UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
x QUARTERLY
REPORT UNDER SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended June 30, 2009
OR
¨ TRANSITION
REPORT UNDER SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
transition period from _______ to _______
Commission
File Number 0-16686
POKER
MAGIC, INC.
(Exact
name of registrant as specified in its charter)
|
Minnesota
|
|
20-4709758
|
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification
No.)
|
130 West
Lake Street, Suite 300, Wayzata, MN
(Address
of Principal Executive Offices)
(952)
473-3442
(Registrant’s
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed from last
report)
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. Yes x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes ¨ No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer ¨
|
|
Accelerated
filer ¨
|
|
Non-accelerated
filer ¨
(Do not check if a smaller reporting company)
|
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
As of
July 31, 2009 there were 9,563,224 shares of the issuer’s common stock, $0.001
par value, outstanding.
Table of
Contents
|
|
|
Page
|
|
PART
I – FINANCIAL INFORMATION
|
|
|
Item
1.
|
Financial
Statements
|
1
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
9
|
|
Item
4T.
|
Controls
and Procedures
|
15
|
|
|
|
|
|
PART
II – OTHER INFORMATION
|
|
|
Item
1A.
|
Risk
Factors
|
16
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
16
|
|
Item
5.
|
Other
Information
|
16
|
|
Item
6.
|
Exhibits
|
17
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|
|
|
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|
SIGNATURES
|
17
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|
|
|
|
|
EXHIBIT
INDEX
|
18
|
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements.
Poker
Magic, Inc.
(A
Development Stage Company)
Balance
Sheets
|
|
|
June 30, 2009
(unaudited)
|
|
|
December 31, 2008
(audited)
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
|
|
$ |
1,596 |
|
|
$ |
145,117 |
|
|
Inventory
|
|
|
300 |
|
|
|
750 |
|
|
Prepaid
Expense
|
|
|
418 |
|
|
|
2,916 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
2,314 |
|
|
|
148,783 |
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
Assets, Net of Amortization
|
|
|
14,475 |
|
|
|
18,611 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
16,789 |
|
|
$ |
167,394 |
|
|
|
|
|
|
|
|
|
|
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|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$ |
8,176 |
|
|
$ |
2,016 |
|
|
Accrued
Royalty
|
|
|
183 |
|
|
|
166 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
8,359 |
|
|
|
2,182 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
8,359 |
|
|
|
2,182 |
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
Common
Stock, $.001 par value: Authorized 250,000,000 shares:
Issued
and outstanding 9,563,224 and 9,267,391 shares.
|
|
|
9,563 |
|
|
|
9,267 |
|
|
Additional
Paid-in Capital
|
|
|
621,277 |
|
|
|
681,365 |
|
|
Deficit
Accumulated During the Development Stage
|
|
|
(622,410 |
) |
|
|
(525,420 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
Shareholders’ Equity
|
|
|
8,430 |
|
|
|
165,212 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders’ Equity
|
|
$ |
16,789 |
|
|
$ |
167,394 |
|
The
accompanying notes are an integral part of these financial
statements.
Poker
Magic, Inc.
(A
Development Stage Company)
Statements
of Operations
(unaudited)
|
|
|
Three months ended
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
Six months ended
|
|
|
Period from
January 10, 2006
(inception)
through
|
|
|
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
|
June 30, 2009
|
|
|
Revenues
|
|
$ |
2,025 |
|
|
$ |
- |
|
|
$ |
3,650 |
|
|
$ |
- |
|
|
$ |
6,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Revenues
|
|
|
3,794 |
|
|
|
- |
|
|
|
8,242 |
|
|
|
- |
|
|
|
45,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Loss
|
|
|
(1,769
|
) |
|
|
- |
|
|
|
(4,592
|
) |
|
|
|
|
|
|
(38,040
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
Selling,
General and Administrative
|
|
|
35,804 |
|
|
|
63,701 |
|
|
|
92,590 |
|
|
|
119,945 |
|
|
|
586,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Loss:
|
|
|
(37,573
|
) |
|
|
(63,701
|
) |
|
|
(97,182
|
) |
|
|
(119,945
|
) |
|
|
(624,613
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
11 |
|
|
|
393 |
|
|
|
192 |
|
|
|
393 |
|
|
|
2,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$ |
(37,562 |
) |
|
$ |
(63,308 |
) |
|
$ |
(96,990 |
) |
|
$ |
(119,552 |
) |
|
$ |
(622,410 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share
|
|
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.08 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of common shares outstanding
|
|
|
8,900,724 |
|
|
|
8,161,694 |
|
|
|
9,014,168 |
|
|
|
7,958,398 |
|
|
|
7,338,602 |
|
The
accompanying notes are an integral part of these financial
statements.
Poker
Magic, Inc.
