SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 0 - 23672
SMART GAMES INTERACTIVE, INC.
(Name of small business issuer in its charter)
DELAWARE 34-1692323
(state or other jurisdiction of (I.R.S. Employer
incorporation of organization) identification No.)
1612 North Osceola
Clearwater, Florida 33755
(Address of principal executive effices) (Zip Code)
Issuer's Telephone Number (727) 443-3434
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
Not Applicable Not Applicable
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.0002 par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the issuer was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year.
The issuer had no revenue during the year ended December 31, 1999.
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days.
Based on the average bid and asked price of the issuer's common stock on
April 10, 2000, the aggregate market value of the 12,648,244 shares of common
stock held by non-affiliates was $1,897,000.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
On April 10, 2000, the issuer had a total of 27,648,244 shares of common
stock issued and outstanding.
Documents Incorporated by Reference
The Issuer's Current Report on Form 8-K dated April 17, 2000 which
discloses a change in control of the Issuer is incorporated herein by this
reference.
PART I
Item 1. Description of Business
Business History. Sports Sciences, Inc., the predecessor to Smart Games
Interactive, Inc. (the "Issuer") was incorporated under the laws of the State of
Ohio in October, 1991. In April 1994, Sports Sciences completed an initial
public offering of securities pursuant to an effective registration statement
under the Securities Act of 1933 (the "Securities Act"). Subsequently, in
connection with the listing of its securities on the Nasdaq system, Sports
Sciences registered its common stock under Section 12(g) of the Securities
Exchange Act of 1934 (the "Exchange Act"). At the 1996 Annual Meeting of the
stockholders of Sports Sciences, the stockholders approved a plan to change the
corporate domicile of Sports Sciences by means of a statutory merger between
Sports Sciences and Smart Games Interactive, Inc., a newly formed wholly-owned
subsidiary of Sports Sciences. This merger was consummated on October 11, 1996
and the Issuer has been subject to the reporting requirements of the Exchange
Act since that date.
Originally, the Issuer created, designed, developed and assembled
interactive electronic game simulators that incorporated proprietary hardware
and software technology. However, the cash flow generated from these operations
was not sufficient to pay the Issuer's operating costs and the Issuer had
accumulated approximately $5,570,000 in net losses by December 31, 1996. After
several unsuccessful attempts to attract additional equity and debt financing,
the Issuer significantly reduced the level of operations during the second
quarter of 1997 and subsequently decided to terminate all ongoing business
operations in the third quarter of 1997. During the year ended December 31,
1997, the Issuer incurred net losses of approximately $1,311,000, including
non-recurring charges of approximately $784,000 associated with reducing its
inventories and other assets to net realizable value.
During the year ended December 31, 1998, the Issuer liquidated
substantially all its inventories and other operating assets and used the
proceeds therefrom to reduce its outstanding liabilities. At December 31, 1998,
the Issuer had no material assets and substantial unpaid liabilities. Therefore,
the Issuer was insolvent during the entire fiscal year ended December 31, 1999.
The Issuer did not generate any revenues during the fiscal year ended December
31, 1999. The Issuer had no backlog of orders for goods or services and did not
make any research and development expenditures during the year ended December
31, 1999.
Although dormant, the Issuer has not been dissolved, filed for bankruptcy
protection nor been placed into receivership. During the fiscal years ended
December 31, 1998 and 1999, the Issuer's only operations consisted of
investigation and consideration of a potential business combination with
Brandmakers, Inc. While the Issuer and Brandmakers made considerable progress in
negotiating the terms of a potential business combination and filing a
preliminary proxy statement for the transaction, the transaction was ultimately
abandoned in the third quarter of 1999 when Brandmakers concluded a business
combination with another publicly-held company.
Change in Control. On March 30, 2000, Tobem Investments Limited purchased
15,000,000 shares of common stock from the Issuer for $75,000 in cash. After
giving effect to the Tobem transaction, the Issuer has a total of 27,648,244
shares of common stock issued and outstanding. The 15,000,000 shares of common
stock held by Tobem represent approximately 54% of the total voting power held
by all stockholders.
In connection with the sale of a controlling interest to Tobem, Ms. Sally
A. Fonner was appointed to serve as a member of the Issuer's Board of Directors
and the three remaining directors resigned from the board. Tobem and the Company
then entered into a Project Management Agreement ("PMA") with Capston Network
Company of Clearwater, Florida, a company controlled by Ms. Fonner. Under the
PMA, Capston is specifically authorized to:
(i) manage the ministerial accounting and administrative functions
associated with preparing and filing the Issuer's delinquent
reports under the Exchange Act;
(ii) negotiate the payment and/or compromise of the Issuer's
outstanding liabilities;
(iii) identify and negotiate a business combination with a suitable
private company; and
(iv) pay, at its sole risk, the costs and expenses associated with
maintaining the Issuer's status as a reporting issuer under
the Exchange Act and locating and investigating business
combination opportunities.
Capston is also authorized to purchase for its own account or arrange for
the sale to third parties of sufficient additional shares of the Issuer's common
stock to provide sufficient cash resources for the satisfaction of the Issuer's
outstanding obligations.
Tobem is a private investment company that made a $25,000 unsecured loan to
Capston in February 2000. Except for this loan, there was no prior relationship
between Tobem and Capston. Tobem is not, directly or indirectly, controlling,
controlled by or under common control with Capston. Tobem does not have the
power to direct or cause the direction of the management and policies of
Capston, whether through the ownership of voting securities, by contract or
otherwise.
The Board of Directors of the Issuer has resolved to continue to
investigate possible opportunities to establish a business for the Issuer.
