UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For
the fiscal year ended December 31, 2008
or
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For
the transition period from _______________________ to
___________________
Commission
File Number 0-16686
POKER
MAGIC, INC.
(Exact
name of registrant as specified in its charter)
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Minnesota
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20-4709758
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(State
of incorporation)
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(I.R.S.
Employer Identification No.)
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130
West Lake Street, Suite 300
Wayzata,
Minnesota
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55391
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (952) 473-3442
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Securities
registered pursuant to Section 12(b) of the Act:
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Title
of Each Class
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Name
of Each Exchange on which Registered
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Securities
registered pursuant to Section 12(g) of the Act:
Common
stock, $0.001 par value per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. o
Yes x No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. o
Yes x No
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 the filing
requirements for the past 90 days. x
Yes o No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
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
definition of “large accelerated filer,” “accelerated filer,” “non-accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one)
Large
accelerated filer o Accelerated
filer o Non-accelerated
filer o Smaller
reporting company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule12b-2
of the Act). o
Yes x No
The
aggregate market value of the voting stock held by persons other than officers,
directors and more than 5% shareholders of the registrant as of June 30, 2008
was $1.45 million, based on the most recent sales price of the common stock of
Company ($0.25 per share) in private transactions at such date (n.b., the common
stock of the Company was not publicly quoted or listed for trading on such
date). As of March 13, 2009, there were 8,900,724 shares of the
issuer’s common stock, $0.001 par value, outstanding.
DOCUMENTS
INCORPORATED IN PART BY REFERENCE
None.
Poker
Magic, Inc.
Form
10-K
Table
of Contents
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Page
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PART
I
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Item
1.
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Business
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1
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Item
1A.
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Risk
Factors
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7
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Item
1B.
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Unresolved
Staff Comments
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10
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Item
2.
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Properties
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11
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Item
3.
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Legal
Proceedings
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11
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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11
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PART
II
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Item
5.
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Market
for Registrant’s Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
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12
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Item
6.
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Selected
Financial Data
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12
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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13
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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17
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Item
8.
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Financial
Statements and Supplementary Data
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17
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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31
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Item
9AT.
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Controls
and Procedures
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31
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Item
9B.
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Other
Information
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32
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PART
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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33
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Item
11.
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Executive
and Director Compensation
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34
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters
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35
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Item
13.
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Certain
Relationships and Related Transactions and Director
Independence
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36
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Item
14.
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Principal
Accountant Fees and Services
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36
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PART
IV
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Item
15.
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Exhibits
and Financial Statement Schedules
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37
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Signatures
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38
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PART
I
Overview
Poker
Magic, Inc. (“Poker Magic,” the “Company” or “we”) is a Minnesota corporation
that was incorporated in January 2006. We are a development-stage company
focused on promoting and placing our Winner’s Pot Poker game online, into
casinos and entertainment facilities country-wide, including those located in
Native American tribal lands. We are seeking, however, to expand the
number of products or services that we offer in the gaming
industry. 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.”
On March
10, 2006, we entered into an Asset Purchase Agreement with Select Video, Inc., a
Delaware corporation. Under the terms of the Asset Purchase Agreement, we
acquired substantially all of the assets of Select Video, Inc., including the
following patents and trademarks:
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United
States patent number 5,839,732, issued on November 24, 1998, entitled
“Method of playing a Casino Poker
Game”
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United
States Trademark (registered on the supplemental register) for the mark
“WINNER’S POT POKER,” registration number 2,172,043, dated July 7, 1998,
and
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United
States Trademark (registered on the supplemental register) for the mark
“POKER MAGIC,” registration number 3,272,173 dated July 31,
2007.
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In
consideration of such assets, we issued Select Video an aggregate of 3,022,991
shares of our common stock, and agreed to pay Select Video a five percent
royalty on gross proceeds we generate from the sale or license of products using
the acquired assets relating to Winner’s Pot Poker.
On
December 26, 2007, we entered into a 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 Poker Pot 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 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
suppliers (CSI), which waiver permitted us to legally license to Bally’s Park
Place 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 on June 26, 2008. Under the amended license agreement, Bally’s
Park Place pays us a license fee in the amount of (i) $475 per month for the
right to the use of our Winner’s Pot Poker game in the Atlantic City casinos for
a full week during that month, and (ii) $200 per month for the right to the use
of our Winner’s Pot Poker game in the Atlantic City casinos on weekends only
during any month. The amendment currently contemplates the licensure
of only two Winner’s Pot Poker game units—one for full-week use and the other
for 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. Currently, Bally’s is utilizing both the full week
game and the weekend game.
Business
Model
We intend
to continue to market and license our current table game, “Winner’s Pot Poker,”
to online, casino and entertainment facilities and operations for a licensing
fee. Depending on the particular features of any gaming products or services
that we subsequently develop or acquire, we may license such products or
services, or certain aspects thereof. By relying on a licensing model that
relies primarily on intellectual property, we hope to maximize potential revenue
streams while minimizing the amount of capital that must be invested to operate
the business. This differs from a more traditional gaming and entertainment
product model that focuses on electronic gaming machines or boxes that are
subject to more stringent regulatory approval processes, and which is therefore
more capital intensive.
Our goal
is essentially to capture a small piece of the gaming market. Currently, there
are approximately 1,500 casinos and gaming facilities, including pari-mutuel,
casino-cruises, dog tracks, racinos and horse tracks, in operation in 47 states
within the United States (World Casino Directory).
Legalized gaming has undergone tremendous growth in the past decade, with the
gaming industry producing gross revenues in 2007 of approximately $93.8 billion
compared to $50.9 billion in 1997, an 84% increase. During 2007,
Americans spent more than $252 million on organized poker in Nevada and New
Jersey, the two largest commercial casino states, which represents a 5.9%
increase over 2006 (American
Gaming Association). The game “Winner’s Pot Poker” is our initial product
offering to the growing gaming industry.
Products
and Services
Winner’s
Pot Poker is a five-card stud poker game in which a dealer deals each player,
and the dealer him or herself, two cards face down and three cards face up. Each
player “antes” before the deal. After the first three cards are dealt, each of
the players may fold or may place a “bet wager” in an amount equal to
the ante. After the fourth card is dealt, each of the remaining players has
a choice between folding or placing a second bet, a “double wager,” equal
to twice the ante. The
dealer may not fold. After the last card is dealt, the hands are compared and
the winning hand takes a predetermined percentage of the total bets and antes
made in the course of the game.
In
addition, each player is entitled to place an optional bonus bet known as the
“jacks plus” bet. The “jacks plus” bet stays in play allowing the player to win
even if (s)he has folded her/his poker hand. A player wins a “jacks plus” bonus
wager if the player's hand contains a pair of jacks or better regardless of the
ultimate winning hand. By placing a “jacks plus” bet, a player has the
opportunity to win even if (s)he has folded her/his poker hand earlier in the
game.
The game
is played with up to six players and a dealer who is a “house” employee, using a
standard 52-card “poker” deck. A winning hand is determined using standard poker
rankings. In this method for playing the game, after the first three cards are
dealt, each player betting places a wager equal to the ante amount for that
hand. All players place the same ante amount.
The
dealer then deals, to each player and to the dealer, one card from the
poker deck. Each player has a choice, after each portion of the poker hand
is dealt, to fold (in which case that player’s placed wager is surrendered),
or to wager an additional amount (in which case (s)he continues playing the
game). The dealer then deals a final card from the poker deck to each
player, and to him or herself, to complete the round of play. The hands of
the dealer and the remaining players are then examined in order to determine the
holder of the hand having the highest poker rank.
The
player that holds the highest ranking hand is awarded a predetermined percentage
of the sum of all wagered amounts. This predetermined percentage may for example
be 90%, in which case the remaining 10% is given to the house. Because the
dealer is required to wager the full amount at the beginning of the game, and is
not given an opportunity to fold, the dealer has no opportunity to use strategy
in order to limit the dealer’s losses where the dealer holds a bad hand. That
limitation is perceived by players in the game as an advantage in their favor.
Also, the players’ opportunity to win the remaining players’ first and second
bets also provides impetus for new players to play the game.
Competition
There are
a number of domestic and international businesses which we compete against. We
believe that our ability to compete effectively will be based on a number of
factors, including but not limited to our ability to:
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Develop
or acquire new games or technologies, or rights to new intellectual
property that may be used in the development of new
games
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Obtain
additional state and other jurisdictional regulatory
approvals
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Obtain
floorspace for our games in casinos and entertainment facilities,
primarily through marketing and sales and relationship-building
efforts
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Satisfy
players with the playing experience of our games,
and
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Protect
our intellectual property against infringing
parties.
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We expect
that we will face intense competition due to the number of game machine and game
play providers, the limited number of casinos and jurisdictions in which they
operate, and the continuous introduction of new products into the market. We
view our competition generally as any other business seeking floorspace at a
casino or entertainment facility at which gaming activities may be conducted,
whether that floorspace be sought for slot machines (or other terminal or
box-oriented games) or table games. In this regard, our anticipated competitors
include gaming companies such as Shuffle Master and Progressive, and also
include the licensors of various intellectual properties such as Multimedia
Games. Most, if not all, of our competitors are larger than us and
have significantly greater resources than we do. Competitive factors that we
expect will critically affect our business include the continuity of
relationships which our marketing and sales agents have at casinos and
entertainment facilities, and the popularity of our games and related offerings
in general. Finally, 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.
Regulation
General. 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, with the extended term set
to expire on July 24, 2009.
In
addition, 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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Casino
service industry (CSI) supplier license issued by the New Jersey Casino
Control Commission (described
above)
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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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Registration
with the Nevada Gaming Commission as a publicly traded
company
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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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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
mentioned in the “Overview” section above, we entered into a License Agreement
with Bally’s Park Place, Inc., a New Jersey corporation, in December 2007 and
amended our License Agreement in June 2008. As our game began being
played at Bally’s, we became subject to federal and state laws and regulations
as summarized below.
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.
New Jersey State Laws and
Regulations. The manufacture, distribution and operation of gaming
machines and other aspects of casino gaming in New Jersey are subject to strict
regulation pursuant to the New Jersey Casino Control Act and the regulations
promulgated thereunder (collectively, referred to as the “New Jersey Act”). The
New Jersey Act created the New Jersey Casino Control Commission (the “New Jersey
Commission”) and the New Jersey Division of Gaming Enforcement (the “New Jersey
Division”). The New Jersey Commission is authorized to decide all license
applications and other matters and to promulgate regulations under the New
Jersey Act. The New Jersey Division is authorized to investigate all license
applications, make recommendations to the New Jersey Commission, and to
prosecute violations of the New Jersey Act.
Under the
New Jersey Act, a company must be licensed as a gaming-related casino service
industry (CSI) supplier, or fulfill other requirements, in order to license
authorized games to New Jersey casinos. In its discretion, the New Jersey
Commission may permit an unlicensed applicant for a CSI license to transact
business with New Jersey casinos prior to licensure. First, however, the
New Jersey Commission must have determined that the unlicensed entity’s
application was complete. Then, a casino that desires to transact business with
the unlicensed application must obtain the approval of the New Jersey Commission
for each business transaction in which they seek to engage by filing a petition
with the New Jersey Commission (a “transactional waiver petition”). The
transactional waiver petition must demonstrate that good cause exists for
granting such petition. The New Jersey Commission is not permitted to grant a
transactional waiver petition if the New Jersey Division objects to the
petition. The New Jersey Commission has deemed our application complete and has
granted permission for us to conduct business under the current license
agreement with Bally’s Park Place, Inc.