(A
Development Stage Company)
Statements
of Cash Flows
(unaudited)
|
|
|
Six Months
Ended
June 30, 2009
|
|
|
Six Months
Ended
June 30, 2008
|
|
|
Period from January
10, 2006 (inception)
to June 30, 2009
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(96,990 |
) |
|
$ |
(119,552 |
) |
|
$ |
(622,410 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of intangible asset
|
|
|
4,136 |
|
|
|
4,136 |
|
|
|
26,882 |
|
|
Common
stock issued for services
|
|
|
- |
|
|
|
- |
|
|
|
6,500 |
|
|
Consulting
service expense paid in stock
|
|
|
4,373 |
|
|
|
14,567 |
|
|
|
123,423 |
|
|
Officers
compensation expense paid in stock
|
|
|
18,000 |
|
|
|
2,000 |
|
|
|
74,000 |
|
|
Officers
compensation expense as contributed
capital
|
|
|
12,000 |
|
|
|
22,000 |
|
|
|
50,000 |
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
450 |
|
|
|
- |
|
|
|
450 |
|
|
Prepaid
expense
|
|
|
- |
|
|
|
- |
|
|
|
5,434 |
|
|
Accounts
payable
|
|
|
6,160 |
|
|
|
(412
|
) |
|
|
8,176 |
|
|
Accrued
royalty
|
|
|
17 |
|
|
|
- |
|
|
|
183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(51,854
|
) |
|
|
(77,261
|
) |
|
|
(327,362
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of Select Video assets
|
|
|
- |
|
|
|
- |
|
|
|
(17,000
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
- |
|
|
|
- |
|
|
|
(17,000
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from subscription receivable
|
|
|
- |
|
|
|
- |
|
|
|
14,000 |
|
|
Proceeds
from issuance of common stock
|
|
|
- |
|
|
|
287,500 |
|
|
|
426,000 |
|
|
Redemption
of common stock
|
|
|
(91,667
|
) |
|
|
- |
|
|
|
(91,667
|
) |
|
Payment
of short-term debt
|
|
|
- |
|
|
|
- |
|
|
|
(2,375
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financial activities
|
|
|
(91,667
|
) |
|
|
287,500 |
|
|
|
345,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
(143,521
|
) |
|
|
210,239 |
|
|
|
1,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
beginning of the period
|
|
|
145,117 |
|
|
|
37,003 |
|
|
|
- |
|
|
Cash,
end of the period
|
|
$ |
1,596 |
|
|
$ |
247,242 |
|
|
$ |
1,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of certain assets and liabilities of Select
Video in exchange for common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
750 |
|
|
Intangible
Asset
|
|
|
- |
|
|
|
- |
|
|
|
24,357 |
|
|
Accounts
Payable
|
|
|
- |
|
|
|
- |
|
|
|
(32,000
|
) |
|
Note
Payable
|
|
|
- |
|
|
|
- |
|
|
|
(7,084
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issued in lieu of cash for note payable
|
|
|
- |
|
|
|
- |
|
|
|
19,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issued in lieu of cash for prepaid services
|
|
|
- |
|
|
|
- |
|
|
|
175,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
subscriptions received for common stock
|
|
|
- |
|
|
|
- |
|
|
|
14,000 |
|
The
accompanying notes are an integral part of these financial
statements.
Poker
Magic, Inc.
(A
Development Stage Company)
Notes to
Financial Statements
June 30,
2009
NOTE
1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description
of operations and basis of presentation
Poker
Magic, Inc. (the “Company”) is a development stage company that was incorporated
in the State of Minnesota on January 10, 2006. Our business consists
primarily of marketing and licensing a new form of poker-based table game to
casinos and on-line gaming facilities in the United States.
Interim
financial information
The
accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States and pursuant
to the rules and regulations of the Securities and Exchange Commission (the
“SEC”) for interim financial information. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
have been omitted pursuant to such rules and regulations. Operating results for
the three and six months ended June 30, 2009 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2009 or any
other period. The accompanying financial statements and related notes should be
read in conjunction with the audited Financial Statements of the Company, and
notes thereto, contained in this filing for the year ended December 31,
2008.
Liquidity
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern that contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. For the period
from January 10, 2006 (inception) to June 30, 2009, the Company incurred a net
loss of $622,410. The Company's ability to continue as a going concern is
dependent on it ultimately achieving profitability, producing additional
revenues and/or raising additional capital. Management intends to obtain
additional debt or equity capital to meet all of its existing cash obligations
and to support the revenue generating process; however, there can be no
assurance that the sources will be available or available on terms favorable to
the Company.
Intangible
assets
On March
10, 2006, the Company purchased certain assets and assumed certain liabilities
of Select Video, Inc. (Select Video). Three patents were acquired as a part of
the March 10, 2006 purchase. The patents are stated at cost and are amortized on
a straight-line basis over 60 months. Amortization expense was $4,136 for both
of the six months ended June 30, 2009 and 2008 and $26,882 for the period from
January 10, 2006 (inception) to June 30, 2009. Estimated amortization expense
for the next three years of patents issued as of June 30, 2009 is as
follows:
|
Remainder
of 2009
|
|
$
|
4,136
|
|
|
2010
|
|
|
8,271
|
|
|
2011
|
|
|
2,068
|
|
|
Total
|
|
$
|
14,475
|
|
Impairment
of long-lived assets
Management
reviews the Company’s long-lived assets for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If impairment indicators are present and the estimated future
undiscounted cash flows are less than the carrying value of the assets, the
asset’s value will be adjusted appropriately. No impairment indicators were
present as of June 30, 2009 or December 31, 2008.
Recent
accounting pronouncement
During
May 2009, the FASB issued Statement of Financial Standards No. 165, Subsequent Events (“SFAS
165”). SFAS 165 requires all public entities to evaluate
subsequent events through the date that the financial statements are available
to be issued and disclose in the notes the date through which the Company has
evaluated subsequent events and whether the financial statements were issued or
were available to be issued on the disclosed date. SFAS No. 165 defines
two types of subsequent events, as follows: the first type consists of
events or transactions that provide additional evidence about conditions that
existed at the date of the balance sheet and the second type consists of events
that provide evidence about conditions that did not exist at the date of the
balance sheet but arose after that date. SFAS 165 is effective for interim
and annual periods ending after June 15, 2009 and must be applied
prospectively. The disclosure of the subsequent events did not have a
material effect on the financial statements.
NOTE
2—NET LOSS PER COMMON SHARE
Basic net
loss per common share is computed by dividing net loss attributable to common
stockholders by the weighted average number of vested common shares outstanding
during the period. A reconciliation of the numerator and denominator used in the
calculation of basic and diluted net loss per common share follows:
|
|
|
Three months
ended
|
|
|
Three months
ended
|
|
|
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net
loss attributable to common stockholders
|
|
$ |
(37,562 |
) |
|
$ |
(63,308 |
) |
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of common shares outstanding
|
|
|
8,900,724 |
|
|
|
8,161,694 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share
|
|
$ |
(.00 |
) |
|
$ |
(.01 |
) |
|
|
|
Six months ended
June 30, 2009
|
|
|
Six months ended
June 30, 2008
|
|
|
Period from
January 10, 2006
(inception) to
June 30, 2009
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common stockholders
|
|
$ |
(96,990 |
) |
|
$ |
(119,552 |
) |
|
$ |
(622,410 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of common shares outstanding
|
|
|
9,014,168 |
|
|
|
7,958,398 |
|
|
|
7,338,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share
|
|
$ |
(.01 |
) |
|
$ |
(.02 |
) |
|
$ |
(.08 |
) |
The
1,000,000 outstanding warrants during the three and six months ended June 30,
2009 and the period from January 10, 2006 (inception) to June 30, 2009 were
excluded from the calculation of diluted loss per share as their effects were
anti-dilutive due to the Company’s net losses for the periods.
