Business context and reporting period
The supplied filing is Poker Magic, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2011—not a filing identifying SUI Group Holdings Ltd. Poker Magic describes itself as a development-stage company marketing and licensing the Winner’s Pot Poker table game to casinos and gaming facilities.
Financial results and liquidity
- Revenue: $0 for both the second quarter and first half of 2011, versus $600 and $1,800, respectively, in 2010. The prior Bally’s weekend-only game contract ended in December 2010.
- Losses and expenses: Net loss was $33,358 for the quarter and $72,465 for the first half, up 16.4% and 6.0% year over year, respectively. First-half operating expenses were $64,179, compared with $62,330 in 2010. With no current-period revenue, a current gross margin is not meaningful.
- Cash flow: First-half operating cash outflow was $40,117, compared with $43,283 in 2010. Related-party borrowing provided $40,000; cash declined $117 to $2,964.
- Balance sheet at June 30: Cash and total assets were $2,964; current liabilities were $143,724 and total liabilities were $167,468. Related-party notes payable totaled $152,144, including $128,400 short-term and $23,744 long-term. Shareholders’ deficit was $164,504.
- Per share and shares: First-half basic and diluted loss per share was $0.01. There were 11,132,224 common shares outstanding at June 30, 2011.
Material changes versus the prior comparable period
- Revenue ceased after the former customer contract terminated; the company reported no revenue in the first half of 2011.
- First-half net loss increased by $4,076, while operating cash use improved by $3,166. Interest expense rose to $8,286 from $3,633, contributing to the larger loss.
- Related-party notes payable increased from $106,000 to $152,144 between December 31, 2010 and June 30, 2011. The company also issued 124,000 shares during the first half, including 100,000 shares for officer compensation in June.
Outlook, risks, and unusual items
- Management said available cash was expected to fund operations only through September 2011, after which additional capital would be required. It warned that insufficient financing could force the company to abandon its business or public reporting status.
- The filing states that accumulated losses and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern. Management’s plans depend on future revenue and/or additional financing, which is not assured.
- Management anticipated lower, if any, 2011 revenue; stable operating expenses overall, potentially higher marketing costs, and significant professional fees. No quantified revenue or earnings guidance was provided.
- Key risks include obtaining gaming licenses and regulatory approvals, securing casino customers and market acceptance, protecting intellectual property, and obtaining financing. The New Jersey casino-service supplier license expired in January 2011; required approvals in Nevada and Minnesota remained outstanding.
- Related-party lenders supplied working capital at 12% interest. A subsequent $20,000 loan from Lantern Advisers was disclosed as made July 15, 2011. The filing’s Note 7 says it matures July 15, 2012, while the Part II disclosure states July 15, 2011; the maturity date is inconsistent in the filing.
- The company owed Select Video a 5% royalty on gross proceeds from Winner’s Pot Poker and similar games; $270 was accrued at June 30, 2011.
Important facts for investors to verify
- Confirm the issuer’s identity: the provided filing is for Poker Magic, Inc., although the request metadata names SUI Group Holdings Ltd.
- Confirm the maturity date and terms of the July 15, 2011 related-party loan, given the conflicting dates in the filing.
- Verify subsequent cash and financing availability, the company’s stated September 2011 funding horizon, and its ability to meet near-term liabilities.
- Check the status of required gaming licenses and any renewed or replacement customer agreements following the Bally’s contract termination.
- Review related-party loan balances, interest accruals, renewals, and share-based officer compensation for their effect on liquidity and dilution.