In
connection with our license application, the New Jersey Division conducted an
investigation of us as the applicant and our individual qualifiers to determine
suitability for licensure. In order for a CSI license to be issued by the New
Jersey Commission, we had to demonstrate, by clear and convincing evidence, our
good character, honesty and integrity, financial stability, integrity and
responsibility.
The New
Jersey Commission has broad discretion regarding the issuance, renewal,
suspension or revocation of CSI supplier licenses. If our CSI supplier license
application is denied, we will not be able to transact business with New Jersey
casinos. There is no guarantee that we will be granted an initial license or
that, following the issuance of an initial CSI license or any renewal thereof,
we will continue to be granted renewals of the license. The New Jersey
Commission may impose conditions on the issuance of a license. In addition, the
New Jersey Commission has the authority to impose fines or suspend or revoke a
license for violations of the New Jersey Act, including the failure to satisfy
applicable licensure requirements. A CSI supplier license is issued for an
initial period of two years and is thereafter renewable for four-year
periods.
The New
Jersey Commission has temporarily adopted new rules and amendments
governing the implementation of Winner’s Pot Poker in Atlantic City
casinos. As drafted, the amendments and rules add Winner’s Pot Poker to the list
of authorized table games in New Jersey, govern the physical characteristics of
the Winner’s Pot Poker layout, define the card deck for use with Winner’s Pot
Poker, specify the terms of the use of the cards during Winner’s Pot Poker, and
contain technical proposals governing the operation of Winner’s Pot
Poker.
Nevada State Laws and Regulations.
The sale and distribution of casino games in Nevada is subject to:
(i) Nevada state laws; (ii) local laws; (iii) the regulations and
ordinances of the Nevada Gaming Commission; (iv) the regulations and ordinances
of the Nevada State Gaming Control Board; and (v) various county and
municipal regulatory authorities (collectively, the “Nevada Gaming
Authorities”). The laws, regulations and ordinances of the Nevada Gaming
Authorities address the responsibility, financial stability, character and other
relevant characteristics of gaming equipment manufacturers, distributors and
operators as well as those persons with a financial interest in such gaming
operations. The Nevada Gaming Authorities have enacted such laws, regulations
and ordinances in order to strictly regulate all persons, locations, practices,
and activities related to the operation of licensed gaming devices and
establishments in order to prevent cheating and fraudulent practices, and in
order to maintain the effective control over the financial practices of
licensees of the Nevada Gaming Authorities.
To date,
the Company has not registered with the Nevada Gaming Commission as a publicly
traded company. Nevertheless, the Company anticipates registering with such
Commission and thereafter will likely be required to periodically submit
detailed financial and operating reports to the Commission, and to furnish any
other information as required by the Commission. In addition, any licenses
granted by the Nevada Gaming Authorities will require periodic payments of fees
and taxes and will be limited in their transferability. Upon receiving a
license from the Nevada Gaming Authorities, our officers, directors and key
employees may be required to file applications with the Nevada Gaming
Authorities and may be required to receive licenses suitable for
them.
Any
gaming devices sold or otherwise distributed for use or play in Nevada must be
manufactured by licensed manufacturers and distributed or sold by licensed
distributors. All gaming devices manufactured for use or play in Nevada must be
approved by the Nevada Gaming Commission before distribution or exposure for
play. The approval process for gaming devices includes rigorous testing by the
Nevada State Gaming Control Board, a field trial, and a determination as to
whether the gaming device meets strict technical standards set forth in the
regulations of the Nevada Gaming Commission.
Since the
Company is not subject to the Nevada Gaming Authorities at this time, we are not
aware of any potential objections which the Nevada Gaming Authorities may have
to the Company’s products. However, upon submission of an application and the
requisite paperwork to the Nevada Gaming Authorities, the Company, its products,
its officers, directors, and key employees, and anyone having a material
relationship or involvement with us or any gaming products may be subject to
investigation by the Nevada Gaming Authorities, and any applications for
licensure may be denied based upon information discovered during any background
investigations. The Nevada Gaming Authorities may deny applications for
licensing for any cause they deem reasonable.
Minnesota State Laws and
Regulations. In order to operate a gambling-related business
in Minnesota, a license, issued by the Gambling Control Board is
required. The Gambling Control Board is authorized to regulate lawful
gambling to ensure it is conducted in the public interest, issue, suspend and
revoke licenses to organizations, distributors, and manufacturers, promulgate
rules, register gambling equipment, impose civil penalties, and investigate
alleged violations. The Gambling Control Board conducts background
investigations and criminal investigations relating to lawful gambling, the
Minnesota Lottery, pari-mutuel horse racing, and tribal reservation
gambling. In order to be issued a license to manufacture or
distribute gambling equipment or devices under Minnesota law, the applicant must
first submit a complete application to the Gaming and Enforcement
Division. Once the Gaming and Enforcement Division successfully
completes its investigation of the applicant’s personal, business and financial
relationships and associations and determines that the applicant meets the
requirements for a license, and ensures public safety and integrity in the
industry, as required by state law, a license, renewable annually, is issued by
the Gambling Control Board.
Currently,
we have not submitted an application to the Gaming and Enforcement Division to
operate a gambling-related business in Minnesota. Nonetheless, we
anticipate submitting an application during 2009 which will require us to
provide detailed financial and operating reports and to furnish any other
information as required to receive approval for licensure. Submission
of the license application requires prepayment to cover the related
investigation expenses.
Federal Regulation. The most
important pieces of federal legislation potentially affecting our business will
be the Indian Gaming Regulatory Act of 1988 (“IGRA”). The Company does not,
however, expect this federal gaming law to become a primary concern until such
time as the Company attempts to license its games to gaming establishments
located in tribal lands, if ever.
Native
American gaming is governed by the IGRA, which also established the National
Indian Gaming Commission, or NIGC, and granted the NIGC regulatory powers over
certain aspects of Native American gaming. The IGRA classifies games that may be
played on Native American lands into three categories, each of which is subject
to different regulations, as follows:
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Class
I gaming, which includes traditional Native American social and ceremonial
games. Class I gaming is regulated exclusively at the Native American
tribal level.
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Class
II gaming, which includes bingo and, if played at the same location where
bingo is offered, pull tabs and other games similar to bingo. Class II
gaming is regulated by individual Native American tribes, with the NIGC
having oversight of the tribal regulatory process. States that allow bingo
and games similar to bingo to be conducted by any other entity or for any
other purpose, such as bingo at charities or schools, may not regulate
Class II gaming, and therefore receive no tax revenues from income the
tribes derive from Class II gaming.
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Class
III gaming, which includes all other forms of gaming that are not included
in either Class I or Class II, including slot machines and most table
games. Class III gaming may be conducted only pursuant to contracts called
“compacts,” which are negotiated between individual states and individual
Native American tribes located within that state, and subsequently
approved by the U.S. Bureau of Indian Affairs. The compacts typically
include provisions entitling the state to receive revenues at mutually
agreed-upon rates from the income a tribe derives from Class III gaming
activities.
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In the
event our Winner’s Pot Poker game is played at Native American gaming
facilities, it will be a Class III table game under the IGRA.
Tribal-State Compacts. Native
American tribes cannot offer Class III gaming unless, among other things, they
are parties to compacts with the states in which they operate. The tribal-state
compacts typically include provisions entitling the state to receive revenues
from the income a tribe derives from Class III gaming activities. Although
compacts are intended to document the agreement between the state and a tribe
relative to permitted Class III gaming operations, they are agreements, and can
be subject to interpretive and other ambiguity and disputes. This fact may place
into question the desire of Native American gaming facilities to accept the play
of our games.
Native American Regulation of
Gaming; Sovereign Immunity. The IGRA requires that Native American tribes
adopt and submit for NIGC approval the ordinances that regulate tribes’ conduct
of gaming. While these ordinances vary from tribe to tribe, they commonly
provide for the following:
|
|
·
|
Native
American ownership of the gaming
operation
|
|
|
·
|
Establishment
of an independent tribal gaming
commission
|
|
|
·
|
Use
of gaming net revenues for Native American government, economic
development, health, education, housing or related
purposes
|
|
|
·
|
Independent
audits, including specific audits of all contracts for amounts greater
than $25,000
|
|
|
·
|
Native
American background investigations and
licenses
|
|
|
·
|
Adequate
safeguards for the environment, public health and safety,
and
|
|
|
·
|
Dispute-resolution
procedures.
|
Any one
or more of these typical ordinances may represent barriers to the entry of our
games in Native American gaming facilities or, even if we are able to license
gameplay to a Native American gaming facility, may result in a less advantageous
stream of licensing revenue from those operations.
In
addition, Native American tribes generally enjoy sovereign immunity from suit
similar to that of the states and the United States. In order to sue a Native
American tribe (or an agency or instrumentality of a Native American tribe), the
Native American tribe must have effectively waived its sovereign immunity with
respect to the matter in dispute. In any contracts we may enter into with Native
American customers, we will likely attempt to provide that any dispute regarding
interpretation, performance or enforcement shall be submitted to, and resolved
by, arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association and that any award, determination, order or
relief resulting from such arbitration is binding and may be entered in any
federal court having jurisdiction. Even if we are able to effectively bargain or
negotiate for such a provision, we could be precluded from judicially enforcing
any rights or remedies against a tribe without a waiver, limited or otherwise,
of the tribe’s sovereign immunity. These rights and remedies include, but are
not limited to, our right to enforce any arbitration decision in our
favor.
In
general, we have little control over the various licensing, registration and
suitability review processes and outcomes in the various states. It
is possible that we may not be able to obtain the required or desired licenses,
registrations or approvals suitably fast enough to exploit potential
opportunities with casinos or gaming establishments. It is also
possible that our applications for licenses or renewals, regulations or findings
of suitability may be rejected by state regulatory authorities.
Research
and Development
To date,
we have relied on outside parties for game development. Currently, we do not
have employees with experience in game development or have plans to hire
employees focused on research and development activities. In
addition, we do not presently expect to incur any material capital expenditures
during the next 12 months for game development purposes. Accordingly,
we plan to develop new gaming products either by utilizing the services of
outside developers, sales agents and regulatory and compliance service providers
or through acquisition of existing games or devices. The limited
availability of funds may hinder the Company’s ability to acquire the rights to
new games and market them adequately.
Intellectual
Property
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. 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 unissued patents, trademarks or copyrights.
Our
business model contemplates our licensing of intellectual property rights. We
expect that this will be accomplished pursuant to terms and conditions of
license agreements (or agreements differently captioned but containing licensing
provisions). To date, our efforts have been focused on entering into such
agreements with gaming establishments in Minnesota and New Jersey, including
Bally’s Park Place, Inc., which is an affiliate of Harrah’s Entertainment. As
indicated elsewhere in this filing, we have entered into a License Agreement
with Bally Park Place, Inc., a New Jersey corporation, pursuant to which we have
granted Bally’s Park Place, Inc. a non-exclusive license to use Winner’s Pot
Poker at two different gaming locations on a trial basis. If we are able to
consummate a definitive (non-trial) agreement with Bally Park Place, Inc., or
Harrah’s Entertainment or a wider group of affiliates of Harrah’s Entertainment,
and the results of our game’s play are satisfactory, we expect that we would
then attempt to expand the scope of the license (or enter into additional
agreements) with other Harrah’s Entertainment affiliates. Harrah’s
Entertainment, indirectly through subsidiaries and other affiliates operates
approximately 40 casinos across the United States. Thereafter, and again
assuming that the results of gameplay of our Winner’s Pot Poker are commercially
satisfactory, we would intend to use that record of success as a means to enter
into similar licensing arrangements with owners or operators of other gaming
establishments.