NOTE
3—COMMITMENTS AND CONTINGENCIES
The asset
purchase agreement with Select Video dated March 10, 2006, provides that when
the Company receives any revenue generated by Winners Pot Poker and other
similar games, Select Video will be entitled to receive an amount equal to five
percent (5%) of all gross proceeds generated by these games.
As of
June 30, 2009 and December 31, 2008, $183 and $166 were owed to Select Video
under this agreement.
NOTE
4—SHAREHOLDERS’ EQUITY
Common
stock
On
January 10, 2006, the founders of the Company purchased 2,500,000 shares of
common stock for $2,500.
On March
10, 2006, the Company purchased certain assets and assumed certain liabilities
of Select Video in exchange for 3,022,991 shares of common stock issued at the
deemed fair market value of $.001 per share or $3,023.
On May
23, 2006, the Company issued 60,000 shares of common stock at $0.25 per share in
lieu of cash for liabilities assumed.
During
2006, the Company raised additional cash of $87,500 at $0.25 per share through
the issuance of 350,000 shares of common stock.
During
2006, the Company issued 22,000 shares to various consultants at $0.25 per share
for services rendered.
During
2006, the Company issued 100,000 shares valued at $4,000 (value of the services
to be provided) for services rendered and to be rendered.
On
January 15, 2007, the Company issued 600,000 shares of common stock to two
consultants for services to be provided over a 12 month period commencing on
January 15, 2007. These services were valued at $50,000.
On
January 15, 2007, the Company issued 500,000 shares of common stock to the two
founders for their services to be provided over a 12 month period commencing
January 15, 2007. These services were valued at $48,000.
On July
26, 2007, the Company settled the note payable of $7,084 for a cash payment of
$2,375 and the issuance of 20,000 shares of common stock valued at $4,709 for
payment in full on the note.
In July
2007, the Company raised cash of $20,000 at $0.25 per share through the issuance
of 80,000 shares of common stock.
On August
1, 2007, the Company issued 65,000 shares of common stock for services to be
provided over a 12 month period commencing retroactively on June 1,
2007. These services were valued at $5,000.
On August
1, 2007, the Company issued 100,000 shares of common stock to a consultant for
services to be provided over a 12 month period commencing on August 1,
2007. These services were valued at $8,300.
On August
1, 2007, the Company issued 25,000 shares of common stock for
services. These services were valued at $1,000.
On
November 26, 2007, the Company issued 50,000 shares of common stock to a
consultant for services to be provided over a 12 month period commencing on
November 26, 2007. These services were valued at
$12,500.
In
December 2007, the Company raised cash of $30,000 at $0.25 per share through the
issuance of 120,000 shares of common stock.
In
January 2008, the Company raised cash of $25,000 at $0.25 per share through the
issuance of 100,000 shares of common stock.
On May
28, 2008, the Company raised cash of $250,000 at $0.25 per share through the
issuance of 1,000,000 shares of common stock together with a warrant to purchase
up to 1,000,000 shares of common stock, which was immediately
exercisable. The exercise price was $0.25 per share if purchased
within six months of issuance. The exercise price increased to $0.425
for months seven through twelve (after the date of issuance) and increases to
$0.50 after twelve months. The warrant expires on May 27,
2010.
In May
2008, the Company raised cash of $12,500 at $0.25 per share through the issuance
of 50,000 shares of common stock.
On August
26, 2008, the Company issued 200,000 shares of common stock to a consultant for
services to be provided over a five month period commencing on August 1,
2008. These services were valued at $20,000.
On August
26, 2008, the Company issued 60,000 shares of common stock for services to be
provided over a five month period commencing retroactively on August 1,
2008. These services were valued at $5,000.
On August
26, 2008, the Company issued 60,000 shares of common stock for services to be
provided over a twelve month period commencing retroactively on August 1,
2008. These services were valued at $5,000.
On August
26, 2008, the Company issued 10,000 shares of common stock for
services. These services were valued at $2,500.
On August
26, 2008, the Company issued 50,000 shares of common stock for
services. These services were valued at $5,000.
On
December 16, 2008, the Company issued 40,400 shares of common stock for
services. These services were valued at $10,100.
On
December 31, 2008, the Company issued 32,000 shares of common stock for officer
compensation. These services were valued at $8,000.
On
February 25, 2009, the Company redeemed 366,667 shares of common stock held by a
single shareholder at a price of $.25 per share, for a total amount of
$91,667.
On June
30, 2009, the Company issued 400,000 shares of common stock for officer
compensation with a fair value of $12,000.
On June
30, 2009, the Company issued 200,000 shares of common stock for officer bonus
compensation with a fair value of $6,000.
On June
30, 2009, the Company issued 50,000 shares of common stock for consultant
service bonus with a fair value of $1,500.
On June
30, 2009, the Company issued 5,000 shares of common stock for services with a
fair value of $150.
On June
30, 2009, the Company issued 7,500 shares of common stock for services with a
fair value of $225.
At June
30, 2009, a total of 9,563,224 shares of common stock were issued and
outstanding. 1,000,000 warrants to purchase additional common stock
at $0.425 per share are also outstanding as of June 30, 2009.
NOTE
5—INCOME TAXES
The
Company applies the provisions of FIN 48, “Accounting for Uncertainty in Income
Taxes” (FIN 48) which clarifies the accounting for uncertainty in income tax
positions. This interpretation requires the Company to recognize in the
financial statements only those tax positions determined to be more likely than
not of being sustained upon examination, based on the technical merits of the
positions. Interest and penalties are expensed as incurred as operating
expenses.
At June
30, 2009, the Company had federal and state net operating loss carryforward of
approximately $605,000 available to offset future taxable income. The Company’s
federal and state net operating loss carryforwards will begin to expire in 2026
if not used before such time to offset future taxable income or tax liabilities.
Current and future changes in the stock ownership of the Company may place
limitations on the use of these net operating loss carryforwards.
NOTE
6—SUBSEQUENT EVENT
On July
30, 2009, we delivered a one-year promissory note to Lantern Advisers, LLC for
$10,000 that accrues simple interest on the unpaid principal balance at the rate
of twelve percent (12.0%) per annum, with interest payments due and payable
monthly and the principal due and payable in full on July 29, 2010.
