Filing summary
Entity and period: The supplied filing is Poker Magic, Inc.’s Form 10-K for the fiscal year ended December 31, 2011, filed February 29, 2012. This does not match the requested company name, SUI Group Holdings Ltd., or the stated period, 2011 Q4; verify that this is the intended filing. The company describes itself as a development-stage business seeking to license its Winner’s Pot Poker table game.
Financial performance and condition
| Metric | 2011 | 2010 |
|---|---|---|
| Revenue | $0 | $3,000 |
| Cost of revenue | $0 | $12,111 |
| Operating expenses | $107,865 | $130,285 |
| Operating loss | $107,865 | $139,396 |
| Interest expense | $18,982 | $9,154 |
| Net loss | $126,847 | $148,550 |
| Cash from operating activities | $(65,264) | $(62,383) |
| Cash at year-end | $22,817 | $3,081 |
| Current liabilities at year-end | $217,703 | $107,920 |
At December 31, 2011, related-party short-term notes payable were $213,675; total liabilities were $217,703 and shareholders’ deficit was $194,886. The company reported no assets other than cash. Gross margin is not meaningful for 2011 because there was no revenue or cost of revenue. The filing reports a cumulative development-stage deficit of $968,226 and cumulative net cash used in operations of $491,141 since inception.
Changes and business developments
- Revenue fell to zero after the company’s sole customer, Bally’s Park Place, terminated its license effective December 6, 2010. Bally’s had generated all reported revenue through 2010.
- Net loss narrowed by 14.6% in 2011, mainly because selling, general and administrative expenses declined; interest expense more than doubled as related-party borrowing increased.
- Related-party notes were consolidated and renewed during 2011. The disclosed notes generally bear 12% annual interest; maturities included March 31 and June 30, 2012.
- The company issued 472,000 shares to its two executive officers for 2011 compensation, valued at $48,000. Shares outstanding increased from 11,008,224 at year-end 2010 to 11,480,224 at year-end 2011.
Outlook, risks and unusual items
- Management said year-end cash was expected to fund operations only through March 2012. The filing estimates approximately $95,000 of cash would be needed over the next 12 months to continue operations at the then-current level; it also warns that 2012 net loss could exceed 2011’s.
- The auditor issued an unqualified opinion on the financial statements but included a going-concern explanatory paragraph, citing substantial doubt about the company’s ability to continue. The company depends on new financing, revenue generation or both; failure to obtain funding could force it to abandon operations or public reporting.
- Management anticipated stable professional and compensation expenses, with added regulatory application and compliance costs. It expected to continue compensating executives with shares and using consultants rather than hiring employees.
- The New Jersey supplier license expired in January 2011, and the company had not obtained the required final licenses in Nevada or Minnesota. Regulatory approvals, customer acceptance, competition, limited product diversification, thin trading and potential shareholder dilution are material risks.
- The business has no employees and depends heavily on its two executive officers, who are also directors and are not independent. Their related entity, Lantern Advisers, and the officers personally provided financing to the company.
- The filing states that disclosure controls were effective, while noting limited accounting staffing and incomplete segregation of duties. The auditor was not engaged to attest to internal-control effectiveness.
Important facts for investors to verify
- Confirm the issuer and reporting period: the supplied document is for Poker Magic, Inc., not SUI Group Holdings Ltd., and covers the full 2011 fiscal year rather than a standalone Q4.
- Reconcile related-party debt and interest, including the year-end balance, filing-date current-liability disclosure, note maturities and subsequent repayments or renewals.
- Verify whether the company obtained new financing, licensing approvals or customers after the filing date, and whether it continued operating beyond management’s stated March 2012 cash runway.
- Assess the status and economic value of the Winner’s Pot Poker intellectual property and the company’s ability to renew or secure gaming licenses; the filing reports no 2011 revenue and no remaining recorded intangible asset value.