mills and 6 cents during this period
with very little selling and buying activity.
<PAGE> 4
In a proxy statement issued just before the Annual Meeting in 1996, it
was reported that Mr. Lipps 100,000 shares of stock issuable to him upon the
exercise of immediately exercisable Common Stock purchase warrants. The Roulston
Investment Trust Limited had 30,000 shares of common stock which are issuable
upon the immediate exercisable Common Stock purchase warrants. There is also
317,500 shares issuable to certain directors and executive officers upon the
exercise of stock options exercisable within 60 days of the August, 1996 proxy
statement, which was also granted under the Stock Option Plan. It is not known
how many of these warrants are still outstanding or what validity still attaches
to them. There are 230 stock holders of record.
Finally, there are no restrictions imposed by the Company's charter
which limit its ability to pay dividends, aside from the general provision which
stipulates that dividends may only be paid out of surplus cash earned when a
profit has been declared.
ITEM 6. SELECTED FINANCIAL DATA.
In response to this question, the reader is respectfully referred to the
attached Financial Statements, all of which are hereby incorporated by
reference.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Company has no operations and no income. This condition has persisted
since September of 1997. This 10KSB is for the purpose of providing financial
information in regard to the previous 12 months. The firm of Harmon & Company,
CPA, Inc. to reconstruct financial statements to bring the Registrant back into
full compliance with its reporting responsibilities under the Exchange Act.
The Company has no plan of operation for the next twelve months.
For the periods covered by the attached financial statements, the
Company has minimal cash reserves. The Company has no plans for raising any
additional funds in the next twelve months. Accordingly, the Company is not
planning any purchases of any kind relating to any plants or any equipment.
Regarding employees, the Company has no employees.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
For the information called for by this Item, see the Financial Statements
attached.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
<PAGE> 5
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Mr. James Chuma, age 39, has assumed the duties of acting Secretary and
Messrs. Chuma, Peter Waite and Donald Miller constitute the present Board. These
gentlemen are performing a caretaker operation.
ITEM 11. EXECUTIVE COMPENSATION.
Neither the officers or directors receive compensation from the Registrant
for services performed.
Employment Contracts
Mr. Lipps, the former Chief Executive Officer, entered into an employment
contract with the Company on January 1, 1993 for a term of seven years. The term
is automatically renewable from year to year thereafter unless either party
terminates the contract with written notice ninety (90) days prior to the end of
the seventh year or any subsequent year. The agreement provides for a base
monthly salary of $10,000 which can only be increased with Board approval. This
employment agreement was terminated and, hence, payments from October 1, 1997
through December 31, 1999 were never made. Mr. Lipps has agreed to a
covenant-not-to-compete for two years subsequent to his termination or
resignation from the Company, unless such termination is in breach of the
agreement.
Messrs. Chuma, the former chief financial officer, has an employment
contract with the Company commencing January 1, 1993 for a term of two years and
which are automatically renewable from year to year thereafter unless either
party terminates the contract with written notice ninety (90) days prior to the
end of the second year or any subsequent year. In 1997 the employment contract
was terminated and, hence, payments from June 1, 1997 through December 31, 1997
were never made. The contract provided for a base monthly salary of $6,250
Messrs Chuma which can only be increased with Board approval. This former
officer has agreed to a covenant-not-to-compete for two years subsequent to
termination or resignation, unless such termination is in breach of the
agreement.
<PAGE> 6
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Title of Calss Name/Address Amount of Shares Percent of Total
Beneficial Owner
Common Stock Michael Taglich 1,050,966 8%
100 Wall Street
New York City, N.Y. 10005
Common Stock Robert Taglich 1,050,966 8%
100 Wall Street
New York City, N.Y. 10005
</TABLE>
Management holds an insignificant amount of stock in the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No officer, director or family member of an officer or director is
indebted to the Registrant.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS.
The following documents are hereby filed with this report.
Independent Auditor's Report dated June __, 1997.
Balance Sheet of December 31, 1997 and 1996
Statements of Operations for the Years ended December 31, 1997 & 1996
Statement of Shareholders' Equity for the years ended December 31, 1997 &
1996 Statement of Cash Flows for the years ended December 31, 1997 & 1996
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Smart Games Interactive, Inc.
Date: February 12, 1999 By /s/ Nicholas J Chuma
------------------- -----------------------------
James Chuma, Acting Director
Acting Secretary
<PAGE> 7
===============================
SMART GAMES INTERACTIVE,
INC.
FINANCIAL STATEMENTS
&
INDEPENDENT AUDITOR'S REPORT
DECEMBER 31, 1997 & 1996
===============================
========================
HARMON & COMPANY,
CPA, INC.
========================
<PAGE> 8
============================
SMART GAMES INTERACTIVE,
INC.
============================
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report .............................................................................. Page 2
Financial Statements
Balance Sheets as of December 31, 1997 and 1996 ......................................................... Page 3
Statements of Operations for the years ended December 31, 1997 and 1996 ................................ Page 4
Statements of Shareholders' Equity for the years ended December 31, 1997 and 1996 ...................... Page 5
Statements of Cash Flows for the years ended December 31, 1997 and 1996 ................................ Page 6
Notes to Financial Statements ......................................................................... Page 7
</TABLE>
-1-
<PAGE> 9
[LETTERHEAD H&C]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Smart Games Interactive, Inc.