The
Company did not have any other subsequent events through August 14, 2009, which
is the date the financial statements were available to be issued for events
requiring recording or disclosure in the financial statements for the three and
six months ended June 30, 2009.
|
Item 2.
|
Management’s Discussion and
Analysis of Financial Condition and Results of
Operations.
|
Our
Management’s Discussion and Analysis of Financial Condition and Results of
Operations set forth below should be read in conjunction with our
audited financial statements, and notes thereto, contained in our
Form 10-K filed with the SEC on March 27, 2009 and related to our year ended
December 31, 2008, and the period from January 10, 2006 (inception) to December
31, 2008.
Forward-Looking
Statements
Some of
the statements made in this section of our report are forward-looking
statements. These forward-looking statements generally relate to and are based
upon our current plans, expectations, assumptions and projections about future
events. Our management currently believes that the various plans,
expectations, and assumptions reflected in or suggested by these forward-looking
statements are reasonable. Nevertheless, all forward-looking
statements involve risks and uncertainties and our actual actions or future
results may be materially different from the plans, objectives or expectations,
or our assumptions and projections underlying our present plans, objectives and
expectations, which are expressed in this report. Examples of
specific factors that might cause our actual results to differ from our current
expectations include but are not limited to:
|
|
·
|
Our lack of a significant prior
operating history to provide our management with a basis to better
evaluate certain likelihoods
|
|
|
·
|
Our need for additional
financing
|
|
|
·
|
The significant risk that our
game may not be accepted by casinos or gaming establishments or,
ultimately, by gaming consumers and
enthusiasts
|
|
|
·
|
Our inability to obtain required
registrations, licenses and approvals with or from appropriate state
gaming authorities
|
|
|
·
|
Changes in legal and regulatory
regimes applicable to our business or our
games
|
|
|
·
|
Our inability to effectively
protect our intellectual property,
or
|
|
|
·
|
Our inability, for any reason, to
retain our executive management
personnel.
|
The
foregoing list is not exhaustive. In light of the foregoing,
prospective investors are cautioned that the forward-looking statements included
in this filing may ultimately prove to be inaccurate—even materially
inaccurate. Because of the significant uncertainties inherent in such
forward-looking statements, the inclusion of such information should not be
regarded as a representation or warranty by Poker Magic, Inc. or any other
person that our objectives, plans, expectations or projections that are
contained in this filing will be achieved in any specified time frame, if
ever.
General
Overview
Poker
Magic Inc. is a Minnesota corporation formed in January 2006. In this
report, we refer to Poker Magic, Inc. as “we,” “us,” “Poker Magic” or the
“Company.” We are a development-stage company focused on promoting
and placing our Winner’s Pot Poker game into casinos and entertainment
facilities country-wide, including those located in Native American tribal
lands. We believe that the long-term success of our operations will
be determined by our ability to bring new and innovative products, game play and
services to the market.
Our
current gaming product is “Winner’s Pot Poker,” which is a table game form of
five-card stud poker. In the Winner’s Pot Poker game, the dealer
deals each player, and the dealer himself, two cards face down and three cards
face up. Each player “antes” before the deal to be eligible to
receive cards in the game. After each player has received his or her
first three cards from the dealer, each player may either fold or place a first
bet equal to the ante. The first bet may not be any more or less than
the ante. After the next card is dealt, each of the remaining players
has a choice between folding or placing a second bet that must be equal to twice
the ante. The dealer may not fold. After the last card is
dealt, the hands are compared and the winning hand (determined by using standard
poker rankings) takes a predetermined percentage of the total bets and antes
made in the course of the game. In addition, players are entitled to
make certain optional “bonus bets.”
We had no
revenues from January 10, 2006 (inception) through December 31, 2007, or from
January 1, 2008 through August 27, 2008. We began generating revenues
August 28, 2008 under the license agreement with Bally’s Park Place, Inc.
discussed further in the Revenue section
below.
For the
three and six months ended June 30, we incurred $3,794 and $8,242, respectively,
in revenue-related costs and $35,804 and $92,590, respectively, in
operating expenses. Our expenses related primarily to our efforts to
market our Winner’s Pot Poker game to casinos and gaming establishments,
generate revenues and expand our revenue base, as well as other selling, general
and administrative expenses. The most significant components of these
other selling, general and administrative expenses were (i) compensation expense
attributable to share issuances to third-party consultants and executive
management for services rendered, and (ii) expenses for professional services
such as legal and accounting services.
As of
June 30, 2009, we had $1,596 in cash on hand and current liabilities of
$8,359. As of the date of this filing, we had approximately $6,000 in
cash on hand, and our management presently believes this cash will be sufficient
to continue operations through September 2009. Thereafter, we expect
we will require additional capital. If our present expectations
relating to our expenses prove inaccurate and we incur more expenses than
anticipated, we will be required to seek additional financing prior to September
2009.
Management
believes that the most significant uncertainties facing the Company relate to
our ability to increase our revenues, the accuracy of our expense forecast, our
ability to acquire necessary licenses, registrations and approvals, and our
ability to obtain financing when and as needed and on terms acceptable to
us. These uncertainties are discussed in greater detail under the
caption “Trends and Uncertainties.”
Results
of Operations for the Three Months Ended June 30, 2009 Compared to the Three
Months Ended June 30, 2008
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
Item
|
|
6/30/09
|
|
|
6/30/08
|
|
|
% Change
(Year Over Year)
|
|
|
% of 2009
Net Loss
|
|
|
% of 2008
Net Loss
|
|
|
Revenues
|
|
$ |
2,025 |
|
|
$ |
- |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
Cost
of Revenues
|
|
|
3,794 |
|
|
|
- |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
Operating Expenses
|
|
|
539 |
|
|
|
23,432 |
|
|
|
(97.7 |
)% |
|
|
1.4 |
% |
|
|
37.0 |
% |
|
Legal
and Accounting Expenses
|
|
|
17,265 |
|
|
|
22,236 |
|
|
|
(22.4 |
)% |
|
|
46.0 |
% |
|
|
35.1 |
% |
|
Consulting
Expenses
|
|
|
- |
|
|
|
6,033 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
9.5 |
% |
|
Executive
Management Compensation
|
|
|
18,000 |
|
|
|
12,000 |
|
|
|
50.0 |
% |
|
|
47.9 |
% |
|
|
19.0 |
% |
|
Other
Income
|
|
|
11 |
|
|
|
393 |
|
|
|
(97.2 |
)% |
|
|
N/A |
|
|
|
N/A |
|
|
Net
Loss
|
|
$ |
37,562 |
|
|
$ |
63,308 |
|
|
|
(40.7 |
)% |
|
|
N/A |
|
|
|
N/A |
|
As the
table above demonstrates, during the three months ended June 30, 2009 and 2008,
we had revenues of $2,025 and $0 respectively, and incurred $3,794 and $0,
respectively, in revenue-related costs. During both periods, we were
focused primarily on efforts to (i) ensure temporary regulatory approval and
compliance of the Winner’s Pot Poker game, and (ii) obtain the agreement of
casinos and gaming establishments to provide gaming table space to the Winner’s
Pot Poker game. During 2008, we were also focused on completing the
process of filing and amending our Registration Statement on Form 10 (originally
filed with the SEC on January 29, 2008) in response to comments received from
the SEC. Amendments to our Registration Statement were completed and
filed with the SEC on March 11 and August 6, 2008. We currently have
one contract with one client.