Criteria used in evaluating future opportunities will include, but not be
limited to, establishing an asset base for the Issuer and confirmation of the
availability of cash flow from operations to enhance viability and establish
value for the Issuer's shareholders. The Issuer anticipates future business
combinations may take the form of a merger, assets acquisition or stock
acquisition. However, there is no assurance that such a transaction will ever be
consummated.
Capston is presently involved in preliminary negotiations with the owners
of an established Chinese language internet portal and a Chinese language
internet search engine. While management of the Target Company has expressed a
desire to move toward a business combination transaction, the negotiation of a
definitive agreement will not be possible until the Issuer's liabilities are
either paid or compromised. Since there is no assurance that Capston will be
able to negotiate suitable payment or compromise agreements with the Issuer's
creditors, there is no assurance that the pending discussions will result in the
successful conclusion of a business combination or that the common stock of the
Issuer will ever have any value.
Item 2. Properties
At December 31, 1998, the Issuer had no material assets and had total
liabilities of approximately $688,080. Therefore, the Issuer was insolvent
during the entire fiscal year ended December 31, 1999.
Item 3. Legal Proceedings
Miles Rubber. On May 9, 1997, the Issuer entered into a settlement
agreement with Miles Rubber & Packing Co. with respect to a suit brought by
Miles Rubber in the Court of Common Pleas, Summit County, Ohio (Case No. CV 96
07 2853). This agreement, which provided for aggregate payments of $237,970 to
Miles Rubber, was subsequently incorporated into a judgment entered by the
court. The Issuer failed to honor several terms of the settlement agreement and
Miles Rubber foreclosed on all of the Issuer's remaining inventories in
February, 1999. These inventories were subsequently sold to Brandmakers for
approximately $3,000. The Issuer will be required to negotiate a final payment
or compromise agreement with Miles Rubber before it can proceed with a business
combination transaction.
Summit County Ohio. The Issuer is subject to outstanding judgments in the
amount of $6,500 for taxes due to Summit County Ohio. The Issuer will be
required to negotiate a final payment or compromise of these judgments before it
can proceed with a business combination transaction.
State of Delaware. On November 19, 1998, CT Corporation System resigned as
the Issuer's registered agent in the State of Delaware. Subsequently, in
compliance with the provisions of ss.136 of the General Corporation Law of
Delaware, the Secretary of State declared that the Issuer's corporate charter
was forfeit due to the Issuer's failure to maintain a registered agent in the
State of Delaware.
On April 7, 2000, the Issuer appointed a new registered agent in the State
of Delaware and filed a Certificate of Renewal, Revival, Extension and
Restoration of its Certificate of Incorporation in accordance with the
provisions of ss.312 of the General Corporation Law of Delaware. Accordingly,
the Issuer is, at the date of this Annual Report on Form 10-KSB, duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted for a vote of the Issuer's security holders in
the year ended December 31, 1999 or the subsequent interim period.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Issuer's common stock is listed on the NASD's Electronic
Over-the-Counter Bulletin Board (symbol SSCI). The following table sets forth,
for the periods shown, the high and low trading prices for the common stock. The
quoted prices reflect interdealer prices without retail markup, markdown or
commissions, and may not necessarily represent actual transactions. On April 12,
2000, the closing bid and asked prices for the common stock were $0.14 and
$0.20, respectively.
Low High
Year ending December 31, 1999
First Quarter 0.0051 0.009
Second Quarter 0.0051 0.06
Third Quarter 0.03 0.08
Fourth Quarter 0.011 0.06
Year ending December 31, 1998
First Quarter 0.011 1/32
Second Quarter 0.015 0.04
Third Quarter 0.015 0.025
Fourth Quarter 0.006 0.02
On April 12, 2000, the number of stockholder accounts of record was 230.
On March 30, 2000, the Issuer sold 15,000,000 newly issued shares of
common stock to Tobem for a price of $0.005 per share, or $75,000 in the
aggregate. The offer and sale to Tobem were made in reliance on the exemption
from registration set forth in Securities and Exchange Commission Regulation S
and the $75,000 purchase price was paid to the Issuer in cash from funds
belonging to Tobem. The shares issued to Tobem in connection with the
transaction are "restricted securities" as that term is defined in Securities
and Exchange Commission Rule 144 and all certificates representing such shares
have been imprinted with an appropriate restrictive legend. Prior to the
transaction, neither Tobem nor any of its officers, directors or affiliates had
any direct or indirect interest in the Issuer.
Item 6. Plan of Operations.
At December 31, 1998, the Issuer had no material assets and substantial
liabilities. Therefore, the Issuer was insolvent during the entire fiscal year
ended December 31, 1999. The Issuer did not generate any revenues during the
fiscal year ended December 31, 1999. The Issuer had no backlog of orders for
goods or services and did not make any research and development expenditures
during the year ended December 31, 1999. During the fiscal year ended December
31, 1999, the Issuer's only operations consisted of investigation and
negotiation of a potential business combination with Brandmakers, Inc. While the
Issuer and Brandmakers made considerable progress in negotiating the terms of a
potential business combination and filing a preliminary proxy statement for the
transaction, the transaction was ultimately abandoned by Brandmakers in the
third quarter of 1999 when it concluded a business combination with another
publicly-held company.
At the date of this Annual Report on Form 10-KSB, the Issuer has
liabilities that are significantly greater than its total assets, and has had no
active management or ongoing operations since September 1997. Nevertheless,
Capston believes that it may be possible to recover some value for the
Shareholders through the implementation of a plan whereby the Issuer will be
restructured as a "public shell" for the purpose of effecting a business
combination transaction with a suitable privately-held company ("Target
Company"). In general, Capston believes the Issuer will offer owners of a Target
Company the opportunity to acquire a controlling ownership interest in a public
company at substantially less cost than would otherwise be required to conduct
an initial public offering.