We have audited the accompanying balance sheets of Smart Games
Interactive, Inc. (known as Sports Sciences, Inc. prior to merger with and into
Smart Games Interactive, Inc. on October 11, 1996 (see Note A)) as of December
31, 1997 and the related statements of operations, shareholders' equity
(deficit) and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. The
financial statements of Smart Games Interactive, Inc. as of December 31, 1996,
were audited by other auditors whose report dated March 24, 1997 expressed an
unqualified opinion and included an explanatory paragraph on going concern
matters. (see Notes A and B)
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1997 and 1996 financial statements referred to
above present fairly, in all material respects, the financial position of Smart
Games Interactive, Inc. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As more fully described in Note B,
the Company has incurred losses since its start-up and is not currently
generating sufficient cash flows from operations. This situation raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans are set forth in Notes A, B and N. The financial statements
include all necessary adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
Harmon & Company, CPA, INC.
- --------------------------------------------------------------
HARMON & COMPANY, CPA, INC.
October 20, 1998 except as to the information
presented in Notes A, B and N for which the date is
January 15, 1999.
Phone 614-792-9833 Members of the AICPA...SEC Practice Section
Fax 614-792-9834 Ohio Society of Certified Public Accountants
-2-
<PAGE> 10
SMART GAMES INTERACTIVE, INC.
BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
Assets
<S> <C> <C>
Current Assets
- --------------
Cash $ 2,578 $ 482,340
Accounts Receivable, less allowances of $32,284 and
$44,000, respectively 1,925 28,980
Inventories
Raw Materials -0- 301,289
Work-In-Process -0- 166,180
Finished Goods 21,300 91,374
----------- -----------
Total Inventories 21,300 558,843
----------- -----------
Prepaid Expenses and Other Current Assets 1,000 171,886
----------- -----------
Total Current Assets 26,803 1,242,049
----------- -----------
Property, Plant & Equipment, less Accumulated Depreciation and Amortization
- ---------------------------------------------------------------------------
Machinery & Equipment 10,462 325,471
Computer & Communication Equipment 50,446 84,983
Furniture & Fixtures 29,170 31,095
Leasehold Improvements -0- 3,283
Capital Leases -0- 37,860
----------- -----------
90,078 482,692
Less Accumulated Depreciation and Amortization (80,456) (317,631)
----------- -----------
Total Property, Plant & Equipment 9,622 165,061
----------- -----------
Other Assets
- ------------
Trade Credits, net of valuation reserves of $798,000 in 1996 -0- 42,000
Other Assets, net -0- 84,085
----------- -----------
Total Other Asset -0- 126,085
----------- -----------
Total Assets $ 36,425 $ 1,533,195
----------- -----------
Liabilities and Shareholder's Equity (Deficit)
Current Liabilities
Current portion of Capital Lease Obligations $-0- $ 5,841
Note Payable 14,000 -0-
Accounts Payable 577,252 591,235
Accrued Compensation and Related Liabilities 15,000 4,328
Other Accrued Expenses 46,328 207,700
----------- -----------
Total Current Liabilities 652,580 809,104
----------- -----------
Long-term Liabilities
- ---------------------
Capital Lease Obligations. net of current portion -0- 28,797
----------- -----------
Shareholders' Equity (Deficit)
- ------------------------------
Preferred Stock, at par value ($.0002), 5,000,000 shares authorized,
-0- shares issued and outstanding -0- -0-
Common Stock, at par value ($.0002), 50,000,000 shares authorized,
12,648,244 shares issued and outstanding in 1997 and 1996, respectively 2,530 2,530
Paid-in Capital 6,262,943 6,262,943
Accumulated Deficit (6,881,628) (5,570,179)
----------- -----------
Total Shareholders' Equity (Deficit) (616,155) 695,294
----------- -----------
Total Liabilities & Shareholders' Equity (Deficit) $ 36,425 $ 1,533,195
----------- -----------
</TABLE>
See accompanying notes to financial statements
<PAGE> 11
SMART GAMES INTERACTIVE, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net Sales $ 159,133 $ 663,406
Cost of Goods Sold 143,754 537,921
------------ ------------
Gross Margin 15,379 125,485
------------ ------------
Selling, General and Administrative Costs 769,809 791,532
Research and Development Costs 1,433 133,216
Non - recurring Charges 783,620 697,303
------------ ------------
1,554,862 1,622,051
------------ ------------
Loss from Operations (1,539,483) (1,496,566)
Other Expenses 12,970 25,243
------------ ------------
Loss before Extraordinary Items (1,552,453) (1,521,809)
Extraordinary Items 241,004 201,150
------------ ------------
Net Loss ($ 1,311,449) ($ 1,320,659)
------------ ------------
Net Loss per common share before extraordinary item ($ 0.12) ($ 0.23)
------------ ------------
Net Loss per common share ($ 0.10) ($ 0.20)
------------ ------------
Shares used in calculation of net loss per share 12,648,244 6,692,154
------------ ------------
</TABLE>
See accompanying notes to financial statements
-4-
<PAGE> 12
SMART GAMES INTERACTIVE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock Total
------------ Paid in Accumulated Shareholders'
Shares Amount Capital Deficit Equity
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1995 5,176,379 $1,035 $4,803,192 ($4,249,520) $554,707
Issuance of common stock for cancellation
of indebtedness 538,532 108 385,998 386,106
Issuance of common stock for cash
pursuant to private placements 6,933,333 1,387 1,298,613 1,300,000
Expenditures for private placement (224,860) (224,860)
Net Loss (1,320,659) (1,320,659)
--------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 12,648,244 2,530 6,262,943 (5,570,179) 695,294
--------------------------------------------------------------------------------------------------------------
Net Loss (1,311,449) (1,311,449)
--------------------------------------------------------------------------------------------------------------