Our
general operating expenses decreased 97.7% in the three months ended June 30,
2009 compared to the three months ended June 30, 2008, in part because we now
record certain expenses to cost of revenue where those expenses were recorded as
general and administrative during the 2008 period. We have also realized
efficiency savings in our ongoing operations which has helped to reduce our
legal, accounting and consulting expenses. We expect these expenses
will remain stable throughout 2009.
Our legal
and accounting expenses decreased 22.4% for the three months ended June 30, 2009
compared to the three months ended June 30, 2008. This significant
decrease was mainly due to one-time expenses related to amending our
Registration Statement on Form 10 filed with the SEC although somewhat offset by
increased costs related to our initial compliance with the Sarbanes-Oxley Act of
2002, and completing the process of obtaining our trading symbol. As
we continue to seek gaming regulatory compliance and licenses, prepare and file
periodic reports with the SEC under the Securities and Exchange Act of 1934, and
generally seek to comply with the various legal, accounting and governance rules
and regulations applicable to public reporting companies, we anticipate our
professional fees expenses will remain high but less than the amounts reached
during fiscal 2008.
Results
of Operations for the Six Months Ended June 30, 2009 Compared to the Six Months
Ended June 30, 2008
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
Item
|
|
6/30/09
|
|
|
6/30/08
|
|
|
% Change
(Year Over Year)
|
|
|
% of 2009
Net Loss
|
|
|
% of 2008
Net Loss
|
|
|
Revenues
|
|
$ |
3,650 |
|
|
$ |
- |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
Cost
of Revenues
|
|
|
8,242 |
|
|
|
- |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
Operating Expenses
|
|
|
6,728 |
|
|
|
29,264 |
|
|
|
(77.0 |
)% |
|
|
6.9 |
% |
|
|
24.5 |
% |
|
Legal
and Accounting Expenses
|
|
|
55,862 |
|
|
|
44,114 |
|
|
|
26.6 |
% |
|
|
57.6 |
% |
|
|
36.9 |
% |
|
Consulting
Expenses
|
|
|
- |
|
|
|
14,567 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
12.2 |
% |
|
Executive
Management Compensation
|
|
|
30,000 |
|
|
|
32,000 |
|
|
|
(6.3 |
)% |
|
|
30.9 |
% |
|
|
26.8 |
% |
|
Other
Income
|
|
|
192 |
|
|
|
393 |
|
|
|
(51.1 |
)% |
|
|
N/A |
|
|
|
N/A |
|
|
Net
Loss
|
|
$ |
96,990 |
|
|
$ |
119,552 |
|
|
|
(18.9 |
)% |
|
|
N/A |
|
|
|
N/A |
|
As the
table above demonstrates, during the six months ended June 30, 2009 and 2008, we
had revenues of $3,650 and $0 respectively, and incurred $8,242 and $0,
respectively, in revenue-related costs. During both periods, we were
focused primarily on efforts to (i) ensure temporary regulatory approval and
compliance of the Winner’s Pot Poker game, and (ii) obtain the agreement of
casinos and gaming establishments to provide gaming table space to the Winner’s
Pot Poker game. During 2008, we were also focused on completing the
process of filing and amending our Registration Statement on Form 10 (originally
filed with the SEC on January 29, 2008) in response to comments received from
the SEC. Amendments to our Registration Statement were completed and
filed with the SEC on March 11 and August 6, 2008. We currently have
one contract with one client.
Our
general operating expenses decreased 77% in the six months ended June 30, 2009
compared to the six months ended June 30, 2008, in part because we now record
certain expenses to cost of revenue where those expenses were recorded as
general and administrative during the 2008 period. We have also realized
efficiency savings in our ongoing operations and reduced our consulting expense
significantly. We expect these expenses will remain stable throughout
2009.
Our legal
and accounting expenses increased 26.6% for the six months ended June 30, 2009
compared to the six months ended June 30, 2008. This significant
increase was due to our December 31, 2008 audit, our initial compliance with the
Sarbanes-Oxley Act of 2002, and completing our application with FINRA to obtain
our trading symbol. As we continue to seek gaming regulatory
compliance and licenses, prepare and file periodic reports with the SEC under
the Securities and Exchange Act of 1934, and generally seek to comply with the
various legal, accounting and governance rules and regulations applicable to
public reporting companies, we anticipate our professional fees expenses will
remain high but less than the amounts reached during fiscal 2008.
We
presently expect that compensation expense arising from share issuances to our
executive management will remain consistent with our fiscal
2008. We have recorded an expense for our estimated officer
compensation as an addition to paid-in capital. We expect that we
will continue to issue shares to consultants to compensate them for services
rendered, primarily as a means to conserve our cash resources. In
this regard, we do not anticipate hiring employees in the near future and expect
instead, where necessary or appropriate, to rely on services provided by
consultants through at least fiscal 2009.
Finally,
we anticipate that the portion of our selling, general and administrative
expenses relating to the general operations and the marketing of our Winner’s
Pot Poker game to casinos and gaming establishments will increase during fiscal
2009.