Under the plan developed by Capston, the Issuer will be used as a
corporate vehicle to seek, investigate and, if the results of such investigation
warrant, effect a business combination with an existing Target Company that
seeks the perceived advantages of a publicly held corporation. Before such a
business combination can be effected, however, there are a number of preliminary
steps. The specific actions that Capston intends to take include:
Negotiate Creditor Agreements--after giving effect to the receipt of
$75,000 in cash proceeds from the Tobem transaction, the Issuer's
liabilities exceed it's total assets by approximately $615,000. Before the
Issuer will be suitable for use as a public shell, Capston will need to
negotiate the payment and/or compromise of such outstanding liabilities.
There can be no assurance that Capston will be able to pay and/or
compromise all of the Issuer's outstanding liabilities using the available
resources of the Issuer. If Capston is unable to negotiate suitable
payment or compromise agreements with a significant majority of the
Issuer's creditors, it may be impossible to negotiate a business
combination with an acceptable Target Company.
Negotiate Business Combination--if Capston is able to negotiate suitable
payment or compromise agreements with the Issuer's creditors, it must then
seek, investigate and, if the results of such investigation warrant,
attempt to negotiate business combination with an existing Target Company.
Effect Required Corporate Changes--before proceeding to closing on a
proposed business combination, Capston will be required to effect a number
of material changes in the Issuer's corporate structure. At the date of
this Annual Report on Form 10-KSB, Capston expects that it will be
required to:
(i) effect a reverse split of at least 1 for 40 and perhaps as
much as 1 for 45;
(ii) authorize the issuance of sufficient shares to facilitate the
business combination and the go-forward activities of the
combined entities;
(iii) change the Issuer's name to a one selected by the Target
Company;
(iv) authorize stock option and other incentive plans for the
combined entities; and
(v) effect any other reasonable structural changes that are
required by the Target Company as a condition of the business
combination.
Since Tobem owns a controlling interest in the Issuer, it is expected that
all required changes will be effected with the written consent of Tobem. Under
Delaware law, all corporate changes that would otherwise require a stockholder
vote may be effected without a meeting and without notice if a majority
stockholder consents in writing to the proposed action. Accordingly, it is
anticipated that the other shareholders will not have an opportunity to analyze
the various business opportunities presented to the Issuer, or to approve or
disapprove the terms of any business combination transaction that may be
negotiated.
The Issuer's potential success will be wholly dependent on the efforts and
abilities of Ms. Fonner and Capston who will have virtually unlimited discretion
in searching for, negotiating and entering into a business combination
transaction with a Target Company. Ms. Fonner and Capston have had limited
experience in the proposed business of the Issuer. Although Ms. Fonner and
Capston believe that the Issuer will be able to enter into a business
combination transaction within 3 to 6 months from the date of this Annual
Report, there can be no assurance as to how much time will elapse before a
business combination is effected, if ever. The Issuer will not restrict its
search to any specific business, industry or geographical location, and the
Issuer may participate in a business venture of virtually any kind or nature.
Ms. Fonner and Capston anticipate that the selection of a Target Company
for the Issuer will be complex and extremely risky. Because of general economic
conditions, rapid technological advances being made in some industries, and
shortages of available capital, Ms. Fonner and Capston believe that there are
numerous privately-held companies seeking the perceived advantages of being a
publicly traded corporation. Such perceived advantages include facilitating debt
financing or improving the terms on which additional equity may be sought,
providing liquidity for the principals of the business, creating a means for
providing incentive stock options or similar benefits to key employees,
providing liquidity for all Shareholders and other factors.
Potential business opportunities may occur in many different industries
and at various stages of development, all of which will make the task of
comparative investigation and analysis of such business opportunities extremely
difficult and complex. Ms. Fonner and Capston anticipate that the Issuer will be
able to participate in only one business venture. This lack of diversification
will not permit the Issuer to offset losses from one venture against gains from
another. Moreover, due to the Issuer's lack of any meaningful financial,
managerial or other resources, Ms. Fonner and Capston believe the Company will
only be viewed as a suitable business combination partner for companies which
have substantially greater financial and managerial resources than the Issuer.
Therefore, the Issuer's relative bargaining power may be limited.
Summary Description of Plan
At the date of this Annual Report on Form 10-KSB, the Issuer has
27,648,244 shares of Common Stock issued and outstanding. Since Tobem and
Capston believe that (i) the owners of a Target Company will ordinarily want to
control at least 90% of the Issuer's Common Stock upon the completion of a
business combination transaction, and (ii) an ultimate capitalization in the
7,000,000 to 12,000,000 share range is ideal for a small public company, Tobem
and Capston believe that it will be in the best interest of the Issuer and its
Shareholders to effect a reverse split in the range of 1 new share for every 40
to 45 shares presently outstanding. Tobem and Capston believe such action will
optimize the number of shares issued and outstanding after a business
combination transaction, result in a higher reported market price for the stock
of the combined entity, and reduce the market volatility of the stock of the
combined entity. These factors, in turn, are expected to enhance the overall
perception of the stock among institutional investors and brokerage firms and
enhance the combined entity's ability to raise additional equity capital.
The determination of the number of shares to be issued in connection with
a business combination transaction is not an exact science and entails a great
deal of subjective business judgment. In arriving at an optimal capital
structure for a business combination transaction, Capston will ordinarily
evaluate the strengths, weaknesses and growth potential of a Target Company
against similarly situated publicly-held companies in the same market segment.