Balance December 31, 1997 12,648,244 $2,530 $6,262,943 ($6,881,628) ($616,155)
==============================================================================================================
</TABLE>
See accompanying notes to financial statements
-5-
<PAGE> 13
SMART GAMES INTERACTIVE, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997 and 1996
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Loss before extraordinary activities ($1,552,453) ($1,521,809)
Extraordinary item 241,004 201,150
----------- -----------
Net loss (1,311,449) (1,320,659)
Adjustments to reconcile net loss to net cash used
--------------------------------------------------
by operating activities
-----------------------
Depreciation and amortization 10,374 95,933
Accounts receivable allowances 11,716 (164,278)
Adjustment of valuation reserves (538,186) -0-
Non - recurring charges 783,620 697,303
Cash provided (used) by the change in:
Accounts receivable 27,055 436,932
Inventories 537,543 173,568
Prepaid expenses and other assets 170,886 (124,194)
Note Payable 14,000 -0-
Accounts payable (13,983) (446,339)
Accrued expenses (150,700) (98,943)
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (459,124) (750,677)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Purchases of property and equipment -0- (5,845)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Proceeds from issuance of common stock, net of expenses -0- 1,075,140
Issuance of notes payable 14,000 466,396
Repayment of notes payable -0- (466,396)
Repayment of capital lease obligations (34,638) (3,222)
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (20,638) 1,071,918
----------- -----------
NET INCREASE (DECREASE) IN CASH (479,762) 315,396
----------- -----------
Cash and Cash equivalents, beginning of year 482,340 166,944
----------- -----------
Cash and Cash equivalents, end of year $ 2,578 $ 482,340
----------- -----------
</TABLE>
See accompanying notes to financial statements
-6-
<PAGE> 14
SMART GAMES INTERACTIVE, INC.
Notes to Financial Statements
December 31, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF PRIOR OPERATIONS - Smart Games Interactive, Inc. (the
Company) is engaged in the consumer electronics industry. The Company designs,
develops and manufactures interactive electronic game simulations that
incorporate the Company-owned hardware and software technology. The Company's
products are sold throughout the United States and internationally.
On October 11, 1996, Sports Sciences, Inc. ("SSI"), the predecessor to the
Company, reincorporated from the State of Ohio to the State of Delaware by means
of a merger with and into the Company (the "Merger"), then a wholly-owned
subsidiary of SSI. The Company was the surviving corporation in the Merger. In
the Merger, SSI's outstanding common stock was automatically extinguished and
converted into issued and outstanding shares of the Company's common stock.
WINDING DOWN AND TERMINATION OF OPERATIONS - Cash flow generated from operations
during 1997, and prior years, was not sufficient to maintain operations. During
1997, the Company started planning for possible long term debt financing and/or
private placements of equity and/or debt securities. The Company's efforts to
obtain long term debt financing, a private placement of equity or debt
securities were not successful. To address the Company's severe and ongoing cash
flow problems, 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. 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. The Company has incurred certain
non-recurring charges totaling $783,620 as a result of reducing the inventories
and certain assets to net realizable values and returning the patents. The
following is summary of non-recurring charges:
Valuation Reserves
Valuation Reserve adjustment on cash flow:
<TABLE>
<CAPTION>
Increase
1996 1997 (decrease)
------- ------- ----------
<S> <C> <C> <C>
Inventory reserve 67,303 512,767 445,464
Fixed Assets 0 20,522 20,522
Trade credit reserve 798,000 870,200 72,200
Total increase 538,186
</TABLE>
Because of the financial position of the Company, management believes that there
is no longer a market for the inventory and determined to write down the
inventory to its approximate market value. There were no reserves at December
31, 1996.
In addition, and as more fully explained in Note N, the Company has 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.
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 and/or agreed to issue notes payable and/or cash of
approximately $147,597 in order to settle indebtedness of approximately
$597,597. (See Note N.)
Management plans to consummate the merger, which will decrease the payable to
approximately $155,000. Smart Games has ceased operations with the only viable
plan being to consummate the merger with Brandmakers.
-7-
<PAGE> 15
SMART GAMES INTERACTIVE, INC. NOTES TO FINANCIAL STATEMENTS
(Continued)
CONCENTRATIONS OF CREDIT RISK - Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
temporary cash investments and trade accounts receivables. The Company places
its temporary cash investments with financial institutions and, although at
December 31, 1996 they had invested amounts in excess of federal insurance
limits, management did not feel that the Company was exposed to any substantial
credit risk. As previously indicated, 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. All risks
with respect to accounts receivable, valuation allowances and appropriate
reserves have been considered.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.
INVENTORIES - The Company values its inventories at the lower of cost
or market. Cost is determined utilizing the first-in, first-out (FIFO) method.
Inventories at December 31, 1997 were at minimal levels and represented
primarily slow-moving and obsolete items which were sold or liquidated in 1998.
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets, ranging from five to seven years. Repairs and maintenance
costs are charged to expense as incurred.
