Business context and reporting period
The filing is Poker Magic, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2012. The request metadata names SUI Group Holdings Ltd., but the filing itself identifies Poker Magic, Inc. as the registrant. Poker Magic is a development-stage company seeking to market and license its Winner’s Pot Poker table game to casinos and online gaming facilities.
Financial results and position
| Metric | Q3 2012 / September 30, 2012 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $0 for Q3 and the first nine months | $0 in the comparable 2011 periods |
| Net loss | $60,833 for Q3; $137,550 for nine months | $29,142 and $101,607, respectively, in 2011 |
| Basic and diluted loss per share | $0.06 for Q3; $0.13 for nine months | $0.03 and $0.10, respectively, in 2011 |
| Cash | $88 | $22,817 at December 31, 2011 |
| Current liabilities | $45,029 | $217,703 at December 31, 2011 |
| Related-party notes | $251,495 long-term; none classified short-term | $213,675 classified short-term at December 31, 2011 |
| Shareholders’ deficit | $296,436 | $194,886 at December 31, 2011 |
Nine-month operating cash outflow was $47,729, compared with $53,045 in 2011. Financing provided $25,000, all from related-party borrowing; cash therefore declined by $22,729. No investing cash flows were reported for either nine-month period. Gross margin is not meaningful for the current periods because there was no revenue or cost of revenue. Since inception, the company reported $12,375 of revenue and a cumulative net loss of $1,105,776.
Changes versus prior periods
- Q3 net loss more than doubled year over year, rising 108.7%; nine-month net loss increased 35.4%.
- Nine-month selling, general and administrative expense rose to $116,915 from $88,131. Management attributed increases in general and legal expenses partly to one-time reverse-split costs; legal and accounting expense rose 46.2% for the nine-month period.
- Interest expense increased to $20,635 for the first nine months from $13,476. Related-party debt was renewed or reclassified as long-term, including notes bearing 12% annual interest.
- Shareholders approved a 1-for-11 reverse split, effective September 10, 2012; the filing states financial statements were adjusted retroactively. Shares outstanding were 1,090,930 at quarter-end.
Outlook, risks and unusual items
- Management disclosed substantial doubt about the company’s ability to continue as a going concern. It reported an inception-to-date loss of $1,105,776 and said continued operations depend on revenue generation, profitability, or additional capital.
- Although quarter-end cash was $88, management reported approximately $145,076.28 in cash as of the filing date and believed it could fund operations through December 2012. Additional capital would be needed thereafter; management warned that failure to obtain financing could force the company to abandon its business or public-reporting status.
- After quarter-end, Lantern Advisers, an entity owned equally by two company officers, loaned the company $50,000 on October 31, 2012, under a three-year note at 12% interest. On November 9, the company entered into an agreement to sell 100,000 shares at $1.00 per share. The filing does not clearly state whether these proceeds are reflected in the reported cash balance as of the filing date.
- The company had not generated revenue in the current or comparable reporting periods. Its earlier New Jersey Bally’s license expired in January 2011; future licensing and revenue prospects were uncertain. Management cited gaming-license and approval requirements, market acceptance, intellectual-property protection, financing availability, and retention of key executives as risks.
- Management said professional fees would remain significant and anticipated increased marketing and general operating expenses. Equity financing could dilute existing holders; debt or senior securities could constrain operations or rank ahead of common stock.
- The filing reports disclosure controls as effective, while noting limited accounting staff and incomplete segregation of duties. Management did not consider the remaining control risks a material weakness.
Important facts for investors to verify
- Confirm the issuer’s identity: the supplied metadata says SUI Group Holdings Ltd., while the filing names Poker Magic, Inc.
- Review the going-concern disclosure and whether subsequent financing was sufficient to fund operations and meet debt obligations.
- Verify the terms, receipt, and use of proceeds from the $50,000 related-party loan and the November 9 share subscription.
- Assess the status and cost of required gaming licenses and the likelihood of securing new commercial license agreements.
- Check the related-party debt balances, 12% interest terms, and the filing’s reverse-split-adjusted share counts.
- Note that the MD&A cash-flow table labels its periods “Nine Months Ended March 31,” whereas the financial statements report the nine months ended September 30; confirm the intended period.