Based on this analysis, Capston will then attempt to estimate the stabilized
market capitalization that the Target Company can expect to achieve under
reasonably foreseeable circumstances. This value will then be risk weighted by
an appropriate factor and used to determine the number of shares that can be
issued by the Issuer if the goal is to reach a target stabilized stock price of
$5 to $10 per share. In the case of a Target Company that can only reasonably
expect a stabilized market capitalization of $10 million to $15 million, the
number of shares issuable to the owners of the Target Company will be much
smaller than would be the case if the Target Company could reasonably expect a
stabilized market capitalization of $50 million to $75 million, or more. In any
event, Capston does not intend to enter into a transaction where it expects the
stabilized market price of the Common Stock to be less than $5 per share. There
can be no assurance, however, that Capston will be successful in meeting this
performance benchmark, that its subjective business judgments will prove to be
accurate or that its estimate of the stabilized market capitalization that a
Target Company can expect to achieve will prove to be reasonable.
Pending Discussions
Capston is presently involved in preliminary negotiations with the owners
of an established Chinese language internet portal and a Chinese language
internet search engine. While management of the Target Company has expressed a
desire to move toward a business combination transaction, the negotiation of a
definitive agreement will not be possible until the Issuer's SEC Reports are
brought up to date and its liabilities are either paid or compromised. Since
there is no assurance that Capston will be able to negotiate suitable payment or
compromise agreements with the Issuer's creditors, there is no assurance that
the pending discussions will result in the successful conclusion of a business
combination or that the common stock of the Issuer will ever have any value.
Item 7. Financial Statements.
For the information called for by this Item, see the Financial Statements
attached.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
During the years ended December 31, 1999, there were no reportable
disagreements between the Issuer and its auditors on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act
Ms. Sally A. Fonner, age 50, has been the sole director of the Issuer
since March 30, 2000. For most of the last 15 years, Ms. Fonner has worked as an
independently employed business consultant. She graduated from Stephens
University in 1969 with a Bachelor of Arts Degree in Social Systems. After a
stint in the private sector, Ms. Fonner returned to further her education and
obtained her MBA Degree from the Executive Program of the University of Illinois
in 1979. For the past five years Ms. Fonner has been engaged in the complex
field of restructuring public companies and arranging business combination
transactions. Ms. Fonner has previously served as the sole director of the
following public companies:
o Telemetrix, Inc. (TLXT), a Delaware corporation formerly known
as Arnox Corporation.
o eNote.com, Inc. (ENOT), a Delaware corporation formerly known
as Webcor Electronics, Inc.
o Dupont Direct Financial Holdings, Inc. (DIRX) a Georgia
corporation formerly known as Marci International Imports,
Inc.
o Liberty Group Holdings, Inc. (LGHI), a Delaware corporation
formerly known as Bio Response, Inc.
Item 10. Executive Compensation.
None of the Issuer's officers or directors have received any compensation
from the Issuer during the years ended December 31, 1998 and 1999.
As its principal compensation for services to be rendered under the PMA,
Tobem has agreed to sell to Capston or its designees 12,000,000 shares of the
Issuer's common stock at a price of $0.005 per share, or $60,000 in the
aggregate. The purchase price for such shares will be paid to Tobem in cash on
before the closing date of a business combination. Except as specifically
provided in the PMA, Capston and its affiliates will not be entitled to receive
any common stock or other securities of the Issuer, or any other options,
warrants appreciation rights or similar instruments that will or might entitle
Capston or any of its affiliates to receive additional shares of common stock in
the future. The PMA also provides that Capston shall be entitled to negotiate a
reasonable " acquisition fee" or "non-accountable expense allowance" that will
be payable to Capston solely by an unrelated third-party who elects to enter
into a business combination with the Issuer. Neither the Issuer nor any of its
Stockholders shall have any claim to or interest in any fees or expense
allowances that are paid to Capston by any third party.
The sale of 12,000,000 shares of common stock to Capston under the PMA will
not result in the issuance of additional shares by the Issuer. It will, however,
reduce the number of shares held by Tobem from 15,000,000 to 3,000,000, and
increase the number of shares held by Capston or its designees from zero to
12,000,000. Capston does not presently intend to close on its purchase of shares
from Tobem until immediately before the closing of a business combination of the
type described below. If Capston changes its plans and closes its purchase of
the shares before the closing of a business combination, such a purchase may
constitute a change in control.
Item 11. Security Ownership of Certain Beneficial Owners and Management
A total of 27,648,244 shares of common stock were issued and outstanding
on the date of this Annual Report on Form 10-KSB. The following table sets forth
certain information with respect to the beneficial ownership of shares of the
Issuer's common stock by (i) each person known to be the beneficial owner of 5%
or more of the common stock, (ii) each executive officer or director of the
Issuer, and (iii) all executive officers and directors as a group.
<TABLE>
<CAPTION>
Name and Address Number of Shares
of Beneficial Owner Beneficially Owned Percent of Class
<S> <C> <C>
Tobem Investments Limited (1)
Genesis Building
Georgetown, Grand Cayman 15,000,000 54.25%
Sally A. Fonner (1)
1612 North Osceola
Clearwater, Florida 12,000,000 43.40%
All Officers and Directors as a Group 12,000,000 43.40%
<FN>
(1) Tobem has agreed to sell to Capston or its designees 12,000,000 shares of
the Issuer's common stock at a price of $0.005 per share, or $60,000 in
the aggregate. This sale of 12,000,000 shares to Capston will not result
in the issuance of additional shares by the Issuer. It will, however,
reduce the number of shares held by Tobem from 15,000,000 to 3,000,000,
and increase the number of shares held by Capston or its designees from
zero to 12,000,000.
</FN>
</TABLE>
Item 12. Certain Relationships and Related Transactions
No officer, director or family member of an officer or director has
engaged in a reportable transaction with the Issuer during the years ended
December 31, 1998 and 1999.