OTHER ASSETS, NET - At December 31, 1996, other assets consisted
primarily of patents and trademarks which were stated at cost. The Company
capitalizes the costs associated with obtaining patents and trademarks,
primarily legal expenses and filing fees. On an ongoing basis, the Company
evaluates the carrying value of its patents and trademarks and adjusts for any
impairment in value. Amortization is computed on a straight-line basis over the
estimated useful life of the patent or trademark, not to exceed 17 years for
patents and 40 years for trademarks. Amortization expense for the years ended
December 31, 1997 and 1996 was $10,671 and $10,671, respectively. 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 and a $73,414
non-recurring charge was recorded.
REVENUE RECOGNITION - The Company recognizes revenue when goods are
shipped to customers except for inventory shipped on a consignment basis.
Revenue from consignments is recognized when the consignee sells the product to
individual consumers. Allowances are recorded for estimated product returns and
warranties. International sales, including Canada, amounted to approximately
$2,000 and $89,000 for the years ended December 31, 1997 and 1996, respectively.
INCOME TAXES - Income taxes are accounted for in accordance with the
provisions of Statement of Financial Accounting Standards No 109 (SFAS 109),
"Accounting for Income Taxes." Under SFAS 109, the asset and liability method is
used to account for income taxes. This method requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the financial reporting basis and tax basis of
assets and liabilities. Valuation allowances are established, if necessary, to
reduce the deferred tax asset to the amount that will more likely than not be
realized. Income tax expense is the current tax payable or refundable for the
period plus or minus the net change in the deferred tax assets and liabilities.
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.
-8-
<PAGE> 16
SMART GAMES INTERACTIVE, INC. NOTES TO FINANCIAL STATEMENTS
(Continued)
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates.
NOTE B - BASIS OF PRESENTATION; LIQUIDITY AND NON-RECURRING CHARGES
The Company's financial statements have been prepared on a going
concern basis and include certain adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible inability of the
Company to continue as a going concern.
INVENTORY; NON-RECURRING CHARGES - During the 1997 and 1996, the
Company recognized unusual, non-recurring charges of $512,767 and $697,303,
respectively, related to reducing inventories to net realizable value. Such
value is based on management's estimate of sales of its 16-bit technology
products in the ensuing years. The inventory balance of the Company's remaining
16-bit technology products at December 31, 1996 was approximately $51,000, an
amount which was subsequently written off in 1997.
BARTER TRANSACTION - TRADE CREDITS; NON-RECURRING CHARGES - During June
1995, the Company entered into an agreement whereby it sold $1,040,000 of its
products at fair market value to SKR Resources, Inc. in exchange for cash of
$200,000 and $840,000 of trade credits to be utilized on a part cash (cash
portion not to exceed 50%), part trade basis for media advertising, goods and or
services. The initial term of the agreement was for 36 months; however, the
Company had the right to extend the agreement for an additional 12 months. Any
trade credits remaining after expiration of the agreement shall become null and
void. As of December 31, 1996, none of the trade credits had been utilized by
the Company.
In 1996 it became apparent that circumstances indicated that there was
substantial uncertainty as to the Company's ability to utilize the trade credits
during the remaining term of the agreement as realization of the trade credits
is dependent on the Company generating sufficient future cash flows to meet the
cash payments required in connection with the utilization of the trade credits.
During 1997 and 1996, the Company recorded a non-recurring charge of $42,000 and
$630,000 respectively, as a result of reducing the trade credits to their net
realizable value.
PROPERTY AND EQUIPMENT VALUATION ADJUSTMENTS AND WRITE-OFFS - Property
and equipment valuation adjustments and write-offs consisted of the following:
<TABLE>
<CAPTION>
Cost Adjustment As Adjusted
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Machinery and equipment $325,471 ($315,009) $ 10,462
Computer equipment 84,983 (34,537) 50,446
Furniture and fixtures 31,095 (1,925) 29,170
Leasehold improvements 3,283 (3,283) - 0 -
Assets held under capital leases 37,860 (37,860) - 0 -
--------- --------- ---------
482,692 (392,614) 90,078
Less accumulated depreciation and amortization 317,631 (237,175) 80,456
--------- --------- ---------
Property and equipment, net $ 165,061 ($155,439) $ 9,622
========= ========= =========
</TABLE>
-9-
<PAGE> 17
SMART GAMES INTERACTIVE, INC. NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE C - NONCASH TRANSACTIONS
In May 1996, the Company issued 538,532 shares of its common stock to
several creditors of the Company, in consideration for their cancellation of
trade payable indebtedness owed by the Company in the aggregate amount of
$386,106.
During 1996, the Company also entered into two capital leases for
equipment totaling $37,860.
NOTE D - EXTRAORDINARY ITEMS
During the fourth quarter of 1996, the Company initiated a program
whereby it negotiated settlements of outstanding trade payable indebtedness owed
by the Company. The Company paid cash of approximately $99,000 in order to
settle indebtedness of approximately $326,000. The Company reduced accounts
payable and other accrued expenses on its balance sheet by approximately
$326,000 and recorded an extraordinary after tax gain of approximately $201,000,
net of expenses of approximately $26,000.
The Company has continued this program during 1997 and has paid cash of
approximately $98,000 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 $241,004, net of expenses of approximately $15,996.
NOTE E - FINANCING ARRANGEMENTS
During 1996, the Company sold approximately $380,000 of accounts
receivable to a third party and was advanced approximately $306,000 in cash.