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.
Our
ability to enforce our intellectual-property rights is subject to general
litigation risks. Typically, when a party seeks to enforce its
intellectual-property rights, it is often subjected to claims that the
intellectual-property right is invalid, or is licensed to the party against whom
the claim is being asserted. We cannot be certain that our intellectual-property
rights will not be infringed upon, that others will not develop products in
violation of our intellectual-property rights, or that others may assert,
rightly or wrongly, that our intellectual-property rights are invalid or
unenforceable. In instances where we will rely on trade secrets for the
protection of our confidential and proprietary business information, we cannot
be certain that we would have adequate remedies for any such breach or that our
trade secrets will not otherwise become discovered or independently developed by
competitors. In general, defending intellectual-property rights is expensive and
consumes considerable time and attention of management. The Company’s
involvement in intellectual-property litigation would likely have a materially
adverse effect on the Company, even if the Company were ultimately successful in
defending its intellectual-property rights.
Employees
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.
You
should consider the following risk factors, in addition to the other information
presented or incorporated by reference into this Annual Report on Form 10-K, in
evaluating our business and your investment in us.
We
have no operating history upon which to evaluate our business, and we are
subject to all of the risks and uncertainties frequently encountered with
start-up enterprises.
The
Company was founded as a Minnesota corporation in January 2006. As a result, we
have no significant operating history upon which to evaluate our likelihood of
success. Currently, we have only one customer, Bally’s Park Place, Inc., which
began use of one full-week unit of our Winner’s Pot Poker game in June of 2008
on a month-to-month basis, and has committed to begin use of one weekend-only
game in early 2009. Moreover, our business is subject to all of
the risks and uncertainties inherent in establishing a new business. Our results
of operations for the years ended December 31, 2007 and 2008 reflect net
losses of $199,574 and $282,719, respectively. Our operations may not
be successful, and we may be unable to generate sufficient revenues or achieve
profitability. In sum, our likelihood of success must be considered in light of
the problems, expenses, difficulties, complications and delays frequently
encountered in connection with the establishment of a new business, and the
competitive environment in which we operate.
We
will need to raise additional capital in the future to fund our operations, and
such capital may not be available to us in sufficient amounts or on acceptable
terms.
We will
require additional sources of financing before we can generate revenues needed
to sustain operations. In particular, management believes that our current cash
is sufficient to continue operations through June 30, 2009. Our operations, as
currently conducted and anticipated to be conducted, generate costs related to
the marketing and distribution of our current products, and ongoing personnel,
legal and accounting expenses. Even if we successfully avail ourselves of
current or future opportunities, additional financing may be required to expand
or continue being involved in such opportunities.
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 adequate funds are not available on acceptable terms, we
may be unable to fund the expansion and growth of our business.
Our
games and any services we may develop may not be accepted, or continue to be
accepted, by gaming facilities or consumers.
Our
games, even if successfully developed and tested, will be competing against
existing games and products for floorspace in the gaming marketplace. There can
be no assurance that gaming facilities will agree to license or continue to
license our games for play at their facilities, or license any services we may
develop for use in the gaming industry. Moreover, even if
successfully developed, tested and marketed to gaming facilities, our games will
be competing for player attention against existing games and products that are
likely to be more proven in their ability to attract players. There can be no
assurance that the gaming-market consumers will accept and play our games or
other games using any services we may provide.
Before
our games and any gaming-related services we may offer may be used commercially
in various jurisdiction, both our Company, including our principal shareholders,
officers, directors, and key employees, and the applicable games (and services)
themselves must be reviewed by appropriate gaming authorities as part of a
licensing process.
Before
our games may be played at any gaming facilities (other than during any testing
period permitted by applicable regulations), we and our games and any
gaming-related services we offer must be licensed by the appropriate gaming
authority or authorities. Generally, the process for licensure in the various
states is complex and time consuming, and there is no guarantee that we or our
games and services will be approved. Furthermore, the financial situation of the
Company, as well as the backgrounds of its officers, directors, key employees,
and shareholders holding five percent or more of our capital stock will also be
reviewed as part of the licensing process. We have little control over the
outcome of any license-application process, and our failure or the failure of
any of the other above-indicated licensees, for any reason, to obtain licenses
that may be necessary for operation in any state or states would likely have a
negative impact on our business and prospects. Moreover, any approval of one of
our games (or services) does not ensure that we will later be able to receive
the necessary licenses for future games or services that we may
develop.
The
gaming industry is heavily regulated and changes in regulation by gaming
authorities may adversely impact our ability to operate in our existing markets
or expand our business.
The
manufacture and distribution of gaming machines, development of systems and the
conduct of gaming operations are subject to extensive federal, state, local and
foreign regulation by various regulatory authorities. Our ability to continue to
operate in certain jurisdictions or our ability to expand into new jurisdictions
could be adversely affected by: (i) delays in adopting legislation to permit or
expand gaming in new and existing jurisdictions; (ii) unfavorable public
referenda, such as referenda to increase taxes on gaming revenues; (iii)
unfavorable legislation affecting or directed at manufacturers or gaming
operators; (iv) adverse findings of non-compliance with applicable governmental
gaming regulations, (v) delays in approvals from regulatory agencies; a
limitation, conditioning, suspension or revocation of any of our gaming
licenses; (vi) unfavorable determinations or challenges of suitability by gaming
regulatory authorities with respect to our officers, directors, significant
shareholders or key personnel; (vii) the adoption of new laws and regulations,
or the repeal or amendment of existing laws and regulations; and (viii) the
legalization or deregulation of other forms of gaming that could attract
attention away from our games.
The
Company currently has only one customer for the licensure of its sole existing
product.
The
Company currently has only one viable gaming product, Winner’s Pot Poker, that
may be licensed (subject to meeting applicable federal, state and local
regulatory requirements) to gaming establishments. As of the date of this
filing, the Company has only one agreement with one customer, Bally’s Park
Place, Inc., respecting that corporation’s Park Place & Boardwalk locations,
for the license of such game. The Company may not be able to secure a casino
service industry supplier license for its Winner’s Pot Poker game by the Casino
Control Board in the State of New Jersey. In addition, we may not be
able to maintain our license fee arrangement with Bally’s Park Place. The loss
of such contract could, in the absence of other opportunities, significantly and
negatively affect the Company’s business prospects.
We
lack product and business diversification, which creates a risk that our future
revenues and earnings will be susceptible to fluctuations.
Our
primary business activity is the license of our Winner’s Pot Poker game to
casinos and entertainment facilities. If we are unable to diversify
our business products and services through development or acquisition of
additional gaming devices or services, we may experience significant
fluctuations in our revenues and earnings. Such fluctuations could result from
legal or regulatory changes in one or more jurisdictions, changes in economic
conditions in the jurisdictions where we license our Winner’s Pot Poker game, or
result from other risks or adverse events befalling the Company. Our
susceptibility to fluctuations or the actual happening of significant
fluctuations in our revenues or earnings could cause our Company to be perceived
as a less stable and therefore less attractive investment in general, which
would likely negatively affect our ability to obtain additional financing an
acceptable terms.
General
economic conditions affect our industry, and accordingly, our results of
operations could be adversely affected by a poor general economic
conditions.
The
United States experienced a significant economic slowdown in 2008 which is
predicted to continue well into 2009. Illustrative of the effect that
the general economy has had on the gaming industry in general, both the Nevada
Gaming Control Board and the New Jersey Casino Control Commission revealed that
gaming revenues fell nearly 19% in December 2008 compared to gaming revenues in
December 2007. This marks the 12th straight month of revenue decline
in Nevada and an overall revenue reduction of 7.6% in New Jersey during
2008. Due to the presently unsettled state of the financial markets
and the well publicized poor economic conditions in the United States, we expect
that consumer discretionary spending on entertainment in general and
gaming-related activities in particular will decrease during 2009. As
a consequence, we also expect that casinos and other gaming establishments
generally will be less interested in expanding the range and number of games
offered in their venues. If poor economic conditions persist, it is
possible that our efforts to generate interest in our Company’s games will be
adversely affected and, ultimately, may not succeed. In such case, we
will likely be unable to place our games in the significant number of venues
required for us to attain profitability and our entire business and viability
may be threatened.
Our
intellectual property protections may be insufficient to properly safeguard our
technology.
The
gaming industry is constantly employing new technologies in both new and
existing markets. We rely on patents to protect our products and will continue
to apply for patents protecting our technologies. Notwithstanding these
safeguards, our competitors may still be able to obtain our technology or
imitate our products. Furthermore, others may independently develop products
similar or superior to ours.
The
intellectual property rights of others may prevent us from developing new
products or entering new markets.
The
gaming industry is characterized by the rapid development of new technologies,
which requires us to continuously introduce new products using these
technologies and innovations, as well as to expand into new markets that may be
created. Therefore, our success depends in part on our ability to continually
adapt our products and systems to incorporate new technologies and to expand
into markets that may be created by new technologies. However, to the extent
technologies are protected by the intellectual property rights of others,
including our competitors, we may be prevented from introducing products based
on these technologies or expanding into markets created by these technologies.
If the intellectual property rights of others prevent us from taking advantage
of innovative technologies, our financial condition, operating results or
prospects may be harmed.
We
operate in an extremely competitive environment.
The
market for gaming products and services is a difficult one in which to compete
since there are a number of established, well-financed and well-known companies
that will compete with our planned products. The development of a successful new
game or gaming product by a competitor could adversely affect the market demand
for our games or services and impair our ability to generate
revenues.
Our
inability to protect our intellectual property could impair our ability to
compete.
Our
success and ability to compete depend in significant part upon proprietary
intellectual property. Our proprietary intellectual property currently consists
of certain patent, trademark, copyright and other intellectual-property rights
we obtained pursuant to our Asset Purchase Agreement with Select Video. We
currently rely and intend to rely in the future on a combination of patent,
copyright, trademark, and nondisclosure agreements to protect our proprietary
and confidential information. Nevertheless, if any such agreements are breached
or our rights are infringed, we may not have adequate remedies available to
us.
We
are highly dependent on the services provided by certain executives and key
personnel.
Our
success depends in significant part upon the continued service of certain senior
management and other key personnel. In particular, the Company is materially
dependent upon the services of Douglas M. Polinsky, our Chief Executive Officer
and Chairman and Joseph A. Geraci, II, our Chief Financial Officer and a
director of the Company. We do not currently have employment agreements with the
management of the Company, nor do we expect to enter into employment agreements
with any such individuals.
Our
officers and directors, together with certain affiliates, possess significant
voting power with respect to our common stock, which could limit your influence
on corporate matters.
Our
officers and directors collectively possess beneficial ownership of 2,894,500
shares of our common stock, which currently represents approximately 32.5% of
our common stock. As a result, our directors and officers, together with other
significant shareholders, will have the ability to greatly influence, if not
control, our management and affairs through the election and removal of our
directors, and all other matters requiring shareholder approval, including the
future merger, consolidation or sale of all or substantially all of our assets.
This concentrated control could discourage others from initiating any potential
merger, takeover or other change-of-control transaction that may otherwise be
beneficial to our shareholders. Furthermore, this concentrated control will
limit the practical effect of your participation in Company matters, through
shareholder votes and otherwise.
Our
articles of incorporation grant our board of directors the power to designate
and issue additional shares of common and/or preferred stock.