While the proposed business combination between the Issuer and Brandmakers
was abandoned by Brandmakers in the third quarter of 1999, Brandmakers has
advised the Issuer that it believes it is entitled to repayment of approximately
$78,500 in expenses incurred on behalf of the Issuer in connection with the
earlier business combination negotiations. The board of directors has requested
documentation relating to the expenses incurred by Brandmakers and may determine
that all or a portion of the Brandmakers claim is justified under the
circumstances. If the board of directors determines that the Issuer should
compensate Brandmakers for the expenses incurred, Brandmakers will be paid with
restricted common stock of the Issuer valued at $0.04 per share.
The board of directors has been advised that Brandmakers purchased the
entire inventory of the Issuer from Miles Rubber for approximately $3,000 in
January 1999. This purchase price is significantly less than the book value of
the inventory as reported on the Issuer's financial statements for the year
ended December 31, 1998. The board of directors intends to evaluate the fairness
of the inventory purchase in light of the relationship that existed between the
Issuer and Brandmakers at the time of the inventory purchase transaction. If the
board of directors determines that such terms were unfair to the Issuer, it
intends to reduce the allowable portion of the Brandmakers claim to offset the
bargain element.
As its principal compensation for services to be rendered under the PMA,
Tobem has agreed to sell to Capston or its designees 12,000,000 shares of the
Issuer's common stock at a price of $0.005 per share, or $60,000 in the
aggregate. The purchase price for such shares will be paid to Tobem in cash on
before the closing date of a business combination. Except as specifically
provided in the PMA, Capston and its affiliates will not be entitled to receive
any common stock or other securities of the Issuer, or any other options,
warrants appreciation rights or similar instruments that will or might entitle
Capston or any of its affiliates to receive additional shares of common stock in
the future. Capston is, however, specifically authorized to purchase for its own
account or arrange for the sale to third parties of sufficient additional shares
of the Company's common stock to provide sufficient cash resources for the
satisfaction of the Company's outstanding obligations. The PMA also provides
that Capston shall be entitled to negotiate a reasonable " acquisition fee" or
"non-accountable expense allowance" that will be payable to Capston solely by an
unrelated third-party who elects to enter into a business combination with the
Issuer. Neither the Issuer nor any of its Stockholders shall have any claim to
or interest in any fees or expense allowances that are paid to Capston by any
third party.
The sale of 12,000,000 shares of common stock to Capston under the PMA will
not result in the issuance of additional shares by the Issuer. It will, however,
reduce the number of shares held by Tobem from 15,000,000 to 3,000,000, and
increase the number of shares held by Capston or its designees from zero to
12,000,000. Capston does not presently intend to close on its purchase of shares
from Tobem until immediately before the closing of a business combination of the
type described below. If Capston changes its plans and closes its purchase of
the shares before the closing of a business combination, such a purchase may
constitute a change in control.
Item 13. Exhibits and Reports on Form 8-K.
Exhibits
None.
Reports on Form 8-K
Reference is made to the Issuer's Current Report on Form 8-K dated April
12, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-KSB to be signed on its behalf by the undersigned, thereunto duly authorized.
April 18, 2000
Smart Games Interactive, Inc.
By: /s/
----------------------------------
Sally A. Fonner, Sole Director and
Chief Executive Officer
<PAGE>
Smart Games Interactive, Inc.
Financial Statements
&
Independent Auditor's Report
December 31, 1999 & 1998
Harmon & Company
Columbus, Ohio
<PAGE>
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SMART GAMES INTERACTIVE, INC.
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TABLE OF CONTENTS
Independent Auditors' Report .........................................Page 2
Financial Statements
Balance Sheets as of December 31, 1999 and 1998 ....................Page 3
Statements of Operations and Accumulated Deficit
for the years ended December 31, 1999 and 1998 ................Page 4
Statements of Cash Flows for the years ended
December 31, 1999 and 1998 ...................................Page 5
Notes to Financial Statements ....................................Page 6
<PAGE>
Independent Auditors' Report
To the Board of Directors
Smart Games Interactive, Inc.
We have audited the accompanying balance sheets of Smart Games
Interactive, Inc. as of December 31, 1999 and 1998 and the related statements of
operations and accumulated 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.
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 1999 and 1998 financial statements referred to above
present fairly, in all material respects, the financial position of Smart Games
Interactive, Inc. as of December 31, 1999 and 1998, 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 H. 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
Dublin, Ohio
April 18, 2000
<PAGE>
<TABLE>
<CAPTION>
Smart Games Interactive, Inc.
Balance Sheets
December 31, 1998 and 1999
1999 1998
---- ----
Assets
<S> <C> <C>
Current Assets ................................................................. $ 0 $ 0
- -------------------------------------------------------------------------------- ---------- ----------
Property, Plant & Equipment, less Accumulated
Depreciation and Amortization
Property & Equipment ........................................................ 29,170 29,170
Less Accumulated Depreciation and Amortization .............................. -27,882 -23,715
---------- ----------
Total Property, Plant & Equipment ............................... 1,288 5,455
---------- ----------
Total Assets ......................................... $ 1,288 $ 5,455
---------- ----------
Liabilities and Shareholder's Equity (Deficit)
Current Liabilities
Note Payable ................................................................ $ 14,000 $ 14,000
Accounts Payable ............................................................ 577,252 151,604
Accrued Settlement Expenses ................................................. 50,000 0
Other Accrued Expenses ...................................................... 46,828 14,600
---------- ----------
Total Current Liabilities ................................... 688,080 180,204
---------- ----------
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 1999 and 1998, respectively ................ 2,530 2,530
Paid-in Capital ............................................................. 6,262,943 6,262,943
Accumulated Deficit ......................................................... -6,952,265 -6,440,222
---------- ----------
Total Shareholders' Equity (Deficit) ............................. -686,792 -174,749
---------- ----------
Total Liabilities & Shareholders' Equity (Deficit) ...................... $ 1,288 $ 5,455
---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
Smart Games Interactive, Inc.