Pursuant to the related contract, the Company was responsible for repayment to
the third party factoring company of the amount initially advanced plus a fee
equivalent to one percent (1%) for each ten day period (or portion thereof) the
account receivable remained outstanding. Amounts collected in excess of the
amount advanced and related fees remained with the Company. The accounts
receivable were paid within terms of approximately thirty (30) days.
In August 1996, the Company was advanced $150,000 by Taglich Brothers,
D'Amadeo, Wagner & Company, Incorporated at a zero percent interest rate. The
Company repaid this note payable out of the proceeds of the private placement
completed in October 1996.
Interest expense and cash paid for interest totaled $2,378 and $15,567
in 1997 and 1996, respectively.
NOTE F - LEASES
During 1996 and a portion of 1997, the Company leased its office,
manufacturing facility and certain office equipment under noncancellable
operating leases. The office and manufacturing facility lease expired in May
1997 and the Company did not exercise its option to renew. In conjunction with
expiration of the lease the Company recorded a writeoff of leasehold
improvements of $3,283.
NOTE G - WARRANTY AND RIGHT OF RETURN POLICIES
All of the Company's products carry a minimum 90 day manufacturer's
warranty. The warranty period begins on the date of purchase by the individual
consumer. Consumers, who purchase a product from the Company, have the right to
return the product for either merchandise, credit or refund (within 30 days of
purchase) provided the product is free of damage or abuse not consistent with
the normal use of the product.
-10-
<PAGE> 18
SMART GAMES INTERACTIVE, INC. NOTES TO FINANCIAL STATEMENTS
(Continued)
Provisions for product returns for the year 1996 were approximately $84,000. All
sales were final and no additional warranty or right of return exists for sales
made in 1997.
NOTE H - COMMITMENTS
PATENT AGREEMENT WITH COMPANY PRESIDENT - The President of the Company
had previously assigned four patents and/or patent applications to the Company
in connection with his employment. The assignment stated that, in the event the
President's employment was terminated for any reason, he was entitled to
severance payments equal to three percent of the annual gross revenues received
by the Company from the sale of its products which rely on these patents, and
are payable only for the life of the patents and patent applications. Pursuant
to the agreement, payments were not exceed $360,000 or be less than $90,000 on
an annual basis. In the event the Company did not perform in accordance with the
agreement, the patents and patent applications were to revert to the President.
This reversion took place during the third quarter of 1997. (See Note B)
PURCHASE COMMITMENTS - As of December 31, 1996, the Company was
committed under contractual purchase agreements to acquire inventory totaling
$187,294. Losses that were incurred upon fulfillment of these purchase
commitments for inventory used in the Company's 16-bit technology products have
been recognized in the accompanying statements of income (see Note B)
LICENSING AGREEMENTS - The Company has licensing agreements with
certain major manufacturers of video games for the limited right to use the
manufacturers' trademarks in connection with several of the Company's products.
The agreements call for royalties equal to five percent of net sales of products
licensed under the agreements. The Company recognized royalty expense of
approximately $0 in 1997 and 1996 relating to these agreements. The Company
allowed these agreements, which cover the Company's 16-bit product line, to
expire at their respective expiration dates.
In September 1996, the Company executed a license agreement with Little
League Baseball, Incorporated ("Little League") whereby the Company can utilize
the trademarks of Little League on Smart BaseballTM. This agreement expired in
September 1997 and was not renewed. No royalty expense related to this agreement
was recorded during 1997 and 1996.
NOTE I - COMMON STOCK
On April 18, 1994, the Company completed a public offering of 800,000
units consisting of one common share and one common share purchase warrant for
proceeds of approximately $4 million ($3.4 million after expenses). The warrants
became separately transferable sixty days after the effective date of the
offering. Under the terms of the warrant agreements, the exercise price of the
warrants and the number of shares purchasable are adjusted whenever common stock
is issued at a share price below the current market value. At December 31, 1996,
warrants to purchase 1,061,571 shares of the Company's common stock exercisable
at $4.71 per share were outstanding. These warrants expired on April 7, 1997
In 1994, the Company issued 71,785 common stock purchase warrants to
the underwriter of the offering. At December 31, 1996, warrants to purchase
95,256 shares of the Company's common stock exercisable at $4.71 per share and
expiring on April 8, 1999 were outstanding. Any or all of these warrants are
callable at the option of the Company at a price of $.01 per warrant if the
closing price of the Company's common stock equals or exceeds $4.71 for thirty
consecutive trading days.
In addition, 30,000 warrants, each providing for the purchase of one
share of the Company's common stock at an exercise price of $4 per share, were
issued on October 19, 1993 and expired October 19, 1998.
-11-
<PAGE> 19
SMART GAMES INTERACTIVE, INC. NOTES TO FINANCIAL STATEMENTS
(Continued)
Also, at completion of the public offering, the Company converted certain
debenture bonds to common stock through the issuance of 323,979 shares of common
stock.
In May 1996, the Company issued 538,532 shares of common stock to
certain trade payable creditors in exchange for the cancellation of $386,106 in
trade payable indebtedness.
During June 1996, the Company's stock was no longer listed on the
NASDAQ Small Cap Market. The Company's stock is currently traded on the over the
counter (OTC) market.
In October 1996, the Company's shareholders approved an amendment to
the Company's Articles of Incorporation to increase the number of authorized
shares of the Company's common stock from 10,000,000 to 50,000,000.