Our
authorized capital consists of 250,000,000 shares of capital stock. Unless
otherwise specifically so designated upon issuance, all shares of capital issued
by the Company shall be common stock. Pursuant to authority granted by our
articles of incorporation, our board of directors, without any action by our
shareholders, may designate and issue shares in such classes or series
(including other classes or series of preferred stock) as it deems appropriate
and establish the rights, preferences and privileges of such shares, including
dividends, liquidation and voting rights. The rights of holders of other classes
or series of stock that may be issued could be superior to the rights of holders
of our common shares. The designation and issuance of shares of capital stock
having preferential rights could adversely affect other rights appurtenant to
shares of our common stock. Furthermore, any issuances of additional stock
(common or preferred) will dilute the percentage of ownership interest of
then-current holders of our capital stock and may dilute the Company’s book
value per share.
There
is currently no trading volume in our common stock, and we anticipate that our
common stock will be thinly traded, which may make it difficult to sell shares
of our common stock.
As a new
public reporting corporation, our common stock currently has no trading
activity. We expect that one or more registered broker-dealers will soon
complete an application process with FINRA to serve as market makers for our
common stock on the OTC bulletin board, which process will eventually conclude
with the posting of an opening bid offer on our common
stock. Nevertheless, even after such event, we expect that our common
stock will generally remain thinly traded. A low trading volume will generally
make it difficult for our shareholders to sell their shares as and when they
choose. Furthermore, low trading volumes are generally understood to depress
market prices. As a result, our shareholders may not always be able to resell
shares of our common stock publicly at the time and prices that they feel are
fair or appropriate.
Our
common stock, if it begins trading, will likely qualify as a “penny stock,”
which may make it difficult to sell shares of our common stock.
Our
common stock, if it ever is listed on a quotation system and traded, will likely
be a “penny stock” subject to the requirements of Rule 15g-9 under the
Securities and Exchange Act of 1934. Under this rule, broker-dealers who sell
penny stocks must provide purchasers of these stocks with a standardized
risk-disclosure document prepared by the SEC. Under applicable regulations, our
common stock will generally remain a “penny stock” until and for such time as
its per-share price is $5.00 or more (as determined in accordance with SEC
regulations), or until we meet certain net asset or revenue thresholds. These
thresholds include the possession of net tangible assets (i.e., total assets
less intangible assets and liabilities) in excess of $2,000,000 in the event we
have been operating for at least three years or $5,000,000 in the event we have
been operating for fewer than three years, and the recognition of average
revenues equal to at least $6,000,000 for each of the last three years. We do
not anticipate meeting any of the foregoing thresholds in the foreseeable
future.
The
penny-stock rules severely limit the liquidity of securities in the secondary
market, and many brokers choose not to participate in penny-stock transactions.
As a result, there is generally less trading in penny stocks. If you become a
holder of our common stock, you may not always be able to resell shares of our
common stock in public broker’s transaction, if at all, at the times and prices
that you feel are fair or appropriate.
We
have no intention of paying dividends on our common stock.
To date,
we have not paid any cash dividends and do not anticipate the payment of cash
dividends in the foreseeable future. Accordingly, the only return on an
investment in shares of our common stock, if any, may occur upon a subsequent
sale of such shares.
|
ITEM
1B
|
UNRESOLVED
STAFF COMMENTS
|
None.
Office
space is currently provided to the Company by Great North Capital Corp., a
Minnesota corporation, that is beneficially owned by Douglas M. Polinsky, our
Chairman and Chief Executive Officer, at 130 West Lake Street West, Wayzata,
Minnesota. Great North Capital Corp. does not currently charge the
Company any rent for the use of the premises. The space being used by
the Company is minimal with an immaterial value of rent expense. The
premises are adequate for the Company’s current and anticipated future
use. The Company does not currently lease or own any real
property.
During
the past five years, no officer, director, control person or promoter of the
Company has been involved in any legal proceedings respecting: (i) any
bankruptcy petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the bankruptcy or
within two years prior to that time; (ii) any conviction in a criminal
proceeding or being subject to a pending criminal proceeding (excluding traffic
violations and other minor offenses); (iii) being subject to any order,
judgment, or decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of business,
securities or banking activities; or (iv) being found by a court of competent
jurisdiction (in a civil action), the commission or the Commodity Futures
Trading Commission to have violated a federal or state securities or commodities
law, and the judgment has not been reversed, suspended, or vacated.
|
ITEM
4
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
None.
PART
II
|
ITEM
5
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
Market
for Common Equity
Our
common stock is not and has never been publicly traded. As such, there is
currently no market for our common stock. Spartan Securities Ltd. has submitted
a Rule 15c2-11 application with FINRA to have our common stock listed on the OTC
Bulletin Board and we have received a tentative trading symbol (POKR.OB);
however, we cannot be certain that an active market for our common stock will
ever develop.
Holders
As of the
date of this filing, we had approximately 180 holders of record of our common
stock.
Dividends
We have
not paid any dividends on our common stock and do not anticipate paying any such
dividends in the near future. Instead, we intend to use any earnings for future
acquisitions and expanding our business. Nevertheless, at this time there are
not any restrictions on our ability to pay dividends on our common
stock.
Securities
Authorized for Issuance Under Equity Compensation Plans
As of
December 31, 2008, Poker Magic, Inc. had no outstanding options, warrants or
other rights to purchase any equity securities of the Company under any equity
compensation plan or “individual compensation arrangement” (as defined in Item
201 of Regulation S-K). Furthermore, as of the date of this filing,
the Company is not a party to any equity compensation plan, nor is the Company
obligated under any “individual compensation arrangement” to issue any options,
warrants, rights or other securities. Nevertheless, the Company is not required
by applicable state law or the listing standards of any self-regulatory agency
(e.g., the OTC Bulletin Board, NASD, AMEX or NYSE) to obtain the approval of its
securityholders prior to issuing any such compensatory options, warrants or
other rights to purchase securities of the Company.
Recent
Sales of Unregistered Securities
On
December 16, 2008, we issued a total of 40,400 shares of common stock to one
individual in consideration of consulting services rendered to the
Company. The services rendered were accounting services and such
services were valued in the aggregate at $10,100.The Company offered and sold
the shares in reliance on the exemptions from registration set forth in Section
4(2) of the Securities Act of 1933. In this regard, the Company
relied on representations from the recipient of the shares that it was (i)
acquiring the shares for investment purposes only and not with a view toward
distribution, and (ii) either alone or through a purchaser representative,
knowledgeable and experienced in financial and business matters such that it was
capable of evaluating the risks of the investment. In addition, all
certificates representing the shares offered and sold contained a restrictive
legend indicating that such shares constituted “restricted securities” under the
Securities Act of 1933.
On
December 31, 2008, we issued a total of 32,000 shares of common stock to our
Chief Executive Officer (16,000 shares) and Chief Financial Officer (16,000
shares) for officer compensation. The Company offered and sold the
shares in reliance on the exemptions from registration set forth in Sections
4(2) or 4(6) of the Securities Act of 1933. In this regard, the
recipients of the shares were (i) “accredited investors” as defined in Rule 501
under the Securities Act and (ii) executive officers of the Company and members
of the board of directors. In addition, all certificates representing
the shares offered and sold contained a restrictive legend indicating that such
shares constituted “restricted securities” under the Securities Act of
1933.
|
ITEM
6
|
SELECTED
FINANCIAL DATA
|
Not
applicable.
|
ITEM
7
|
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, filed together with
this Form 10-K.
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.
Results
of Operations
|
Item
|
|
2008
|
|
|
2007
|
|
|
%
Change
(Year Over Year)
|
|
|
%
of 2008
Net Loss
|
|
|
%
of 2007
Net Loss
|
|
|
Revenue
|
|
$ |
3,325 |
|
|
$ |
0 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
Other
Income
|
|
|
2,011 |
|
|
|
0 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
Cost
of Revenue
|
|
|
36,773 |
|
|
|
0 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
General
Operating Expenses
|
|
|
40,823 |
|
|
|
97,574 |
|
|
|
(58.2 |
)% |
|
|
14.4 |
% |
|
|
48.9 |
% |
|
Legal
and Accounting Expenses
|
|
|
139,892 |
|
|
|
56,000 |
|
|
|
149.8 |
% |
|
|
49.5 |
% |
|
|
28.1 |
% |
|
Consulting
Expenses
|
|
|
14,567 |
|
|
|
0 |
|
|
|
N/A |
|
|
|
5.2 |
% |
|
|
N/A |
|
|
Executive
Management Compensation
|
|
|
56,000 |
|
|
|
46,000 |
|
|
|
21.7 |
% |
|
|
19.8 |
% |
|
|
23.0 |
% |
|
Net
Loss
|
|
|
282,719 |
|
|
|
199,574 |
|
|
|
41.7 |
% |
|
|
N/A |
|
|
|
N/A |
|
As the
table above demonstrates, during 2008 and 2007 we had revenues of $3,325 and $0
respectively and incurred $36,773 and $0, respectively, in revenue-related
costs. During both years, 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.
During
2008 and 2007, we incurred selling, general and administrative expenses
aggregating $251,282 and $199,574 respectively, an increase of
25.9%. The increase in 2008 was primarily attributable to increased
professional expenses incurred in the course of amending our Registration
Statement on Form 10 filed with the SEC, professional consulting services
related to compliance with regulations applicable to public reporting companies,
and increased expenses incurred in the marketing of the Winner’s Pot Poker
game. The most significant components of our selling, general and
administrative expenses were (i) general operating expenses and (ii)
professional expenses for legal and accounting services. General
operating expenses aggregated to $40,823 in 2008 compared to $97,574 in 2007, a
58.2 % decrease, whereas professional expenses for legal and accounting
increased 149.8% in 2008 to $139,892 from $56,000 in 2007.
Shares
issued to our executive management personnel and consultants aggregated to
$69,879 for the year ended December 31, 2008 compared to $105,171 for the year
ended December 31, 2007, a decrease of 33.6%. Of the shares issued
during fiscal 2008, $59,879 related to shares issued to consultants and $10,000
issued to executive management compared to $59,171 issued to consultants and
$46,000 issued to executive management during fiscal 2007. During
2008 and 2007, we also recorded $38,000 and $0 in officers’ expense as
contributed capital, respectively.
During
2008, our net loss grew from $199,574 in 2007 to $282,719, an increase of
41.7%. As indicated in the table above, this increase is attributable
to our cost of revenue and increased selling, general and administrative
expenses as discussed above.
We
presently expect that compensation expense arising from share issuances to our
executive management and consultants to compensate for services rendered will
increase in 2009 over issuances in 2008 as we strive to conserve our cash
resources for other revenue-related and operating expenses anticipated in
2009. As mentioned above, we recorded an expense for our officer
compensation as contributed capital in 2008. Nevertheless, we
anticipate issuing stock in 2009 to compensate our management for the services
they render. Furthermore, 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. In
this regard, we expect that we may continue to compensate consultants with
issuance of stock.
We
anticipate that our professional expenses will decrease during fiscal 2009 since
we completed amendments to our Registration Statement in August
2008. In addition, we are in the process of developing processes
designed to minimize our professional expenses to the extent
feasible. Nevertheless, as we seek gaming regulatory compliance and
licenses, we anticipate incurring additional expenses relating to the
applications, licensing and compliance process. In fact, we expect
that future revenues that may be gained from licenses obtained in 2009 will be
completely offset by expenses relating to the application, licensing and
compliance process.
Liquidity
and Capital Resources
Net cash
used in operating activities was $179,386 in 2008 compared to $65,967 in
2007. The increase in cash used was primarily the result of payments
of legal and accounting expenses and expenses relating to our efforts to market
our Winner’s Pot Poker game.
Net cash
provided by financing activities was $287,500 in 2008 compared to $61,625 in
2007. The increase in the most recent period relates to proceeds
received from private placement sales of common stock during January and May
2008.
