Business context and reporting period
The filing is a Form 10-Q for the quarter ended March 31, 2012, filed by Poker Magic, Inc., a Minnesota development-stage company marketing and licensing its Winner’s Pot Poker table game. The request identifies SUI Group Holdings Ltd.; that name does not appear as the registrant in the supplied filing and should be verified.
Financial results and position
| Metric | Q1 2012 | Q1 2011 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Gross profit (loss) | $0 | $0 |
| Operating expenses | $42,859 | $35,284; up 21.5% per MD&A |
| Operating loss | $(42,859) | $(35,284) |
| Interest expense | $6,410 | $3,823 |
| Net loss | $(49,269) | $(39,107); loss widened 26.0% |
| Basic and diluted loss per share | $(0.00) | $(0.00) |
| Cash from operating activities | $(19,564) | $(29,227) |
| Cash, March 31 | $3,253 | $13,854 at March 31, 2011 |
| Total assets | $3,253 | $22,817 at December 31, 2011 |
| Total liabilities | $235,408 | $217,703 at December 31, 2011 |
| Shareholders’ deficit | $(232,155) | $(194,886) at December 31, 2011 |
No positive operating margin is reported; there was no revenue in either quarter. Cash fell by $19,564 during Q1 2012, with no investing or financing cash flows in the quarter. Current liabilities were $223,601 on the balance sheet, including $202,536 of short-term related-party notes, $11,807 of long-term related-party notes, and $6,076 of interest payable. The short-term related-party note is due June 30, 2012; the $11,807 notes are due March 31, 2015.
Material changes versus the prior comparable period
Net loss increased by $10,162, principally reflecting higher operating costs and interest expense. Legal and accounting expense rose 31.5% to $30,412; general operating expense was $447 versus $161. Officer compensation expense recorded through stock was $12,000 in both quarters. Operating cash use improved by $9,663, but the company ended the quarter with substantially less cash than a year earlier. The company issued 120,000 shares to its CEO and CFO for compensation, increasing shares outstanding to 11,600,224 from 11,480,224 at year-end 2011.
Outlook, risks, contingencies and unusual items
- Management estimated that cash on hand at filing would fund operations only through June 2012; additional capital would be needed thereafter, including for operations and related-party debt repayment. The filing gives no assurance that financing will be available on acceptable terms.
- 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. Failure to obtain financing could require abandoning the business or public-reporting status.
- Management anticipated relatively stable expenses for the rest of 2012, but expected professional fees to remain significant and marketing and regulatory-related expenses could increase. No revenue forecast or specific financial guidance is provided.
- The prior Bally’s Atlantic City license had expired in January 2011. The company reported no Q1 revenue and said future revenue depends on securing new licensing arrangements and regulatory approvals. Required or desired gaming licenses and registrations in New Jersey, Nevada and Minnesota may be delayed or denied; acceptance of the game by casinos and customers is uncertain.
- Potential financing through equity could dilute shareholders; debt or senior securities could impose restrictions or have priority over common stock. The filing also identifies intellectual-property protection, regulatory change, management retention and limited operating history as risks.
- A Select Video agreement entitles the seller to 5% of gross proceeds from Winner’s Pot Poker and similar games; $619 was accrued at both March 31, 2012 and December 31, 2011. No subsequent events were reported.
- Management concluded disclosure controls were effective, while noting limited accounting staff and incomplete segregation of duties; it said the remaining risks did not constitute a material weakness. No material change in internal control was reported during the quarter.
Important facts for investors to verify
- Confirm the registrant’s identity: the supplied filing names Poker Magic, Inc., not SUI Group Holdings Ltd.
- Reconcile the filing’s current-liability figures: the balance sheet reports $223,601, while MD&A cites $223,935; the reason for the $334 difference is not clearly explained.
- Assess near-term liquidity and the status, terms and maturity of related-party financing, particularly the $202,536 note due June 30, 2012 and management’s stated need for additional capital.
- Verify progress on gaming approvals and new licensing agreements, given the absence of current revenue and the expiration of the Bally’s license.
- Consider dilution from share-based officer compensation and any future equity financing; the filing reports 120,000 compensation shares issued in the quarter.