On October 11, 1996, Sports Sciences, Inc. ("SSI"), the predecessor to
the Company, reincorporated from the State of Ohio to the State of Delaware by
means of a merger with and into the Company ("Merger"), then a wholly-owned
subsidiary of SSI. The Company was the surviving corporation in the Merger. In
the Merger, SSI's outstanding common stock was automatically extinguished and
converted into issued and outstanding shares of the Company's common stock.
On October 30, 1996, the Company issued and sold 6,933,333 shares of
its common stock without registration under the 1933 Act in reliance on the
exemption effected under Regulation D of the Securities Act of 1933, as amended.
The securities were offered and sold in a private placement to a limited number
of accredited investors for a total offering price of $1,300,000. The placement
agent for the offering received a commission paid in the form of 520,000 shares
of common stock. In addition, representatives of the placement agent received
warrants to purchase an aggregate 693,333 shares of common stock at a purchase
price of $.20625 per share.
In 1996, the Company has authorized for the issuance of 10,000 shares
of common stock to the Company's manufacturing representative in China for the
continued warehousing of product. Additionally in 1996, the Company has
authorized the issuance of 30,000 shares of common stock as partial settlement
of trade payable indebtedness. As of October 20, 1998, none of these shares of
common stock have been issued.
On February 14, 1997, the Company filed a Registration Statement on
Form SB-2 in order to register, (i) 538,532 shares of common stock the Company
issued to certain trade payable creditors in exchange for cancellation of trade
payable indebtedness, (ii) 6,933,333 shares of common stock the Company issued
in the October 1996 private placement, (iii) 693,333 shares of common stock to
be issued by the Company upon the exercise of 693,333 warrants issued to the
placement agent in the October 1996 private placement and (iv) 10,000,000 shares
of common stock to be offered by the Company from time to time. Upon receiving
the SEC comment letter, the Company determined that it was unable to proceed
with the offering and withdrew the registration.
-12-
<PAGE> 20
SMART GAMES INTERACTIVE, INC. NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE J - COMMON STOCK OPTIONS
On November 15, 1993, the Company's Board of Directors adopted the 1993
Nonqualified Incentive Stock Option Plan. Under the plan, as amended by the
Company's shareholders in April 1995 and in October 1996, options may be granted
to employees to purchase up to 1,000,000 shares of the Company's common stock at
exercise prices not less than market value at the date of grant unless otherwise
authorized by the Board of Directors. The options are exercisable at various
times determined at the date of grant for a period of no more than ten years. No
options have been exercised under this plan.
The options detailed below apply to 1997 and 1996 and were issued to
employees of the Company. These options expire under the terms of the agreement
six months after an employee is no longer in the employ of the Company. The
following is a summary of the options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Currently Exercisable
------------------- ---------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Contractual Exercise Exercise
Price Range Number Life Price Number Price
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.00 - $0.10 635,000 10.0 years $0.900 525,000 $0.900
$0.11 - $0.50 375,000 8.7 years $0.500 350,500 $0.500
$0.51 - $1.00 5,000 7.0 years $0.625 5,000 $0.625
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Financial Accounting Standards Board Statement No. 123 ("FASB 123"), "Accounting
for Stock-Based Compensation," requires use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25, because
the exercise price of the Company's employees stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
NOTE K - INCOME TAXES
Prior to October 20, 1993, the Company was treated as a Subchapter S
corporation under the Internal Revenue Code for income tax purposes.
Accordingly, substantially all of the income and expenses of the Company through
October 19, 1993 are included in the federal and state income tax returns of the
shareholders and operating losses generated through such period are not
available to the Company for carryover. Net operating losses since October 19,
1993 of approximately $7,350,000 are available for carryover and expire in
various years through 2012.
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
-13-
<PAGE> 21
SMART GAMES INTERACTIVE, INC. NOTES TO FINANCIAL STATEMENTS
(Continued)
Significant components of the Company's deferred tax liabilities and assets are
as follows at December 31, 1997 and:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax liabilities, principally property & equipment $ - 0 - $ 76,000
Patents and return reserves
Deferred tax assets: 3,900 13,000
Accrued expenses - 0 - 49,000
Start up costs - 0 - 239,000
Trade credits - 0 - 2,204,000
Net operating loss carry forwards 2,795,000 2,204,000
Other - 0 - 38,000
---------- -----------
Total deferred tax assets 2,798,900 2,543,000
Valuation allowance for deferred tax assets (2,798,900) (2,467,000)
---------- -----------
Net deferred taxes $ - 0 - $ - 0 -
---------- -----------
</TABLE>
Management has provided a valuation allowance for its net deferred tax
assets as the Company has incurred losses since inception.
NOTE L - RELATED PARTY TRANSACTIONS
During 1996, the Company borrowed a total of $10,000 from the wife of
the president of the Company, which accrued interest at a rate of 0%. This loan
was repaid out of the net proceeds of the October 1996 private placement.
During 1997, in separate transactions, the Company borrowed a total of
$14,000 from two (2) former officers and directors of the Company. The notes are
for $10,000 and $4,000 respectively and bear interest at the rate of 10% per
annum.
NOTE M - CONTINGENCIES
The Company is subject to potential claims and legal actions arising in
the ordinary course of business. Management believes that it has defenses of
considerable merit and has or will seek settlements favorable to the Company,
but is not able to predict the ultimate outcome of these matters at this time.
Accordingly, resolutions unfavorable to the Company could result in material
liabilities and charges, which have not been reflected in the accompanying
financial statements.