As of
December 31, 2008, we had $145,117 cash on hand and current liabilities of
$2,182. As of the date of this filing, our management believes we
have sufficient capital to continue operations through June
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 December 31, 2008 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 own registered
trademarks for “POKER MAGIC” and to “AC (ATLANTIC CITY) STUD POKER,” which we
also 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.
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
As
indicated above, from inception through December 31, 2008 (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,” our selling, general
and administrative expenses overall increased in 2008 over 2007 but are expected
to decrease in 2009. However, 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
Currently,
we have yet to obtain the final licensure required in the states of Nevada, New
Jersey 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:
|
|
·
|
Casino
service industry (CSI) supplier license issued by the New Jersey Casino
Control Commission (which license would be more broad and flexible than
the current transactional waiver which the Company has thus far secured
from the New Jersey Casino Control
Commission)
|
|
|
·
|
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
|
|
|
·
|
Distribution
licenses permitting us to distribute Winner’s Pot Poker game units to
casinos and gaming establishments in Minnesota,
and
|
|
|
·
|
Registration
with the Nevada Gaming Commission as a publicly traded
company.
|
In
addition, we will likely require positive results from suitability reviews
(generally focusing on financial stability, honesty, character and integrity) of
our executive management and other key personnel or significant shareholders
conducted by the Nevada Gaming Commission and similar state agencies in other
jurisdictions. We intend to continue working with the New Jersey Casino Control
Commission and other state regulatory authorities to obtain the above-described
and other registrations and licenses that we deem necessary or desirable as
market opportunities come to light.
In
general, we have little control over the various licensing, registration and
suitability review processes and outcomes in the various states. It is possible
that we may not be able to obtain required or desired licenses, registrations or
approvals suitably fast enough to exploit potential opportunities with casinos
or gaming establishments. It is also possible that our applications for
licenses, registrations or findings of suitability may be rejected by state
regulatory authorities.
Financing
As
discussed above under the caption “Liquidity and Capital Resources,” our
management believes we have sufficient capital to continue operations through
June 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 June 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.
Capital
Expenditures
The
Company did not have and does not plan to have any material commitments for
capital expenditures in 2008 or 2009. Given the Company’s business
model, investment in capital resources is not required beyond inventory of its
game, which is produced in small quantities on an as-needed basis once a license
agreement has been executed.
Going
Concern
We have
incurred operating losses, accumulated deficit and negative cash flows from
operations since January 10, 2006 (inception). As of December 31, 2008, we had
an accumulated deficit of $525,420. 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.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements, nor are we a party to any contract or
other obligation not included on its balance sheet that has, or is reasonably
likely to have, a current or future effect on our financial
condition.
Critical
Accounting Policies and Estimates
Critical
accounting policies are policies that are both most important to the portrayal
of the Company’s financial condition and results, and that require management’s
most difficult, subjective or complex judgments, often as a result of the need
to make estimates about the effect of matters that are inherently
uncertain. Our financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, or
GAAP. The application of GAAP requires that we make estimates that affect our
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. We evaluate our estimates and assumptions on
an ongoing basis. Our actual results may differ significantly from these
estimates.
A
description of the Company’s critical accounting policies that represent the
more significant judgments and estimates used in the preparation of the
Company’s financial statements is provided in Note 1, “Summary of Significant
Accounting Policies,” of the Notes to the Financial Statements included in Item
8 of this report 10-K.
|
ITEM
7A
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Not
applicable.
|
ITEM
8
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
|
Item
|
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm on Financial
Statements
|
|
|
18 |
|
|
Balance
Sheets – December 31, 2008 and December 31,
2007
|
|
|
19 |
|
|
Statements
of Operations – Years ended December 31, 2008, December 31, 2007 and
Period from January 10, 2006 (inception) to December 31,
2008
|
|
|
20 |
|
|
Statement
of Shareholders’ Equity – Years ended December 31, 2008, December 31, 2007
and Period from January 10, 2006 (inception) to December 31,
2008
|
|
|
21 |
|
|
Statements
of Cash Flows – Years ended December 31, 2008, December 31, 2007 and
Period from January 10, 2006 (inception) to December 31,
2008
|
|
|
26 |
|
|
Notes
to Financial Statements
|
|
|
27 |
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Shareholders and Board of Directors
Poker
Magic, Inc.
Wayzata,
Minnesota
We have
audited the accompanying balance sheets of Poker Magic, Inc. (a development
stage company) as of December 31, 2008 and 2007, and the related statements of
operations, shareholders' equity and cash flows for the years then ended and the
period from January 10, 2006 (inception) to December 31, 2008. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
its internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the company’s internal control
over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Poker Magic, Inc. as of December
31, 2008 and 2007 and the results of its operations and cash flows for the years
then ended and the period from January 10, 2006 (inception) to December 31,
2008, in conformity with U.S. generally accepted accounting
principles.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 6 to the
financial statements, the Company has incurred a net loss during the development
stage and requires additional working capital, which raises substantial doubt
about its ability to continue as a going concern. Management's plans
in regard to these matters are described in Note 6 as well. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/
Virchow, Krause & Company, LLP
Minneapolis,
Minnesota
March 20,
2009
Poker
Magic, Inc.
(A
Development Stage Company)
Balance
Sheets
|
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
|
|
$ |
145,117 |
|
|
$ |
37,003 |
|
|
Inventory
|
|
|
750 |
|
|
|
750 |
|
|
Prepaid
Expense
|
|
|
2,916 |
|
|
|
22,296 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
148,783 |
|
|
|
60,049 |
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
Assets, Net of Amortization
|
|
|
18,611 |
|
|
|
26,882 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
167,394 |
|
|
$ |
86,931 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$ |
2,016 |
|
|
|
20,100 |
|
|
Accrued
Royalty
|
|
|
166 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
2,182 |
|
|
|
20,100 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
2,182 |
|
|
|
20,100 |
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
Common
Stock, $.001 par value: Authorized 250,000,000 shares: Issued
and outstanding 9,267,391 and 7,664,991 shares.
|
|
|
9,267 |
|
|
|
7,665 |
|
|
Additional
Paid-in Capital
|
|
|
681,365 |
|
|
|
301,867 |
|
|
Deficit
Accumulated During the Development Stage
|
|
|
(525,420
|
) |
|
|
(242,701
|
) |
|
|
|
|
|
|
|
|
|
|
|
Total
Shareholders’ Equity
|
|
|
165,212 |
|
|
|
66,831 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders’ Equity
|
|
$ |
167,394 |
|
|
$ |
86,931 |
|
The
accompanying notes are an integral part of these financial
statements.
Poker
Magic, Inc.
(A
Development Stage Company)
Statements
of Operations
|
|
|
Year
Ended
December
31,
2008
|
|
|
Year
Ended
December
31,
2007
|
|
|
Period
from
January
10, 2006
(inception)
to
December
31,
2008
|
|
|
Revenues
|
|
$ |
3,325 |
|
|
$ |
- |
|
|
$ |
3,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Revenue
|
|
|
36,773 |
|
|
|
- |
|
|
|
36,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Loss
|
|
|
(33,448
|
) |
|
|
- |
|
|
|
(33,448
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
General and Administrative
|
|
|
251,282 |
|
|
|
199,574 |
|
|
|
493,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Loss:
|
|
|
(284,730
|
) |
|
|
(199,574
|
) |
|
|
(527,431
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
2,011 |
|
|
|
- |
|
|
|
2,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$ |
(282,719 |
) |
|
$ |
(199,574 |
) |
|
$ |
(525,420 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share
|
|
$ |
(0.03 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.07 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of common shares outstanding
|
|
|
8,523,587 |
|
|
|
7,293,703 |
|
|
|
7,061,314 |
|
The
accompanying notes are an integral part of these financial
statements.
Poker
Magic, Inc.
(A
Development Stage Company)
Statements
of Shareholders’ Equity
For the
years ended December 31, 2008 and 2007 and for the
Period
from January 10, 2006 (inception) to December 31, 2008
|
|
|
Common Stock
|
|
|
Additional
Paid-In
|
|
|
Subscription
|
|
|
Deficit
Accumulated
During
the
Development
|
|
|
Total
Shareholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Receivable
|
|
|
Stage
|
|
|
Equity
|
|
|
Balance
at inception January
10, 2006
|
|
|
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of restricted common stock to a founder and a member of the Board of
Directors on January 10, 2006 for cash and a subscription receivable for
$0.001 per share, net cash to the company $1,000 and a subscription
receivable for $1,500
|
|
|
2,500,000 |
|
|
|
2,500 |
|
|
|
- |
|
|
|
(1,500 |
) |
|
|
- |
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for purchase of Select Video intangible assets valued at
$0.001 per share on March
10, 2006
|
|
|
3,022,991 |
|
|
|
3,023 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash of $0.25 per share on May 9, 2006
|
|
|
100,000 |
|
|
|
100 |
|
|
|
24,900 |
|
|
|
- |
|
|
|
- |
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for liabilities assumed at $0.25 per share on May
23, 2006
|
|
|
60,000 |
|
|
|
60 |
|
|
|
14,940 |
|
|
|
- |
|
|
|
- |
|
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash of $0.25 per share on May 23,
2006
|
|
|
100,000 |
|
|
|
100 |
|
|
|
24,900 |
|
|
|
- |
|
|
|
- |
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for consulting services at $0.25 per share on May
23, 2006
|
|
|
22,000 |
|
|
|
22 |
|
|
|
5,478 |
|
|
|
- |
|
|
|
- |
|
|
|
5,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash of $0.25 per share on May 24,
2006
|
|
|
100,000 |
|
|
|
100 |
|
|
|
24,900 |
|
|
|
- |
|
|
|
- |
|
|
|
25,000 |
|
Poker
Magic, Inc.
(A
Development Stage Company)
Statements
of Shareholders’ Equity
For the
years ended December 31, 2008 and 2007 and for the
Period
from January 10, 2006 (inception) to December 31, 2008
|
|
|
Common Stock
|
|
|
Additional
Paid-In
|
|
|
Subscription
|
|
|
Deficit
Accumulated
During
the
Development
|
|
|
Total
Shareholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Receivable
|
|
|
Stage
|
|
|
Equity
|
|
|
Issuance
of common stock for cash of $0.25 per share on August 21,
2006
|
|
|
50,000 |
|
|
$ |
50 |
|
|
$ |
12,450 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
12,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for consulting services at $0.04 per share on December 15,
2006 based on value of services rendered and to be
rendered
|
|
|
100,000 |
|
|
|
100 |
|
|
|
3,900 |
|
|
|
- |
|
|
|
- |
|
|
|
4,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock on May 23, 2006 for a sub-scription receivable at $0.25
per share
|
|
|
50,000 |
|
|
|
50 |
|
|
|
12,450 |
|
|
|
(12,500 |
) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(43,127 |
) |
|
|
(43,127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2006
|
|
|
6,104,991 |
|
|
|
6,105 |
|
|
|
123,918 |
|
|
|
(14,000 |
) |
|
|
(43,127 |
) |
|
|
72,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for consulting services at $0.083 per share on January 15,
2007 based on value of services rendered and to be
rendered
|
|
|
600,000 |
|
|
|
600 |
|
|
|
49,400 |
|
|
|
- |
|
|
|
- |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for officers compensation at $0.096 per share on January
15, 2007 based on value of services rendered and to be
rendered
|
|
|
500,000 |
|
|
|
500 |
|
|
|
47,500 |
|
|
|
- |
|
|
|
- |
|
|
|
48,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash of $0.25 per share on July 10,
2007
|
|
|
40,000 |
|
|
|
40 |
|
|
|
9,960 |
|
|
|
- |
|
|
|
- |
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash of $0.25 per share on July 23,
2007
|
|
|
40,000 |
|
|
|
40 |
|
|
|
9,960 |
|
|
|
- |
|
|
|
- |
|
|
|
10,000 |
|
Poker
Magic, Inc.