Statements of Operations and Accumulated Deficit
For the Years Ended December 31, 1999 and 1998
1999 1998
---- ----
<S> <C> <C>
Net Sales ............................................... $ 0 $ 44,468
Cost of Goods Sold ...................................... 0 21,300
------------ ------------
Gross Margin ......................... 0 23,168
------------ ------------
Selling, General and Administrative Costs ............... 6,967 54,988
------------ ------------
Loss from Operations ..................... -6,967 -31,820
------------
Other Expenses, including Brandmakers settlement ........ 51,700 1,200
------------ ------------
Loss before Extraordinary Items ..................... -58,667 -33,020
Extraordinary Items ..................................... -453,376 474,426
------------ ------------
Net Income (Loss) ....................... ($ 512,043) $ 441,406
------------ ------------
Accumulated Deficit, beginning of the period ............ -6,440,222 -6,881,628
------------ ------------
Accumulated Deficit, end of the period .................. ($ 6,952,265) ($ 6,440,222)
------------ ------------
Net Income (Loss) per common share before
extraordinary item ...................................... ($ 0.00) ($ 0.00)
------------ ------------
Net Income (Loss) per common share ...................... ($ 0.04) $ 0.03
------------ ------------
Shares used in calculation of net income (loss) per share 12,648,244 12,648,244
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
Smart Games Interactive, Inc.
Statements of Cash Flows
For the Years Ended December 31, 1999 and 1998
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss before extraordinary activities ............. ($ 58,667) ($ 33,020)
Extraordinary item ............................... -453,376 474,426
--------- ---------
Net income (loss) ................................ -512,043 441,406
Adjustments to reconcile net loss to net cash used
by operating activities
Depreciation and amortization ................... 4,167 4,167
Cash provided (used) by the change in:
Accounts receivable ........................... 0 1,925
Inventories ................................... 0 21,300
Prepaid expenses and other assets ............. 0 1,000
Accounts payable .............................. 425,648 -425,648
Accrued settlement expenses ................... 50,000 0
Accrued expenses .............................. 32,228 -46,728
--------- ---------
NET CASH USED BY OPERATING ACTIVITIES ............... $ 0 ($ 2,578)
--------- ---------
NET INCREASE (DECREASE) IN CASH ..................... $ 0 ($ 2,578)
--------- ---------
Cash and cash equivalents, beginning of year ........ $ 0 $ 2,578
--------- ---------
Cash and cash equivalents, end of year .............. $ 0 $ 0
</TABLE>
--------- ---------
The accompanying notes are an integral part of the financial statements
<PAGE>
Smart Games Interactive, Inc.
Notes to Financial Statements
December 31, 1999 and 1998
Note A - Summary of Significant Accounting Policies
Organization and Nature of Prior Operations - Sports Sciences, Inc., the
predecessor to Smart Games Interactive, Inc. was incorporated under the laws of
the State of Ohio in October, 1991. In April 1994, Sports Sciences completed an
initial public offering of securities pursuant to an effective registration
statement under the Securities Act of 1933. Subsequently, in connection with the
listing of its securities on the NASDAQ system, Sports Sciences registered its
common stock under Section 12(g) of the Securities Exchange Act of 1934. At the
1996 Annual Meeting of the stockholders of Sports Sciences, the stockholders
approved a plan to change the corporate domicile of Sports Sciences by means of
a statutory merger between Sports Sciences and Smart Games Interactive, Inc., a
newly formed wholly-owned subsidiary of Sports Sciences. This merger was
consummated on October 11, 1996 and the Company has been subject to the
reporting requirements of the Exchange Act since that date.
Originally, the Company created, designed, developed and assembled
interactive electronic game simulators that incorporated proprietary hardware
and software technology. However, the cash flow generated from these operations
was not sufficient to pay the Company's operating costs and the Company had
accumulated approximately $6,881,000 in net losses by December 31, 1997.
Cessation of Operations - After several unsuccessful attempts to attract
additional equity and debt financing, the Company significantly reduced the
level of operations during 1997 and subsequently decided to terminate all
ongoing business operations.
During the year ended December 31, 1998, the Company liquidated
substantially all its inventories and other operating assets and used the
proceeds therefrom to reduce its outstanding liabilities. At December 31, 1999,
the Company had no material assets and substantial unpaid liabilities.
Therefore, the Company was insolvent during the entire fiscal year ended
December 31, 1999. The Company did not generate any revenues during the fiscal
year ended December 31, 1999. The Company had no backlog of orders for goods or
services and did not make any research and development expenditures during the
year ended December 31, 1999. Although dormant, the Company has not been
dissolved, filed for bankruptcy protection or been placed into receivership.
Abandonment of Proposed Merger - During the fiscal years ended December
31, 1998 and 1999, the Company's only operations consisted of investigation and
consideration of a potential business combination with Brandmakers, Inc. While
the Company and Brandmakers Inc., a potential target compnay, made considerable
progress in negotiating the terms of a potential business combination and filing
a preliminary proxy statement for the transaction, the transaction was
ultimately abandoned in the third quarter of 1999 when Brandmakers concluded a
business combination with another publicly-held company.
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.
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.
<PAGE>
Smart Games Interactive, Inc. Notes to Financial Statements
(Continued)
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.
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
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.
Note C - Extraordinary Items
Extraordinary Item recorded in 1998 - As previously indicated the Company
initiated a program whereby it negotiated settlements of outstanding trade
payable indebtedness owed by the Company. Prior to and in anticipation of the
proposed merger, the principals of Brandmakers, Inc., 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 cash of approximately $155,000 in order to settle indebtedness of
approximately $577,000. Because Company management felt it likely that these
payables would be paid by Brandmakers, Inc. (a third party), during 1999, 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.