NOTE N - SUBSEQUENT EVENTS
The Company has submitted to the board of Directors, a draft of an
Acquisition and Merger Agreement whereby the Company would acquired Brandmakers
Inc. a Georgia Corporation. Under the terms of the agreements being drafted and
circulated, Brandmakers, Inc. would be merged into the Company.
Management plans to consummate the merger, which will decrease the
payable to approximately $155,000. Smart Games has ceased operations with the
only viable plan being to consummate the merge with Brandmakers.
-14-
<PAGE> 22
SMART GAMES INTERACTIVE, INC. NOTES TO FINANCIAL STATEMENTS
(Continued)
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 and/or agreed to issue notes payable and/or
cash of approximately $147,597 in order to settle indebtedness of approximately
$597,597. The following is a pro forma balance sheet at December 31, 1997 and
statement of operations, reflecting the subsequent reduction of accounts payable
and other accrued expenses on its balance sheet by approximately $450,000 and
recorded an extraordinary after tax gain of approximately $450,000.
<TABLE>
<CAPTION>
1997 Pro forma
<S> <C> <C>
Current Assets
Cash $ 2,578 $ 2,578
Accounts Receivable, less allowances
of $32,284 1,925 1,925
Inventories:
Raw Materials - 0 - - 0 -
Work-in-Process - 0 - - 0 -
Finished Goods 21,300 21,300
Total Inventories 21,300 21,300
-------- --------
Prepaid Expenses & Other Current Assets 1,000 1,000
-------- --------
Total Current Assets 26,803 26,803
-------- --------
Property Plant & Equipment.
Less Accumulated Depreciation and Amortization
Machinery & Equipment 10,462 10,462
Computer & Communication Equipment 50,446 50,446
Furniture & Fixtures 29,170 29,170
Leasehold Improvements - 0 - - 0 -
Capital Leases - 0 - - 0 -
-------- --------
90,078 90,078
-------- --------
Less Accumulated Depreciation &
Amortization (80,456) (80,456)
-------- --------
Total Property, Plant & Equipment 9,622 9,622
-------- --------
Other Assets
Trades Credits - 0 - - 0 -
Other Assets - 0 - - 0 -
-------- --------
Total Other Assets - 0 - - 0 -
-------- --------
Total Assets $ 36,425 $ 36,425
</TABLE>
The pro forma is included to give the reader a better understanding of
where the company could stand given that the merger was imminent and that the
accounts payable and accrued liabilities write down were substantial and
significant due to signed agreements/notes between the creditor and Brandmakers,
the merger candidate.
FOURTH QUARTER ADJUSTMENTS:
a. Negative COGS 7,945
b. Negative R & D 53,177
c. Negative non-recurring charges 43,124
The above items a. and b. were not adjustments but were reclasses.
Prior to December 31, 1997 certain items were classed into costs of goods sold
and research and development which were included in general and administration
expenses at December 31, 1997. Items previously included in cost of goods sold
included freight and indirect labor. Research and development had included
product set-up, training, consulting and public relations.
Non-recurring charges included a credit adjustment in the fourth
quarter to amortization, which had previously been adjusted and included in
non-recurring charges for the third quarter.
All activity was suspended for the most part during the 4th quarter
thereby significantly limiting the expenses for that period compared to the
first three-quarters. Contributing to the first quarter net loss of only
approximately $2,000 was a negative balance for miscellaneous operation expenses
of approximately $250,000. Contributing to the loss in the 2nd quarter was an
LCM adjustment of $275,000 and obsolescence expense of $11,000. Obsolescence
expense in the 3rd quarter of $300,000 contributed to the loss.
There are additional adjustments to be made in 1998 due to the company
ceasing all operations and the reliance on a merger with Brandmakers Inc.
-15-
<PAGE> 23
SMART GAMES INTERACTIVE, INC. NOTES TO FINANCIAL STATEMENTS
(Continued)
<TABLE>
<CAPTION>
1997 Proforma
- --------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Shareholder's Equity (Deficit)
Current Liabilities
Current portion of Capital Lease Obligations $ - 0 - $ - 0 -
Note Payable 14,000 14,000
Accounts Payable 577,252 127,252
Accrued Compensation and Related Liabilities 15,000 15,000
Other Accrued Expenses 46,328 46,328
----------- -----------
Total Current Liabilities 652,580 $ 202,580
----------- -----------
Long-term Liabilities
Capital Lease Obligations, net of current portion - 0 - - 0 -
----------- -----------
Shareholders' Equity (Deficit)
Preferred Stock - 0 - - 0 -
Common Stock 2,530 2,530
Paid-in Capital 6,262,943 6,262,943
Accumulated Deficit (6.881,628) (6,431,628)
----------- -----------
Total Shareholders' Equity (Deficit) (616,155) (166,155)
----------- -----------
Total Liabilities & Shareholders' Equity (Deficit) $ 36,425 $ 36,425
=========== ===========
Statements of Operations
</TABLE>
<TABLE>
<CAPTION>
1997 Proforma
- --------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $ 159,133 $ 159,133
Cost of Goods Sold 143,754 143,754
----------- -----------
Gross Margin 15,379 15,379
----------- -----------
Selling, General and Administrative Costs 769,809 769,809
Research and Development Costs 1,433 1,433
Non - recurring Charges 783,620 783,620
----------- -----------
1,554,862 1,554,862
Loss from Operations (1,539,483) (1,539,483)
Other Expenses 12,970 12,970
----------- -----------
Loss before Extraordinary Items (1,552,453) (1,552,453)
Extraordinary Items 241,004 691,004
----------- -----------
Net Loss ($1,311,449) ($ 861,449)
=========== ===========
</TABLE>
-16-
<PAGE> 1
Exhibit 99.1
NAC CONSULTING
1633 17th Street
Cuyahoga Falls, Oh. 44223
E-mail: [email protected]
(330)929-3682
(330)940-2625 Fax
April 6, 1998
Mr. Bob Palmquist
Brandmakers, Inc.
