Business context and reporting period
The supplied filing is Poker Magic, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2011—not a filing identified as SUI Group Holdings Ltd. Poker Magic describes itself as a development-stage company marketing and licensing its Winner’s Pot Poker table game to casinos and gaming facilities.
Financial results and position
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $0 | $600 | $0 | $2,400 |
| Operating expenses | $23,952 | $23,202 | $88,131 | $85,532 |
| Interest expense | $5,190 | $2,624 | $13,476 | $6,257 |
| Net loss | $29,142 | $27,324 | $101,607 | $95,713 |
| Operating cash flow | Not separately presented for the quarter | $(53,045) | $(50,858) |
No revenue-related costs were reported in 2011; gross profit margin is not meaningful with no revenue. At September 30, cash was $10,036, current liabilities were $191,682, total liabilities were $191,682, and shareholders’ deficit was $181,646. Current liabilities included $183,502 of short-term related-party notes. The company had no long-term liabilities reported at quarter-end.
Financing provided $60,000 during the first nine months, while cash used in operations was $53,045; ending cash increased from $3,081 at December 31, 2010 to $10,036. The accumulated deficit since inception was $942,986. The filing reports no material capital expenditures expected in the near term.
Changes versus prior comparable periods
- Revenue fell to zero from $600 for Q3 and from $2,400 for the first nine months of 2010. The prior-year revenue came from a single weekend-only game contract that ended in December 2010.
- Nine-month net loss rose by $5,894 to $101,607, while operating expenses increased about 3% to $88,131. Interest expense more than doubled, to $13,476.
- Cash increased by $6,955 over the first nine months, supported by $60,000 in related-party borrowing. Short-term related-party notes increased from $94,800 at year-end 2010 to $183,502.
Outlook, risks and notable items
- Management said available cash was expected to fund operations through December 2011; it expected to need additional capital thereafter. It cautioned that financing might not be available on acceptable terms, and failure to obtain financing could require abandoning the business or public-company reporting status.
- The filing states that recurring losses, accumulated deficit and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern.
- Key business uncertainties include securing casino customers and revenue, obtaining required gaming licenses and approvals, forecasting expenses, protecting intellectual property, and obtaining financing. The New Jersey casino supplier license expired in January 2011; required Nevada and Minnesota approvals had not been obtained.
- Related-party loans carried 12% interest. On September 30, 2011, Lantern Advisers consolidated notes and accrued interest into a $172,364 note due March 31, 2012. Management also reported renewed $5,000 notes for each of two officers, but the stated maturity date in the filing is March 31, 2011—before the reported renewal date—so the maturity information is inconsistent.
- The company reported no employees and compensated officers partly with stock. It issued 48,000 shares to its CEO and CFO for compensation on September 30, 2011.
- Management concluded disclosure controls were effective, while noting limited accounting staff and inability to fully segregate duties; it said this did not constitute a material weakness.
Investor verification priorities
- Confirm the correct issuer: the supplied filing names Poker Magic, Inc., whereas the request metadata names SUI Group Holdings Ltd.
- Verify the maturity dates and terms of the renewed officer notes, including the apparent March 31, 2011 date inconsistency.
- Assess near-term liquidity, the company’s reliance on additional related-party or other financing, and the going-concern disclosure.
- Check the current status of gaming licenses and approvals, and whether the company has secured any replacement customer contracts or revenue.
- Review the related-party debt balance, 12% interest terms, and potential dilution from future equity financing or stock compensation.