Reversal of Extraordinary Item in 1999 - Prior to the abandonment of the
proposed merger, Brandmakers actually paid $6,000 in full and final settlement
of approximately $19,000 in claims against the Company. Since the Brandmakers
transaction was abandoned in the third quarter of 1999 and Company does not have
sufficient resources to honor the previously negotiated settlement agreements,
the Company has increased its accounts payable by $425,648 and its other accrued
expenses by $27,728 in the current quarter, and recorded an extraordinary loss
of $453,376 in the quarter ended September 30, 1999.
Note D - Common Stock
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.
The Company's stock is currently traded on the over the counter (OTC)
market.
Note E - Income Taxes
<PAGE>
Smart Games Interactive, Inc. Notes to Financial Statements
(Continued)
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 2013.
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.
Significant components of the Company's deferred tax liabilities and
assets are as follows at December 31, 1997 and 1998:
1999 1998
Deferred tax liabilities, principally property
and equipment, patents and return reserves $ - 0 - $ - 0 -
Net deferred taxes $ - 0 - $ - 0 -
======= =======
Management has provided a valuation allowance for its net deferred tax
assets as the Company has incurred losses since inception.
Note F - Related Party Transactions
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. Interest expense 0f $1,400 was incurred in 1999.
Note G - 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 I - Legal Proceedings
<PAGE>
Smart Games Interactive, Inc. Notes to Financial Statements
(Continued)
Miles Rubber. On May 9, 1997, the Company entered into a settlement
agreement with Miles Rubber & Packing Co. with respect to a suit brought by
Miles Rubber in the Court of Common Pleas, Summit County, Ohio (Case No. CV 96
07 2853). This agreement, which provided for aggregate payments of $237,970 to
Miles Rubber, was subsequently incorporated into a judgment entered by the
court. The Company failed to honor several terms of the settlement agreement and
Miles Rubber foreclosed on all of the Company's remaining inventories in 1999.
These inventories were subsequently sold to Brandmakers for approximately
$3,000. The Company will be required to negotiate a final payment or compromise
agreement with Miles Rubber before it can proceed with a business combination
transaction.
Summit County Ohio. The Company is subject to outstanding judgments in the
amount of approximately $6,500 for taxes due to Summit County Ohio. The Company
will be required to negotiate a final payment or compromise of these judgments
before it can proceed with a business combination transaction.
State of Delaware. In 1999, CT Corporation System resigned as the
Company's registered agent in the State of Delaware. Subsequently, in compliance
with the provisions of ss.136 of the General Corporation Law of Delaware, the
Secretary of State declared that the Company's corporate charter was forfeited
due to the Company's failure to maintain a registered agent in the State of
Delaware.
In April 2000, the Company appointed a new registered agent in the State
of Delaware and filed a Certificate of Renewal, Revival, Extension and
Restoration of its Certificate of Incorporation in accordance with the
provisions of ss.312 of the General Corporation Law of Delaware. Accordingly,
the Company is, at the date of this Annual Report on Form 10-KSB, duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
Note H - Subsequent Events
Sale of a Majority Interest - On March 30, 2000, the Board of Directors
unanimously approved the sale of 15,000,000 newly issued shares of the Company's
$0.0002 par value common stock to Tobem Investments Limited ("Tobem") for a
price of $0.005 per share, or $75,000 in the aggregate. The offer and sale to
Tobem were made in reliance on the exemption from registration set forth in
Securities and Exchange Commission Regulation S and the $75,000 purchase price
was paid to in cash from funds belonging to Tobem.
After giving effect to the Tobem transaction, the Company has a total of
27,648,244 shares of common stock issued and outstanding and the 15,000,000
shares of common stock held by Tobem represent approximately 54% of the total
voting power held by all stockholders of the Company.
It is anticipated that Tobem will have sufficient voting power to elect
all members of Company Board of Directors and control substantially all
corporate actions and decisions for an indefinite period of time. As a result,
the other stockholders will not have an effective voice in the management of the
Company.
Changes in Board of Directors - In connection with the sale of a majority
interest to Tobem, the Board of Directors appointed Tobem's nominee to serve as
a member of the Company's Board of Directors until the next annual meeting of
the stockholders, or until her successor is elected and qualified.
The Board of Directors also amended Article II, Section 2 of the Company
By-laws to read in its entirety as follows:
Section 2. Number, Method of Election Terms of Office of Directors.
<PAGE>
Smart Games Interactive, Inc. Notes to Financial Statements
(Continued)
The total number of Directors constituting the entire Board of
Directors shall be not less than one (1) nor more than nine (9), with the
then-authorized number of Directors being fixed from time to time solely
by or pursuant to a resolution passed by the Board of Directors, provided,
however, that the total number of Directors shall be not less than three
(3) during any period when the total stockholders' equity of the
Corporation exceeds $100,000. Each Director shall hold office until he
resigns from office, is removed from office by the affirmative vote of the
holders of a majority in interest of the Corporation's common stock or his
successor is elected and qualified.
After approving the stock sale to Tobem, the appointment of Tobem's
nominee to serve as a member of the Board of Directors and the amendment of the
by-laws, all prior directors resigned their respective positions as members of
the Company's Board of Directors effective immediately.
Project Management Agreement - On March 31, 2000, the Company and Tobem
entered into a Project Management Agreement (the "PMA") with Capston Network
Company ("Capston"), a Delaware corporation owned by the sole member of the
Company's Board of Directors. Under the PMA, Capston is specifically authorized
and obligated to
(i) manage the ministerial accounting and administrative functions
associated with preparing and filing the Company's required
reports under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"),
(ii) negotiate the payment and/or compromise of the outstanding
liabilities of the Company,
(iii) locate and negotiate a business combination agreement with a
suitable privately held company, and
(iv) pay, at its sole risk, the costs and expenses associated with
maintaining the Company's status as a reporting Company under
the Exchange Act and locating and investigating business
combination opportunities.