(A
Development Stage Company)
Statements
of Shareholders’ Equity
For the
years ended December 31, 2008 and 2007 and for the
Period
from January 10, 2006 (inception) to December 31, 2008
|
|
|
Common Stock
|
|
|
Additional
Paid-In
|
|
|
Subscription
|
|
|
Deficit
Accumulated
During
the
Development
|
|
|
Total
Shareholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Receivable
|
|
|
Stage
|
|
|
Equity
|
|
|
Issuance
of common stock for payment of note at $0.2354 per share on July
26, 2007
|
|
|
20,000 |
|
|
$ |
20 |
|
|
$ |
4,689 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
4,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
of subscription receivable on July
27, 2007
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,500 |
|
|
|
- |
|
|
|
1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for consulting services at $0.083 per share on
August
1,2007 based on value of services rendered and to be
rendered
|
|
|
100,000 |
|
|
|
100 |
|
|
|
8,200 |
|
|
|
- |
|
|
|
- |
|
|
|
8,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for consulting services at $0.077 per share on
August
1, 2007 based on value of services rendered
|
|
|
65,000 |
|
|
|
65 |
|
|
|
4,935 |
|
|
|
- |
|
|
|
- |
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for consulting services at $0.04 per share on August
1, 2007 based on value of services rendered
|
|
|
25,000 |
|
|
|
25 |
|
|
|
975 |
|
|
|
- |
|
|
|
- |
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
of subscription receivable on October 17, 2007
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
12,500 |
|
|
|
- |
|
|
|
12,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for consulting services at $0.25 per share on November
26, 2007
|
|
|
50,000 |
|
|
|
50 |
|
|
|
12,450 |
|
|
|
- |
|
|
|
- |
|
|
|
12,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash of $0.25 per share on December 21,
2007
|
|
|
40,000 |
|
|
|
40 |
|
|
|
9,960 |
|
|
|
- |
|
|
|
- |
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash of $0.25 per share on December 22,
2007
|
|
|
80,000 |
|
|
|
80 |
|
|
|
19,920 |
|
|
|
- |
|
|
|
- |
|
|
|
20,000 |
|
Poker
Magic, Inc.
(A
Development Stage Company)
Statements
of Shareholders’ Equity
For the
years ended December 31, 2008 and 2007 and for the
Period
from January 10, 2006 (inception) to December 31, 2008
|
|
|
Common Stock
|
|
|
Additional
Paid-In
|
|
|
Subscription
|
|
|
Deficit
Accumulated
During
the
Development
|
|
|
Total
Shareholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Receivable
|
|
|
Stage
|
|
|
Equity
|
|
|
Net
Loss
|
|
|
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(199,574 |
) |
|
$ |
(199,574 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2007
|
|
|
7,664,991 |
|
|
|
7,665 |
|
|
|
301,867 |
|
|
|
- |
|
|
|
(242,701 |
) |
|
|
66,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash of $0.25 per share on January 10,
2008
|
|
|
100,000 |
|
|
|
100 |
|
|
|
24,900 |
|
|
|
- |
|
|
|
- |
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash of $0.25 per share on May 20,
2008
|
|
|
50,000 |
|
|
|
50 |
|
|
|
12,450 |
|
|
|
- |
|
|
|
- |
|
|
|
12,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash of $0.25 per share on May 28,
2008
|
|
|
1,000,000 |
|
|
|
1,000 |
|
|
|
249,000 |
|
|
|
- |
|
|
|
- |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for consulting services at $0.10 per share on August
26, 2008 based on value of services rendered and to be
rendered
|
|
|
200,000 |
|
|
|
200 |
|
|
|
19,800 |
|
|
|
- |
|
|
|
- |
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for consulting services at $0.25 per share on August
26, 2008 based on value of services rendered
|
|
|
10,000 |
|
|
|
10 |
|
|
|
2,490 |
|
|
|
- |
|
|
|
- |
|
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for consulting services at $0.083 per share on
August
26, 2008 based on value of services rendered and to be
rendered
|
|
|
120,000 |
|
|
|
120 |
|
|
|
9,880 |
|
|
|
- |
|
|
|
- |
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for consulting services at $0.25 per share on August
26, 2008 based on value of services rendered
|
|
|
50,000 |
|
|
|
50 |
|
|
|
4,950 |
|
|
|
- |
|
|
|
- |
|
|
|
5,000 |
|
Poker
Magic, Inc.
(A
Development Stage Company)
Statements
of Shareholders’ Equity
For the
years ended December 31, 2008 and 2007 and for the
Period
from January 10, 2006 (inception) to December 31, 2008
|
|
|
Common Stock
|
|
|
Additional
Paid-In
|
|
|
Subscription
|
|
|
Deficit
Accumulated
During
the
Development
|
|
|
Total
Shareholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Receivable
|
|
|
Stage
|
|
|
Equity
|
|
|
Issuance
of common stock for consulting services at $0.25 per share on December
16, 2008 based on value of services rendered
|
|
|
40,400 |
|
|
$ |
40 |
|
|
$ |
10,060 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
10,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers
compensation expense as contributed capital
|
|
|
- |
|
|
|
- |
|
|
|
38,000 |
|
|
|
- |
|
|
|
- |
|
|
|
38,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for officers compensation at $0.25 per share on December
31, 2008 based on value of services rendered
|
|
|
32,000 |
|
|
|
32 |
|
|
|
7,968 |
|
|
|
- |
|
|
|
- |
|
|
|
8,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(282,719 |
) |
|
|
(282,719 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2008
|
|
|
9,267,391 |
|
|
$ |
9,267 |
|
|
$ |
681,365 |
|
|
$ |
- |
|
|
$ |
(525,420 |
) |
|
$ |
165,212 |
|
The
accompanying notes are an integral part of these financial
statements.
Poker
Magic, Inc.
(A
Development Stage Company)
Statements
of Cash Flows
|
|
|
Year
Ended
December
31,
2008
|
|
|
Year
Ended
December
31,
2007
|
|
|
Period
from
January
10, 2006
(inception)
to
December
31,
2008
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(282,719 |
) |
|
$ |
(199,574 |
) |
|
$ |
(525,420 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of intangible asset
|
|
|
8,271 |
|
|
|
8,271 |
|
|
|
22,746 |
|
|
Common
stock issued for services
|
|
|
- |
|
|
|
1,000 |
|
|
|
6,500 |
|
|
Consulting
service expense paid in stock
|
|
|
59,879 |
|
|
|
59,171 |
|
|
|
119,050 |
|
|
Officers
compensation expense paid in stock
|
|
|
10,000 |
|
|
|
46,000 |
|
|
|
56,000 |
|
|
Officers
compensation expense as
contributed capital
|
|
|
38,000 |
|
|
|
- |
|
|
|
38,000 |
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expense
|
|
|
5,101 |
|
|
|
151 |
|
|
|
5,434 |
|
|
Accounts
payable
|
|
|
(18,084
|
) |
|
|
19,014 |
|
|
|
2,016 |
|
|
Accrued
royalty
|
|
|
166 |
|
|
|
- |
|
|
|
166 |
|
|
Net
cash used in operating activities
|
|
|
(179,386
|
) |
|
|
(65,967
|
) |
|
|
(275,508
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
14,000 |
|
|
Proceeds
from issuance of common stock
|
|
|
287,500 |
|
|
|
50,000 |
|
|
|
426,000 |
|
|
Payment
of short-term debt
|
|
|
- |
|
|
|
(2,375
|
) |
|
|
(2,375
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financial activities
|
|
|
287,500 |
|
|
|
61,625 |
|
|
|
437,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
108,114 |
|
|
|
(4,342
|
) |
|
|
145,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
beginning of the period
|
|
|
37,003 |
|
|
|
41,345 |
|
|
|
- |
|
|
Cash,
end of the period
|
|
$ |
145,117 |
|
|
$ |
37,003 |
|
|
$ |
145,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
- |
|
|
|
4,709 |
|
|
|
19,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issued in lieu of cash for prepaid services
|
|
|
47,600 |
|
|
|
123,800 |
|
|
|
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
December
31, 2008 and 2007
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.
Use
of estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.
Cash
deposits
The
Company maintains its cash balances in high quality financial
institutions. Cash on deposit in excess of FDIC and similar coverage
is subject to the usual banking risk of funds in excess of those
limits.
Inventory
Poker
table felt inventory is valued using the lower of cost (first-in, first-out
method) or market.
Fair
value of financial instruments
The
carrying amounts of certain of the Company’s financial instruments, including
cash and accounts payable approximate fair value due to their relatively short
maturities.
Intangible
assets
On March
10, 2006, the Company purchased certain assets and assumed certain liabilities
of Select Video, Inc. 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 $8,271, $8,271 and
$22,746 for the years ended December 31, 2008 and 2007 and the period from
January 10, 2006 (inception) to December 31, 2008. Estimated amortization
expense for the next three years of patents issued as of December 31, 2008 is as
follows:
|
Year
ending December 31:
|
|
|
|
|
|
|
|
|
|
2009
|
|
$ |
8,271 |
|
|
2010
|
|
|
8,271 |
|
|
2011
|
|
|
2,069 |
|
|
Total
|
|
$ |
18,611 |
|
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 December 31, 2008 or December 31, 2007.
Income
taxes
The
Company accounts for income taxes under the liability method. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
Revenue
recognition
Revenue
from sales under a license agreement is recognized when the following four
criteria are met: 1) persuasive evidence of an arrangement exists (fully
executed license agreement); 2) delivery of the Winner’s Pot Poker game, felt
and instructions have been rendered and for which the licensee is responsible to
replace either through damage or normal wear and tear; 3) the price is fixed or
determinable; and 4) collectability under the license agreement is reasonably
assured. All revenue for the year ended December 31, 2008 was
generated from one customer. Revenues generated from the licensing of
the Winner’s Pot Poker game in New Jersey are not subject to sales and use tax
although filing of an annual return is required and completed.
Recent
accounting pronouncements
During
February 2007, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS
159 permits entities to choose to measure many financial instruments and certain
other items at fair value. SFAS 159 was effective for fiscal years beginning
after November 15, 2007. The adoption of SFAS 159 did not impact the
results of operations and financial position.
During
December 2007, the FASB issued SFAS No. 160, “Non-controlling
Interests in Consolidated Financial Statements an amendment of ARB No. 51”
(“SFAS 160”). SFAS 160 establishes accounting and reporting standards for
non-controlling interests in subsidiaries and for the deconsolidation of
subsidiaries and clarifies that a non-controlling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. SFAS 160 also requires expanded
disclosures that clearly identify and distinguish between the interests of the
parent owners and the interests of the non-controlling owners of a
subsidiary. SFAS 160 is effective for fiscal years beginning on or after
December 15, 2008. The Company does not believe that the adoption of
SFAS 160 will have a material effect on its results of operations or financial
position.
During
December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
Combinations” (“SFAS 141R”). While SFAS 141R retains the fundamental
requirement of SFAS 141 that the acquisition method of accounting (which SFAS
141 called the purchase method
) be used for all business combinations, SFAS 141R now establishes the
principles and requirements for how an acquirer in a business combination:
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling interests in the
acquiree; recognizes and measures the goodwill acquired in the business
combination or the gain from a bargain purchase; and determines what information
should be disclosed in the financial statements to enable the users of the
financial statements to evaluate the nature and financial effects of the
business combination.