Liquidity
and Capital Resources
Summary
cash flow data is as follows:
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
Cash
flows provided (used) by :
|
|
|
|
|
|
Operating
activities
|
|
$ |
(51,854 |
) |
|
$ |
(77,261 |
) |
|
Investing
activities
|
|
|
- |
|
|
|
- |
|
|
Financing
activities
|
|
|
(91,667
|
) |
|
|
287,500 |
|
|
Net
increase (decrease) in cash
|
|
|
(143,521
|
) |
|
|
210,239 |
|
|
Cash,
beginning of period
|
|
|
145,117 |
|
|
|
37,003 |
|
|
Cash,
end of period
|
|
$ |
1,596 |
|
|
$ |
247,242 |
|
The
decrease in cash used in operating activities was primarily the result of a
reduction in consulting service expense paid in stock. As of June 30,
2009, we had $1,596 cash on hand and current liabilities
of $8,359. As of the date of this filing, our management
believes we have sufficient capital to continue operations through September
2009. Thereafter, we expect we will require additional
capital. If we are unable to obtain additional financing when needed,
we may be required to abandon our business or our status as a public reporting
company.
Presently,
we anticipate that additional financing could be sought from a number of
sources, including but not limited to additional sales of equity or debt
securities, or loans from banks, other financial institutions or affiliates of
the Company. We cannot, however, be certain that any such financing will be
available on terms favorable to us if at all. If additional funds are raised by
the issuance of our equity securities, such as through the issuance of stock,
convertible securities, or the issuance and exercise of warrants, then the
ownership interest of our existing shareholders will be diluted. If additional
funds are raised by the issuance of debt or other equity instruments, we may
become subject to certain operational limitations, and such securities may have
rights senior to the rights of our common shareholders. If we are unable to
obtain additional financing when needed, we may be required to abandon our
business or our status as a public reporting company.
Our
primary non-cash asset at June 30, 2009 was intellectual property rights and
trademarks, which are the foundation for our product offerings. We
currently own the rights to United States Patent Number 5,839,732, issued on
November 24, 1998, that relates to our current Winner’s Pot Poker table
game. This patent was acquired from Select Video, Inc., a Delaware
corporation, pursuant to an Asset Purchase Agreement dated March 10,
2006. In addition, we own a federally registered trademark for
“WINNER’S POT POKER,” Registration Number 2,172,043, issued on July 7, 1998,
which was acquired pursuant to that same agreement. Finally, we also own
registered trademarks for “POKER MAGIC” and to “AC (ATLANTIC CITY) STUD POKER,”
which we similarly acquired pursuant to the Asset Purchase Agreement with Select
Video. Other than the trademark “Poker Magic” which we have adopted
as our corporate name, we do not have any current plans for the sale or license
of such other trademarks. We do not have any currently pending
applications for un-issued patents, trademarks or copyrights. The
expiration dates of our patent rights vary based on their filing and issuance
dates. We intend to continue to actively file for patent protection,
where reasonable, within the United States. We expect also to seek
protection for our future products by filing for copyrights and trademarks in
the United States.
Currently,
we do not have any employees. Mr. Douglas M. Polinsky, the Chief Executive
Officer and Chairman of our Board of Directors, and Joseph A. Geraci, II, our
Chief Financial Officer and a director of the Company, both serve as consultants
to the Company in their officer capacities. We rely on sales and
marketing agents and outside professional services on an as-needed
basis. We believe that using consultants to perform necessary
operational functions is currently more cost effective than hiring full-time
employees, and such practice affords us flexibility in directing our resources
during our development stage. We plan to develop new gaming
products primarily by utilizing the services of outside developers, sales agents
and regulatory and compliance service providers in an effort to minimize capital
expenditures and corporate expenses. We presently do not expect to
incur any material capital expenditures in the near future or during the next 12
months. At this time, we do not anticipate purchasing or selling any
significant equipment or other assets in the near term.
Trends
and Uncertainties
As a
development-stage company involved in the gaming business, we believe we can
identify certain broad trends in our revenues and expenses, and components
thereof. We also believe that the most significant risks and
uncertainties surrounding our business relate to revenues and expenses, and
regulatory and financing matters. These trends and uncertainties are
discussed below.
Revenues
From
inception through June 30, 2009 (and presently), the Company has been primarily
focused sequentially on the acquisition of the intellectual property forming the
basis for its Winner’s Pot Poker table game and, thereafter, efforts to ensure
at least temporary regulatory compliance of the game and obtain the agreement of
casinos and gaming establishments to provide gaming table space to the Winner’s
Pot Poker game.
These
efforts culminated in our license agreement with Bally’s Park Place, Inc. d/b/a/
Bally’s Atlantic City, permitting Bally’s, on a non-exclusive basis, to use one
unit of the Winner’s Pot Poker game on a trial basis at no charge until such
time that the New Jersey Casino Control Commission ended the test period for the
game. We entered into that license agreement on December 26, 2007. We had
earlier (on August 22, 2007) secured the issuance of temporary rules and
amendments governing the implementation of Winner’s Pot Poker in Atlantic City
casinos. The amendments and rules added Winner’s Pot Poker to the list of
authorized table games in New Jersey, governed the physical characteristics of
the Winner’s Pot Poker game layout, defined the card deck for use with the
Winner’s Pot Poker game, specified the terms of the use of the cards during
Winner’s Pot Poker game play, and contained technical proposals governing the
operation of Winner’s Pot Poker. We had also earlier obtained a transactional
waiver from the New Jersey Casino Control Commission for the licensure
requirement applicable to casino service industry (CSI), which waiver permitted
us to legally license to Bally’s Park Place, Inc. the play of our Winner’s Pot
Poker game in Bally’s Atlantic City casinos.
After a
successful trial period, we amended our license agreement with Bally’s Park
Place, Inc. on June 26, 2008. Under the amended license agreement, Bally’s Park
Place, Inc. pays the Company a license fee in the amount of (i) $475 per month
for the right to use our Winner’s Pot Poker game in the Atlantic City casinos
for up to seven days per week, and (ii) $200 per month for the right to use of
our Winner’s Pot Poker game in the Atlantic City casinos on weekends only during
that month. The amendment currently contemplates the licensure of only two
Winner’s Pot Poker game units—one for the seven days per week use and the other
for the weekend-only use. This amendment was entered into after the adoption by
the New Jersey Casino Control Commission of temporary regulations governing the
rules of the Winner’s Pot Poker game. The amended license agreement is a
month-to-month agreement that may be cancelled by either party at any
time. The month-to-month character of this licensing arrangement,
which is currently our only revenue-generating license, presents a material
uncertainty in our ability to accurately forecast revenues for
2009.