Capston is also specifically authorized to purchase for its own account
or arrange for the sale to third parties of sufficient additional shares of the
Company's common stock to provide sufficient cash resources for the satisfaction
of the Company's outstanding obligations, provided that the net purchase price
payable in connection with the issuance of additional shares shall not be less
than $0.01 per share.
As its principal compensation for services rendered pursuant to the PMA,
Tobem has agreed to sell to Capston or its designees 12,000,000 shares of the
Company's common stock at a price of $0.005 per share, or $60,000 in the
aggregate. The purchase price for such shares will be paid to Tobem in cash on
before the closing date of a business combination of the type described below.
Except as specifically provided in the PMA, Capston and its affiliates
will not be entitled to receive any common stock or other securities of the
Company, or any other options, warrants, appreciation rights or similar
instruments that will or might entitle Capston or any of its affiliates to
receive additional shares of common stock in the future.
The PMA provides that Capston shall be entitled to negotiate a reasonable
" acquisition fee" or "non-accountable expense allowance" that will be payable
to Capston solely by an unrelated third-party who elects to enter into a
business combination with the Company. Neither the Company nor any of its
Stockholders shall have any claim to or interest in any fees or expense
allowances that are paid to Capston by any third party.
<PAGE>
The sale of 12,000,000 shares of common stock to Capston under the PMA
will not result in the issuance of additional shares by the Company. It will,
however, reduce the number of shares held by Tobem from 15,000,000 to 3,000,000,
and increase the number of shares held by Capston or its designees from zero to
12,000,000. Capston does not presently intend to close on its purchase of shares
from Tobem until immediately before the closing of a business combination of the
type described below. If Capston changes its plans and closes its purchase of
the shares before the closing of a business combination, such a purchase may
constitute a change in control.
Proposed Operations - As previously indicated, the Company currently has
liabilities that are significantly greater than its total assets, and has had no
active management or ongoing operations since September 1997. Nevertheless,
Capston believes that it may be possible to recover some value for the
Shareholders through the implementation of a plan whereby the Company will be
restructured as a "public shell" for the purpose of effecting a business
combination transaction with a suitable privately-held company ("Target
Company"). In general, Capston believes the Company will offer owners of a
Target Company the opportunity to acquire a controlling ownership interest in a
public company at substantially less cost than would otherwise be required to
conduct an initial public offering.
Under the plan developed by Capston, the Company will be used as a
corporate vehicle to seek, investigate and, if the results of such investigation
warrant, effect a business combination with an existing Target Company that
seeks the perceived advantages of a publicly held corporation. Before such a
business combination can be effected, however, there are a number of preliminary
steps. The specific actions that Capston intends to take include:
(1.) File Delinquent SEC Reports
The Company has not yet filed its Form 10-QSB for the period ended
September 30, 1999 or its Form 10-KSB for the year ended December
31, 1999. The Company's auditors are presently working on the
preparation of its financial statements and it is anticipated that
the delinquent Form 10-QSB for the period ended September 30, 1999
will be filed prior to April 20, 2000 and the delinquent Form 10-KSB
for the year ended December 31, 1999 will be filed prior to April
30, 1999.
(2.) Negotiate Creditor Agreements
At December 31, 1998, the Company had no material assets and
substantial unpaid liabilities. Therefore, the Company was insolvent
during the entire fiscal year ended December 31, 1999.. Before the
Company will be suitable for use as a public shell, Capston will
need to negotiate the payment and/or compromise of such outstanding
liabilities. There can be no assurance that Capston will be able to
pay and/or compromise all of the Company's liabilities with the
available resources of the Company. If Capston is unable to
negotiate suitable payment or compromise agreements with a
significant majority of the Company's creditors, it may be
impossible to negotiate a business combination with an acceptable
Target Company.
(3.) Negotiate Business Combination
If Capston is able to negotiate suitable payment or compromise
agreements with the Company's creditors, it must then seek,
investigate and, if the results of such investigation warrant,
attempt to negotiate business combination with an existing Target
Company.
(4.) Effect Required Corporate Changes
Before proceeding to closing on a proposed business combination,
Capston will be required to effect a number of material changes in
the Company's corporate structure. In this regards Capston expects
that it will be required to:
(a.) Effect a reverse split of at least 1 for 40 and perhaps as
much as 1 for 45;
<PAGE>
(b.) authorize the issuance of sufficient shares to facilitate
the business combination and the go-forward activities of
the combined entities;
(c.) change the Company's name to a one selected by the Target
Company;
(d.) authorize stock option and other incentive plans for the
combined entities; and
(e.) effect any other reasonable structural changes that are
required by the Target Company as a condition of the
business combination.
Since Tobem owns a controlling interest in the Company, it is expected
that all required changes will be effected with the written consent of Tobem.
Under Delaware law, all corporate changes that would otherwise require a
stockholder vote may be effected without a meeting and without notice if a
majority stockholder consents in writing to the proposed action. Accordingly, it
is anticipated that the other shareholders will not have an opportunity to
analyze the various business opportunities presented to the Company, or to
approve or disapprove the terms of any business combination transaction that may
be negotiated.
Although Capston believes that the Company will be able to enter into a
business combination transaction within 3 to 6 months from the date of this
Annual Report on Form 10KSB, there can be no assurance as to how much time will
elapse before a business combination is effected, if ever. The Company will not
restrict its search to any specific business, industry or geographical location,
and the Company may participate in a business venture of virtually any kind or
nature.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000915766
<NAME> SMART GAMES INTERACTIVE, INC.
<MULTIPLIER> 1
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1.00
<CASH> 0
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0
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