SFAS 141R is effective for fiscal years beginning on or after
December 15, 2008. The Company does not believe that the adoption of
SFAS 141R will have a material effect on its results of operations or financial
position.
During
March 2008, the FASB issued SFAS No. 161, “Disclosure about Derivative
Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 is intended to
improve financial reporting about derivative instruments and hedging activities
by requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. SFAS 161 also improves transparency about the location and amounts
of derivative instruments in an entity’s financial statements; how derivative
instruments and related hedging activities are accounted for under Statement
133; and how derivative instruments and related hedged items affect its
financial position, financial performance, and cash flows.
SFAS 161
is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application
encouraged. The Company does not believe the adoption of SFAS 161 will
have a material effect on its results of operations or financial
position.
Advertising
Advertising
costs are charged to expense when incurred. Advertising costs were
$11,447, $0 and $11,447, respectively, for the years ended December 31, 2008,
2007 and the period from January 10, 2006 (inception) to December 31,
2008.
NOTE
2—NET LOSS PER COMMON SHARE
Basic net
loss per common share is computed by dividing net loss by the weighted average
number of common shares outstanding during the period. The following table
reflects the reconciliation of the numerator and denominator used in the
calculation of basic and diluted net loss per common share for the two most
recent fiscal years and the period from inception to December 31, 2008, in
accordance with SFAS No. 128, “Earnings per Share” (SFAS
128). Under the provisions of SFAS 128, basic earnings per share are based on
the weighted average number of common shares outstanding during each year. In
computing diluted earnings per share, the number of common shares outstanding is
increased by common stock options with exercise prices lower than the average
market prices of common shares during each year and reduced by the number of
shares assumed to have been purchased with proceeds from the exercised
options.
|
|
|
Year
Ended
December
31, 2008
|
|
|
Year
Ended
December
31, 2007
|
|
|
Period
from January
10,
2006 (inception)
to
December 31, 2008
|
|
|
Numerator: Net
Loss
|
|
$ |
(282,719 |
) |
|
$ |
(199,574 |
) |
|
$ |
(525,420 |
) |
|
Denominator: Weighted-average
number of common shares outstanding
|
|
|
8,523,587 |
|
|
|
7,293,703 |
|
|
|
7,061,314 |
|
|
Basic
and diluted net loss per common share
|
|
$ |
(.03 |
) |
|
$ |
(.03 |
) |
|
$ |
(.07 |
) |
The
outstanding warrants issued during the year ended December 31, 2008 were
excluded from the calculation of diluted loss per share as their effects were
anti-dilutive due to the Company’s net loss for the year.
NOTE
3—COMMITMENTS AND CONTINGENCIES
The asset
purchase agreement with Select Video (see note 8) dated March 10, 2006, states
when the Company receives any revenue generated by Winners Pot Poker and other
similar games, Select Video shall receive an amount equal to five percent (5%)
of all gross proceeds generated by these games.
At
December 31, 2008, there was $166 in royalties owed under this agreement, none
of which has been paid as of such date.
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 $.25 per share in
lieu of cash for liabilities assumed.
During
2006, the Company raised additional cash of $87,500 at $.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 $.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.
At
December 31, 2006 a total of 6,104,991 shares of common stock were issued and
outstanding. No warrants or options were issued in 2006.
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 $.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 $.25 per share through the
issuance of 120,000 shares of common stock.
In
January 2008, the Company raised cash of $25,000 at $.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 $.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 $.25 per share if purchased
within six months of issuance. The exercise price increased to $.425
for months seven through twelve (after the date of issuance) and increases to
$.50 after twelve months. The warrant expires on May 27,
2010.
In May
2008, the Company raised cash of $12,500 at $.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 5 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 5 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 12 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.
At
December 31, 2008 a total of 9,267,391 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 December 31, 2008.
NOTE
5—INCOME TAXES
On
January 1, 2008, the Company adopted 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. The adoption of FIN 48 did not result in an adjustment to
the Company's financial statements. The Company had no positions for
which it deemed that it is reasonably possible that the amounts of the
unrecognized tax benefit will significantly increase or decrease. The
tax years that remain subject to examination by major tax jurisdictions
currently are Federal 2006-2008 and State of Minnesota 2006-2008. The
net operating loss carryforwards are subject to examination until they
expire.
At
December 31, 2008, the Company had federal and state net operating loss
carryforward of approximately $509,000 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. The Company’s deferred tax asset is the net operating
loss carryforward and the difference in patent amortization
expense. The Company has established a valuation allowance of
$198,000 and $89,000 at December 31, 2008 and 2007, respectively, against its
deferred tax assets due to uncertainty surrounding the realization of such
assets. The change in valuation allowance for the years ended
December 31, 2008 and 2007 was $109,000 and $74,000, respectively, and for the
period ended January 10, 2006 (inception) to December 31, 2008 was
$198,000. Current and future changes in the stock ownership of the
Company may place limitations on the use of these net operating loss
carryforwards.
Reconciliation
between the federal statutory rate and the effective tax rates is as
follows:
|
|
|
Year
Ended
December
31, 2008
|
|
|
Year
Ended
December
31, 2007
|
|
|
Period
from January 10, 2006
(inception)
to December 31, 2008
|
|
|
Federal
statutory tax rate
|
|
|
(34.0 |
)% |
|
|
(34.0 |
)% |
|
|
(34.0 |
)% |
|
State
taxes, net of federal benefit
|
|
|
(6.0 |
) |
|
|
(6.0 |
) |
|
|
(6.0 |
) |
|
Valuation
Allowance
|
|
|
40.0 |
|
|
|
40.0 |
|
|
|
40.0 |
|
|
Effective
tax rate
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
NOTE
6— GOING CONCERN; MANAGEMENT’S PLAN TO FUND WORKING CAPITAL NEEDS
The
Company incurred net losses of $282,719, $199,574, and $525,420 for the years
ended December 31, 2008 and 2007 and for the cumulative period from January
10, 2006 (inception) to December 31, 2008, respectively, along with
negative cash flows from operating activities. The Company
anticipates significant expenditures during 2009 relating to the marketing its
Winner’s Pot Poker game, seeking regulatory approval from Nevada and Minnesota
to license its game in their respective states, and legal and accounting
expenses to comply with the requirements of a public reporting
company. As of the date of filing of this report, the Company
had approximately $42,500 cash on hand and current liabilities of approximately
$24,000. The Company estimates that it will need approximately
$140,000 of cash over the next 12 months to continue operations through
2009.
NOTE
7—SUBSEQUENT EVENTS
On
February 25, 2009, the Company redeemed 366,667 shares of common stock held by a
single shareholder, for a price of $.25 per share, for a total amount of
$91,667.
ITEM
9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
|
ITEM
9AT
|
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
December 31, 2008, 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 December 31,
2008.
Report
of Management on Internal Control Over Financial Reporting
Board of
Directors and Shareholders
Poker
Magic, Inc.
The
management of Poker Magic, Inc. (the “Company”) is responsible for establishing
and maintaining adequate internal control over financial reporting, as such term
is defined in Rules 13a-15(f) under the Securities and Exchange Act of 1934. The
Company’s internal control system is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements in accordance with U.S. generally accepted accounting
principles. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. It should be
noted that any system of internal control, however well designed and operated,
can provide only reasonable, and not absolute, assurance that the objectives of
the system will be met. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Under the
supervision and with the participation of management, including its principal
executive officer and principal financial officer, the Company’s management
assessed the design and operating effectiveness of internal control over
financial reporting as of December 31, 2008 based on the framework set
forth in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
Based on
this assessment, management concluded that the Company’s internal control over
financial reporting was effective as of December 31, 2008. Virchow,
Krause & Company, LLP, an independent registered public accounting firm, is
not required to issue, and thus has not issued, an attestation report on the
Company’s internal control over financial reporting as of December 31,
2008.
/s/ Douglas
M. Polinsky
Chairman,
President and Chief Executive Officer
/s/ Joseph
A. Geraci, II
Chief
Financial Officer
Changes
in Internal Controls
There
were no changes in our internal control over financial reporting during the
quarter ended December 31, 2008 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
|
ITEM
9B
|
OTHER
INFORMATION
|
None.
PART
III
|
ITEM
10
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
Directors,
Executive Officers, Promoters, and Control Persons
|
Name
|
|
Age
|
|
Positions
|
|
Douglas
M. Polinsky
|
|
49
|
|
Chairman,
Chief Executive Officer and President
|
|
Joseph
A. Geraci, II
|
|
39
|
|
Director
and Chief Financial Officer
|
Douglas M. Polinsky
co-founded Poker Magic, Inc. in January 2006 and since that time has been the
Chairman and Chief Executive Officer of the Company. Since 1994, Mr. Polinsky
has been the Chief Executive Officer of Great North Capital Corp., a financial
advisory company which he founded. Great North Capital advises corporate clients
on matters regarding corporate and governance structures, public company
acquisitions of private companies and other transaction-related matters, and
also make direct investments into public and private companies. Mr. Polinsky
earned a Bachelor of Science degree in hotel administration at the University of
Nevada at Las Vegas.
Joseph A. Geraci, II was a
co-founder of Poker Magic, Inc. in January 2006 and has been a director and the
Chief Financial Officer of the Company since that time. Since February 2002
through the present time, Mr. Geraci has been managing member of Isles Capital,
LLC, an advisory and consulting firm that assists small businesses, both public
and private, in business development. In March 2005, Mr. Geraci also became the
managing member of Mill City Advisors, LLC, the general partner of Mill City
Ventures, LP, a Minnesota limited partnership that invests directly into both
private and public companies. From January 2005 until August 2005, Mr. Geraci
served as the Director of Finance for Gelstat Corporation, a purveyor
of homeopathic remedies, based in Bloomington, Minnesota. From 2000 until
December 2004, Mr. Geraci was a broker with Oak Ridge Financial Services, Inc.,
a Minneapolis-based broker-dealer firm.
Under the
Company’s bylaws, the directors serve for indefinite terms expiring upon the
next annual meeting of the Company’s shareholders.
Code
of Ethics
On August
5, 2008, our Board of Directors adopted a Code of Ethics for Management and
Non-Management Employees, which includes our Company’s principal executive
officer and principal financial officer, or persons performing similar
functions, as required by Sections 406 and 407 of the Sarbanes-Oxley Act of
2002. Our Code of Ethics is available on our website,
www.pokermagicinc.com, and we will provide a copy, without charge, to any
shareholder upon written request made to Poker Magic, Inc., Attention: Chief
Executive Officer, 130 West Lake Street, Suite 300, Wayzata, MN
55391.
Changes
to Board of Director Nomination Procedures
The
Company has not had any material changes to the procedures for shareholder
nominations of candidates to serve on our Board of Directors during the fiscal
year ended December 31, 2008.