Since
approximately May 2006, we have also been focused on securing Winner’s Pot Poker
licensing arrangements with various other casinos and gaming establishments. In
particular, our management has met with the management or representatives of
over ten different casinos or gaming establishments during the past year in an
effort to secure additional licensing arrangements. To date, our
licensing efforts have been focused on entering into such agreements with
casinos and gaming establishments in Minnesota, New Jersey and
Nevada.
Based on
our recent amendment of the license agreement with Bally’s Park Place, Inc., we
began to recognize revenue from operations during fiscal 2008. Given that the
present terms of the license agreement, as amended, provide only that Bally’s
Park Place, Inc. will license the right to use two game units of our Winner’s
Pot Poker product, we do not expect that our initial revenues will be
significant. Instead, we expect that we must continue to market our game to
casinos and gaming establishments that present suitable opportunities for us,
and that the most efficient way for us to begin generating more significant
revenues will be to consummate a definitive license agreement with Harrah’s
Entertainment or some other enterprise that involves a wider group of
gaming-related affiliates and establishments. For example, Harrah’s
Entertainment, indirectly (through subsidiaries and other affiliates) operates
approximately 40 casinos across the United States. It is extremely
difficult to anticipate, however, how much success we will have in our efforts
to license our games to establishments other than Bally’s Park Place, Inc., if
any at all, and thereby generate additional revenues.
Expenses
As
indicated above under the caption “Results of Operations for the Three Months
Ended June 30, 2009 Compared to the Three Months Ended June 30, 2008,” and
“Results of Operations for the Six Months Ended June 30, 2009 Compared to the
Six Months Ended June 30, 2008,” our selling, general and administrative
expenses overall decreased in both the three and six months ended June 30, 2009
compared to the three and six months ended June 30, 2008 and are expected to
remain stable throughout 2009. We expect to make applications and
seek gaming regulatory compliance and licenses that will increase that component
of our selling, general and administrative expenses for 2009. Because
our business has a short operating history and our present revenues are limited,
in general it is difficult to accurately forecast our expenses and impact of
those expenses on our operating results.
Regulation
As part
of our marketing efforts for the Winner’s Pot Poker game, our management has met
with the management or representatives of over ten different casinos or gaming
establishments during the past year in an effort to secure additional licensing
arrangements. To date, our licensing efforts have been focused on
entering into such agreements with casinos and gaming establishments in New
Jersey, Nevada and Minnesota. On August 22, 2007, the New Jersey Casino Control
Commission adopted temporary regulations governing the Winner’s Pot Poker
game. We have yet to obtain the final casino service industry (CSI)
supplier license from the New Jersey Casino Control Commission, which is more
broad and flexible than the current transactional waiver which we have thus far
secured. On January 23, 2009, the New Jersey Casino Control
Commission approved our petition to continue conducting business with Bally’s
while the issuance of the final license is underway and extended our term to
expire on July 24, 2009. On July 24, 2009, the New Jersey Casino
Control Commission extended our term to January 24, 2010. It is
extremely difficult to anticipate, however, how much success we will have in our
efforts to license our games to establishments other than Bally’s Park Place, if
any at all, and thereby generate additional revenues. It is also
difficult to assess how long we will be able to maintain our present arrangement
with Bally’s Park Place in light of the fact that our amended license agreement
has a month-to-month term.
We have
yet to obtain the final licensure required in the states of Nevada and
Minnesota, which jurisdictions have been the focus of our marketing efforts thus
far. In particular, we expect that we will require at least the
following licenses, registrations and approvals in the near future to permit us
to license our gaming products to casinos and gaming establishments in the
relevant jurisdictions:
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·
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Casino service industry (CSI)
supplier license issued by the New Jersey Casino Control Commission
(described above)
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·
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Distribution licenses permitting
us to distribute Winner’s Pot Poker game units (i.e., table layouts) to
casinos and gaming establishments in Nevada, issued by the Nevada State
Gaming Control Board
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·
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Registration with the Nevada
Gaming Commission as a publicly traded
company
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·
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Distribution licenses permitting
us to distribute Winner’s Pot Poker game units to casinos and gaming
establishments in Minnesota
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·
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Approval from the applicable
Tribal Councils permitting us to distribute Winner’s Pot Poker game units
to casinos and gaming establishments located in tribal lands in
Minnesota.
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As we
seek to begin operations in other states and, where applicable, Native American
tribal lands, we will be subject to additional state and Native American laws
and regulations that affect both our general commercial relationships with our
customers as well as the products and services provided to them. The following
summarizes the material aspects of these laws and regulations.
Financing
As
discussed above under the caption “Liquidity and Capital Resources,” our
management believes we have sufficient capital to continue operations through
September 2009. Thereafter, we expect we will require additional
capital. Our current forecast for financing needs is largely based on
our understanding of the expenses we anticipate incurring in our efforts to
comply with gaming regulatory and public reporting company disclosure
requirements. In this regard, we note that our current forecasts are
largely based on our past experience with other enterprises and proposed budgets
proposed by our professional consultants. If our actual expenses
significantly exceed our present expectations we will likely require additional
financing prior to September 2009.
Once
needed, we cannot be certain that any required additional financing will be
available on terms favorable to us, if at all. This is especially
true in light of the current poor state of the U.S. capital markets and the
general economic downturn that has occurred. If, however, we are able
to raise additional funds by the issuance of our equity or equity-linked
securities, including through the issuance and exercise of warrants, our
existing shareholders will experience dilution of their ownership
interest. If additional funds are instead raised by the issuance of
debt or other senior or preferred equity instruments such as preferred stock, we
may be subject to certain limitations in our operations, and such securities may
have rights senior to those of our holders of common stock. If
adequate funds are not available on acceptable terms, we may be unable to
expand, develop or enhance products or to respond to competitive
pressures. If we are unable to obtain additional financing when
needed, we may be required to abandon our business or our status as a public
reporting company.