6015A Unity Drive
Norcross, GA 30071
Dear Bob:
I am please to accept your consulting engagement to perform accounting services.
These services include:
1. The preparation of Smart Games Interactive, Inc. Form 10-KSB for the year
ending December 31, 1997. The fee for this service is $4,000, of which
$1,000 is paid now, $1,500 in thirty days, and $1,500 when I complete the
10-KSB.
2. The negotiation of creditor releases for indebtedness at your direction
and approval. The fee for this service is $5,000, of which $1,500 is paid
now, $1,500 in thirty days, and $2,000 when I complete negotiations.
Brandmakers also agrees to reimburse out of pocket expenses which will include
primarily telephone/fax and postage expenses.
Sincerely,
/s/ Jim Chuma
Nicholas J. Chuma
Agreed to by: /s/ R J Palmquist
----------------------
Title:
-----------------------------
Date: 4/7/98
------------------------------
<PAGE> 1
Exhibit 99.2
RELEASE
THIS RELEASE is made and entered into as of the date set forth at the end
hereof, by and between the undersigned Incredible Universe ("Creditor") and
Smart Games Interactive, Inc. (f/n/a Sports Sciences, Inc. "SGI").
WHEREAS, SGI desires to settle and resolve all disputes with and claims of
Creditor against SGI in accordance with the terms and conditions set forth
herein; and
WHEREAS, Creditor desires to settle and resolve all of its disputes with
and claims against SGI in accordance with the terms and conditions herein.
NOW, THEREFORE, for and in consideration of the foregoing and the
promises, agreements, and covenants set forth in this Release, and for other
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereby covenant and agree as follows;
1. Upon SGI's receipt of Creditor's executed counterpart of this Release,
SGI shall pay to Creditor six hundred and forty dollars ($640.00).
2. Creditor, for itself, its successors and assigns, and for any person or
entity claiming through, under or by reason of their relationship with
Creditor (Creditor and all such entities and individuals are
collectively referred to as "Releasors"), does hereby unconditionally
release, compromise, and fully, finally, completely and forever
discharge SGI, its parent, subsidiaries, divisions, shareholders,
affiliates, agents, representatives, servants, employees, officers
directors, insurers, attorneys, successor and assigns, in their
corporate and individual capacities (collectively, "Releasors", of
and from any and all claims, demands, actions, causes of action, suits,
costs, damages, losses, payments, penalties, liabilities and/or
obligations of any kind or nature whatsoever, whether now known or not
known or hereafter discovered (collectively, "Claims"), which the
Releasors have or may have against any or all of the Releasees, from
the beginning of time to the date hereof, including those relating to
Creditor's sale of goods or services to SGI.
3. This Release shall be binding upon and shall inure to the benefit of
the Parties, the Releasors and the Releases.
4. The parties to this Release agree to keep the terms of the Release
strictly confidential and not to discuss, disclose or cause to be
disclosed, the terms of this Release, other than to the parties hereto
and their respective legal counsel, accountants, and other business
advisors who agree to observe the provisions of this Paragraph 4.
<PAGE> 2
5. Creditor represents and warrants that it has not assigned or
transferred to any person, firm or entity any of the Claims being
released hereby.
6. This release has been entered into in compromise of disputed claims,
without any admission or acknowledgement of liability on the part of
any party.
7. This Release constitutes the entire agreement between the parties with
respect to the subject matter herein, and all prior agreements, whether
written or oral, and all prior discussions between the parties, are
merged herein. This Release may only be changed in writing signed by an
authorized representative of each party.
8. It is agreed by the parties to this Release that it may be executed in
counterparts, each of which shall be deemed an original, regardless of
the date of its execution and delivery. All such counterparts to the
other shall constitute one and the same document.
9. This Release shall be interpreted, construed and enforced in all
respects in accordance with the laws of the State of Ohio, without
regard to conflict or choice of laws, rules or principals.
10. The undersigned hereby warrant and represent that they have full
authority to execute and perform this Release on behalf of the entities
for which they have signed.
CREDITOR:
______________________________
(Name of Creditor)
Date:___________________ By:___________________________
Smart Games Interactive, Inc.
Date:___________________ By:___________________________
<PAGE> 1
Exhibit 99.3
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned promises to pay Incredible Universe the
principal sum of $640 in lawful money of the United States within 180 days of
the effective date of the merger with Smart Games Interactive, in full
settlement of its account with Smart Games Interactive, Inc., pursuant to the
following terms. It is agreed that this Promissory Note constitutes valid and
sufficient consideration to support the Release executed between Incredible
Universe and Smart Games Interactive, Inc., which is hereby attached and
incorporated by reference into the terms of this Promissory Note.
_________________________
For Brandmakers Inc.
ACKNOWLEDGE AND CONCUR
_____________________
For
Brandmakers Inc. will furnish documentation's showing the effective date
of the merger to Incredible Universe and will make payment of $640 in full
within 180 days thereafter.