Committees
of the Board of Directors; Audit Committee Financial Expert
The Board
of Directors of the Company does not have a standing audit, compensation or
nominating committee. Instead, the entire Board of Directors fulfills
the functions of such committees. The Board of Directors has
determined that Mr. Joseph A. Geraci, II is an “audit committee financial
expert” as such term is defined under Item 407(d)(5) of Regulation
S-K. This determination was based primarily on Mr. Geraci’s
experience as Director of Finance for Gelstat
Corporation. Neither Mr. Geraci nor the only other member of the
Board of Directors—Douglas M. Polinsky—are “independent” as that term is defined
in Section 4200(a)(15) of National Association of Securities Dealers’ listing
standards. The Company is not subject to those listing standards
because its common stock is not listed for trading on a Nasdaq market or
exchange.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, requires the Company’s directors,
executive officers and beneficial owners of more than 10% of the common stock of
the Company to file with the SEC certain reports regarding their ownership of
common stock or any changes in such ownership. The foregoing
reporting persons became subject to these filing requirements in April
2008. Based on its own review, the Company believes that Douglas M.
Polinsky, Joseph A. Geraci II, Marilyn Culotta and Gary Kostiuk each made late
filings on Forms 3 and 5 with respecting to their ownership of securities and
transactions from April through December 2008.
|
ITEM
11
|
EXECUTIVE
AND DIRECTOR COMPENSATION
|
Executive
Compensation
Summary Compensation Table
The
following table sets forth the total compensation paid by the Company during its
two most recent fiscal years ended December 31, 2007 and 2008 to the persons who
served as the Company’s President or Chief Executive Officer and Chief Financial
Officer during such periods (collectively, the “named executives”).
|
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Stock
Awards ($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
|
Douglas
M. Polinsky,
|
|
2007
|
|
$ |
0 |
(1) |
|
$ |
24,000 |
(2) |
|
|
- |
|
|
$ |
24,000 |
|
|
Chief
Executive Officer
|
|
2008
|
|
$ |
4,000 |
(3) |
|
$ |
4,000 |
(4) |
|
|
- |
|
|
$ |
8,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
A. Geraci, II,
|
|
2007
|
|
$ |
0 |
(1) |
|
$ |
24,000 |
(2) |
|
|
- |
|
|
$ |
24,000 |
|
|
Chief
Financial Officer
|
|
2008
|
|
$ |
4,000 |
(3) |
|
$ |
4,000 |
(4) |
|
|
- |
|
|
$ |
8,000 |
|
|
(1)
|
The
named executive did not receive a salary during the year ended December
31, 2007, primarily because the Company did not then have the resources to
pay, or commit to pay, such individual a regular market-based salary for
his services.
|
|
(2)
|
The
named executive received a stock award of 125,000 fully vested common
shares in January 2007 in exchange for services to be rendered to the
Company in his role as a corporate officer and director during
2007. This represents the value of services provided by the
named executive with respect to stock
grants.
|
|
(3)
|
The
named executive received a salary of $4,000 during the year ended December
31, 2008, primarily because the Company did not then have the resources to
pay, or commit to pay, such individual a regular market-based salary for
his services. In addition, in order to value the services
rendered to the Company by the named executive, the Company recorded
$19,000 with respect to the named executive (aggregating to $38,000 for
both named executives) as contributed
capital.
|
|
(4)
|
The
named executive received a stock award of $4,000 (consisting of
16,000 fully vested common shares). This represents the value of services
provided by the named executive with respect to stock
grants.
|
Employment Agreements with
Executives
The
Company does not currently have employment agreements with Messrs. Polinsky and
Geraci, and currently has no plans to enter into employment agreements with such
individuals.
Outstanding Equity Awards at Fiscal
Year End
The
Company had no outstanding options, warrants, unvested stock awards or equity
incentive plan awards as of December 31, 2008 held by any named executive. In
addition, the Company has no options, warrants, unvested stock awards or equity
incentive plan awards outstanding and held by any named executive as of the date
of this filing.
Director
Compensation
The
Company paid $4,000 in director compensation in 2008. In addition,
the Company reimburses directors for their expenses incurred in attending or
participating in meetings of the board of directors or other Company-related
meetings.
|
ITEM
12
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
SHAREHOLDER MATTERS
|
The table
below sets forth certain information with respect to beneficial ownership of our
common stock as of March 13, 2009 (on which date there were an aggregate of
8,900,724 shares of common stock outstanding), by:
|
|
·
|
each
director of the Company
|
|
|
·
|
each
named executive (see Item 11
above)
|
|
|
·
|
all
current directors and executive officers of the Company as a group,
and
|
|
|
·
|
each
person or entity known by the Company to beneficially own more than 5% of
our common stock.
|
Unless
otherwise indicated in the table or its footnotes, the address of each of the
following persons or entities is 130 West Lake Street, Suite 300, Wayzata,
Minnesota 55391, and each such person or entity has sole voting and investment
power with respect to the shares of common stock set forth opposite their
respective name.
|
Name
|
|
Number
of
Shares
Beneficially
Owned
(1)
|
|
|
Percentage
of
Outstanding
Shares
(1)
|
|
|
Douglas
M. Polinsky (2)
|
|
|
1,553,500 |
|
|
|
17.5 |
% |
|
Joseph
A. Geraci, II (3)
|
|
|
1,341,000 |
|
|
|
15.1 |
% |
|
Marilyn
Culotta (4)
9101
W. Sahara Ave., Suite 105 B11
Las
Vegas, NV 89117
|
|
|
680,500 |
|
|
|
7.6 |
% |
|
Gary
Kostiuk (4)
257
Frog Pond Road
Parkertown,
NJ 08087
|
|
|
540,000 |
|
|
|
6.0 |
% |
|
All
current directors and executive officers as a group (5)
(two persons)
|
|
|
2,894,500 |
|
|
|
32.5 |
% |
|
(1)
|
Beneficial
ownership is determined in accordance with the rules of the SEC and
includes general voting power and/or investment power with respect to
securities. Shares of common stock subject to options or warrants
currently exercisable, or exercisable within 60 days of the applicable
record date, are deemed outstanding for computing the beneficial ownership
percentage of the person holding such options or warrants but are not
deemed outstanding for computing the beneficial ownership percentage of
any other person.
|
|
(2)
|
Mr.
Polinsky is the Company’s Chairman and Chief Executive Officer. Includes
1,250,000 common shares held by Great North Capital Corp., a Minnesota
corporation of which Mr. Polinsky is the sole shareholder, officer and
director, 163,500 common shares held individually by Mr. Polinsky, and
140,000 common shares held in the name of two of Mr. Polinsky’s minor
children (beneficial ownership of which Mr. Polinsky
disclaims).
|
|
(3)
|
Mr.
Geraci is a director and the Company’s Chief Financial Officer. Includes
1,135,000 common shares held by Isles Capital, LLC, a Minnesota limited
liability company of which Mr. Geraci is the sole member and manager,
190,000 common shares held individually by Mr. Geraci’s spouse, and 16,000
shares held individually by Mr.
Geraci.
|
|
(4)
|
All
shares are common shares and are held
individually.
|
|
(5)
|
Includes
Messrs. Polinsky and Geraci.
|
|
ITEM
13
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
Transactions
with Related Persons
None.
Director
Independence
The
Company currently has two directors, Messrs. Joseph A. Geraci, II and Douglas M.
Polinsky, neither of whom is “independent” as that term is defined in Section
4200(a)(15) of National Association of Securities Dealers’ listing standards.
The Company is not subject to those listing standards because its common stock
is not listed for trading on a Nasdaq market. In addition, the Company does not
have a standing audit, compensation or nominating committee. Instead, the entire
board of directors fulfills the function of such committees.
|
ITEM
14
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
Aggregate
fees billed by our principal independent registered public accounting firm for
the fiscal years indicated:
|
|
|
2007
|
|
|
2008
|
|
|
Audit
Fees
|
|
$ |
21,170 |
|
|
$ |
52,077 |
|
|
Audit-Related
Fees
|
|
|
0 |
|
|
|
0 |
|
|
Tax
Fees
|
|
|
0 |
|
|
|
2,605 |
|
|
All
Other Fees
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
21,170 |
|
|
$ |
54,682 |
|
Audit
Fees. The fees identified under this caption were for
professional services rendered by Virchow, Krause & Company, LLP for years
ended 2008 and 2007 in connection with the audit of our annual financial
statements and review of the financial statements included in our quarterly
reports on Form 10-Q. The amounts also include fees for services that
are normally provided by the independent public registered accounting firm in
connection with statutory and regulatory filings and engagements for the years
identified. The 2008 fees include services related to finalizing the
2007 audit and filing of the Form 10 and related amendments.
Audit-Related
Fees. The fees identified under this caption were for
assurance and related services that were related to the performance of the audit
or review of our financial statements and were not reported under the caption
“Audit Fees.” This category may include fees related to the performance of
audits and attestation services not required by statute or regulations, and
accounting consultations about the application of generally accepted accounting
principles to proposed transactions.
Tax Fees. The fees
identified under this caption were for tax compliance, tax planning, tax advice
and corporate tax services. Corporate tax services encompass a
variety of permissible services, including technical tax advice related to tax
matters; assistance with withholding-tax matters; assistance with state and
local taxes; preparation of reports to comply with local tax authority transfer
pricing documentation requirements; and assistance with tax audits.
Approval
Policy. Our entire Board of Directors approves in advance all
services provided by our independent registered public accounting
firm. All engagements of our independent registered public accounting
firm in years ended 2007 and 2008 were pre-approved by the Board of
Directors.
PART
IV
|
ITEM
15
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
Financial
Statements
Report of
Independent Registered Public Accounting Firm on Financial
Statements
Balance
Sheets – December 31, 2008 and December 31, 2007
Statements
of Operations – Years ended December 31, 2008, December 31, 2007 and Period
from January 10, 2006 (inception) to December 31, 2008
Statement
of Shareholders’ Equity – Years ended December 31, 2008, December 31, 2007
and Period from January 10, 2006 (inception) to December 31,
2008
Statements
of Cash Flows – Years ended December 31, 2008, December 31, 2007 and Period from
January 10, 2006 (inception) to December 31, 2008
Notes to
Financial Statements
Exhibits
|
Exhibit
Number
|
|
Description
|
|
3.1
|
|
Amended
and Restated Articles of Incorporation of Poker Magic, Inc. (1)
|
|
3.2
|
|
Amended
and Restated Bylaws of Poker Magic, Inc. (1)
|
|
4
|
|
Form
of Common Stock Certificate. (1)
|
|
10.1
|
|
Asset
Purchase Agreement with Select Video, Inc., dated March 10, 2006. (1)
|
|
10.2
|
|
License
Agreement with Bally’s Park Place, Inc., dated December 26, 2007. (1)
|
|
10.3
|
|
Amendment
to License Agreement with Bally's Park Place, Inc., dated June 26, 2008.
(2)
|
|
14
|
|
Code
of Ethics (3)
|
|
31.1*
|
|
Section 302
Certification of the Chief Executive Officer
|
|
31.2*
|
|
Section 302
Certification of the Chief Financial Officer
|
|
32.1*
|
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to 18
U.S.C. §1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of
2002
|
(1) Incorporated
herein by reference to the registrant’s registration statement on Form 10-SB,
filed on January 29, 2008.
(2) Incorporated
by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K,
filed on July 10, 2008.
(3) Available
on registrant’s website at www.pokermagicinc.com,
as permitted under Item 406(c) of Regulation S-K.
*Filed
electronically herewith.
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.
| |
|
|
| |
|
|
| |
/s/
Douglas Polinsky
|
|
| |
Douglas
Polinsky
|
|
| |
Chief
Executive Officer
|
|
| |
|
|
| |
Dated: March
27, 2009
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Signature
and Name
|
|
Position/Title
|
|
Date
|
| |
|
|
|
|
|
/s/ Douglas M. Polinsky
|
|
Chief
Executive Officer, President and
|
|
March
27, 2009
|
|
Douglas
M. Polinsky
|
|
Director
(principal executive officer)
|
|
|
|
|
|
|
|
|
|
/s/ Joseph A. Geraci, II
|
|
Chief
Financial Officer and Director
|
|
March
27, 2009
|
|
Joseph
A. Geraci, II
|
|
(principal
accounting and financial officer)
|
|
|