Going
Concern
We have
incurred operating losses, accumulated deficit and negative cash flows from
operations since January 10, 2006 (inception). As of June 30, 2009, we had an
accumulated deficit of $622,410. These factors, among others, raise substantial
doubt about our ability to continue as a going concern. Our financial statements
included in this filing do not include any adjustments related to recoverability
and classification of asset carrying amounts, or the amount and classification
of liabilities that might result, should we be unable to continue as a going
concern. Our ability to continue as a going concern ultimately depends on
achieving profitability, producing revenues or raising additional capital to
sustain operations. Although we intend to obtain additional financing to meet
our cash needs and to support the revenue-generating process, we may be unable
to secure any additional financing on terms that are favorable or acceptable to
us, if at all.
Critical
Accounting Policies
For
detailed information on our critical accounting policies and estimates, please
see our financial statements and notes thereto included in this report and in
our report Form 10-K filed with the SEC in March 2009. There have
been no material changes to our critical accounting policies and estimates from
those disclosed in our report Form 10-K.
Item
4T. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures designed to provide reasonable
assurance that information required to be disclosed in our reports filed
pursuant to the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer as
appropriate, to allow timely decisions regarding required disclosure. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance the objectives of the control system are
met.
As of
June 30, 2009, our Chief Executive Officer and Chief Financial Officer carried
out an evaluation of the effectiveness of our disclosure controls and procedures
as such term is defined in Rule 13a-15(e) under the Securities and Exchange Act
of 1934. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer recognized the additional risks to an effective internal
control environment with a limited accounting staff and the inability to fully
segregate all duties within our accounting and financial functions, including
the financial reporting and quarterly close process. Management has
concluded that, with certain oversight controls that are in place and the duties
we have been able to successfully segregate, the remaining risks associated with
the lack of segregation of duties are not sufficient to justify the costs of
potential benefits to be gained by adding additional employees given our
development stage, the limited scope of our operations, and the number of
business transactions we currently process, nor do these remaining risks rise to
the level of a material weakness. Management intends to periodically
reevaluate this situation and continue to assess ways in which duties can be
further segregated as our business evolves. Based on these
evaluations, our Chief Executive Officer and Chief Financial Officer concluded
our disclosure controls and procedures are effective as of June 30,
2009.
Changes
in Internal Controls
There
were no changes in our internal control over financial reporting during the
quarter ended June 30, 2009 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
PART
II – OTHER INFORMATION
Item
1A. Risk Factors.
There
have been no material changes to our risk factors and uncertainties during or
since the period covered by this report. For a discussion of risk
factors applicable to Poker Magic and its business, please refer to the “Risk
Factors” section of our report Form 10-K filed with the SEC on March 27,
2009.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
On June
30, 2009, the Company offered and sold an aggregate of 662,500 shares of common
stock. Of this amount, 400,000 shares having an aggregate fair value
of $12,000 were issued to two persons for officer compensation; 200,000 shares
having an aggregate fair value of $6,000 were issued to the same two persons as
bonus officer compensation; 50,000 shares having an aggregate fair value of
$1,500 were issued to one person in consideration of consulting services; and
12,500 shares having an aggregate fair value of $375 were issued to two persons
under contractual commitments relating to the placement of the Company’s games
in certain entertainment facilities. The Company offered and sold all of the
foregoing shares in reliance on the exemptions from registration set forth in
Sections 4(2) and/or 4(6) of the Securities Act of 1933. In this regard, the
Company relied on representations from the recipients of the shares that they
were (i) acquiring the shares for investment purposes only and not with a view
toward distribution, (ii) either alone or through a purchaser representative,
knowledgeable and experienced in financial and business matters such that each
was capable of evaluating the risks of the investment, (iii) in some cases, an
“accredited investor” as defined in Rule 501 under the Securities Act. In
addition, the transaction described above involved a limited number of
recipients, and all certificates representing the shares offered and sold
contained a restrictive legend indicating that such shares were “restricted
securities” under the Securities Act of 1933.
Item
5. Other Information.
On July
30, 2009, Lantern Advisers, LLC, a Minnesota limited liability company owned
equally by Douglas Polinsky and Joseph A. Geraci, II (each of whom is an officer
and director of the Company), loaned the Company $10,000 under terms and
conditions set forth in a related unsecured term promissory note. The
promissory note provides for simple interest to accrue on the unpaid principal
balance of the promissory note at the rate of 12% per annum, and requires that
accrued interest be paid on a monthly basis until July 29, 2010, at which time
the entire unpaid principal balance of the promissory note will become
due. The loan was made to provide working capital to the
Company.
On June
26, 2009, the Company entered into an Independent Contractor Agreement with
Postoak Consulting, LLC and reached a substantially similar agreement with Mr.
Bradley Farrar. Under the agreements, the contracting parties agreed
to use their reasonable best efforts to place the games of the Company in
casinos, entertainment and gaming facilities owned or operated by Native
American tribes in the United States. Each contractor received a
number of shares of common stock of the Company upon entering into their
respective agreement with the Company (aggregating to 12,500 common shares), and
each will receive additional share-based compensation upon the successful
placement of games in the covered casinos and entertainment and gaming
facilities as indicated in the agreements (2,000 common shares for each
contractor). The agreements contain customary representations,
warranties and covenants of the parties respecting such matters as due execution
and delivery, the non-contravention of other obligations (including restrictive
covenants) of the contractor, the confidentiality of certain business
information and matters, the arbitration of disputes and indemnification, a two-
to four-year term that may include mutually agreed upon extensions, and early
termination in the event of that the gaming-related licensing rights of the
Company (or its business) are threatened by virtue of the agreements or the
conduct of the contractors.
Item
6. Exhibits.
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Exhibit No.
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|
Description
|
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10.1
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Promissory
Note
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31.1
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Certification
of Chief Executive Officer
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31.2
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Certification
of Chief Financial Officer
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32
|
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Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of
2002
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SIGNATURES
In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
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POKER
MAGIC, INC.
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/s/ Douglas Polinsky
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Douglas
Polinsky
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Chief
Executive Officer
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Dated: August
14, 2009
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/s/ Joseph A. Geraci, II
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Joseph
A. Geraci, II
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Chief
Financial Officer
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Dated: August
14, 2009
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INDEX
TO EXHIBITS FILED WITH THIS REPORT
|
Exhibit No.
|
|
Description
|
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10.1
|
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Promissory
Note
|
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31.1
|
|
Certification
of Chief Executive Officer
|
|
31.2
|
|
Certification
of Chief Financial Officer
|
|
32
|
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of
2002
|