Registration of Securities of a Small-Business Issuer — Form 10-SB Filing Table of Contents
Document/ExhibitDescriptionPagesSize 1: 10SB12G Registration of Securities of a Small-Business HTML 485K Issuer
2: EX-3.1 Articles of Incorporation/Organization or By-Laws HTML 19K
3: EX-3.2 Articles of Incorporation/Organization or By-Laws HTML 57K
4: EX-4.1 Instrument Defining the Rights of Security Holders HTML 4K
5: EX-10.1 Material Contract HTML 83K
6: EX-10.2 Material Contract HTML 41K
10SB12G — Registration of Securities of a Small-Business Issuer
Under
Section 12(b) or (g) of The Securities Exchange Act of
1934
POKER
MAGIC, INC.
(Name
of
Small Business Issuer in its charter)
Minnesota
20-4709758
(State
or other jurisdiction of incorporation or organization)
(I.R.S.
Employer Identification No.)
130
West Lake Street, Suite 300, Wayzata, MN
55391
(Address
of principal executive offices)
(Zip
Code)
Issuer’s
Telephone Number: (952)
473-3442
Securities
to be registered under Section 12(b) of the
Act:
Title
of each class
to
be so registered
Name
of each exchange on which
each
class is to be registered
Securities
to be registered under Section 12(g) of the Act:
Common
stock, $0.001 par value per share
(Title
of class)
(Title
of class)
PART
I
Item
1.Description
of Business.
General
Poker
Magic, Inc. (“Poker Magic,” the “Company” or “we”) is a Minnesota
development-stage corporation that was incorporated in January 2006. Currently,
our business consists primarily of marketing and licensing a new form of
poker-based table game to casinos and online gaming facilities in the United
States. We are seeking, however, to expand the number of products or services
that we offer in the gaming industry.
On
March10, 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:
·
United
States patent number 5,839,732, issued on November 24, 1998, entitled
“Method of playing a Casino Poker
Game”
·
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
·
United
States Trademark (registered on the supplemental register) for the
mark
“POKER MAGIC,” registration number 3,272,173 dated July 31,2007.
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., a New Jersey corporation. Pursuant to the License Agreement, we granted
Bally’s a non-exclusive license to use Winner’s Pot Poker at Bally’s Atlantic
City Park Place & Boardwalk location. The license has a term that is
coextensive with the duration of the testing period set forth by the New Jersey
Casino Control Commission. Upon expiration of the testing period and approval
of
Winner’s Pot Poker by the New Jersey Casino Commission, the license will have a
month-to-month term with the right of either party to terminate the license
on
at least 30 days notice. The License Agreement provides for the Company and
Bally’s Park Place to negotiate a mutually acceptable license fee prior to the
conclusion of the testing period, with such fee to be payable only after the
testing period has concluded. As of the date of this filing, the Company has
not
agreed with Bally’s Park Place on the amount of any license fee.
Business
Model
We
intend
to market and license our current table game, “Winner’s Pot Poker,” to casino
and online gaming 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 subject to more stringent regulatory
approval processes, and which is therefore more capital intensive.
1
Our
goal
is essentially to capture a small piece of the gaming market. There are
currently approximately 1,500 casinos and gaming facilities, including
pari-mutuel, casino-cruises, dog tracks, racinos and horse tracks, in operation
in the United States (World
Casino Directory).
Legalized gaming has undergone tremendous growth in the past decades, with
the
gaming industry producing gross revenues in 2005 of approximately $85 billion
(American
Gaming Association).
The
game “Winner’s Pot Poker” will be our initial “product” offering to the gaming
industry.
Products
and Services—Our “Winner’s Pot Poker” Game
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 first bet equal to the ante. After the
next
card is dealt, each of the remaining players has a choice between folding or
placing a second bet 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 a an optional “bonus bet” known as
the “jacks plus” bet. The jacks plus bet stays in play allowing the player to
win even if he has folded his poker hand. For a player to win the jacks plus
bet
they need to be able to produce a pair of jacks or better produced from his
cards. Depending on the cards held by the player, the bonus bet returns from
1
to 400 times the player’s jacks plus bet. The jacks plus bet allows the player
to win even if he has folded his poker hand earlier in the game.
The
game
is played among 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, each player betting after
the first three cards places a wager equal to the ante amount for that hand.
All
players place the same ante amount.
The
dealer then deals one portion of the poker hand to each player and to the
dealer. Each player is provided with a choice after each portion of the poker
hand is dealt: the player may fold, in which case that player’s placed wager is
surrendered, or the player may wager an additional amount, in which case he
or
she continues playing the game. The dealer then deals a final portion of the
poker hand to each player, and to him or herself, to complete the poker hands.
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.
A
predetermined percentage of the sum of all wagered amounts is then awarded
to
the holder of the highest hand. This predetermined percentage may for example
be
90%, in which case the remaining ten percent 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 expect to 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:
2
·
Develop
or acquire new games or technologies, or rights to new intellectual
property that may be used in the development of new
games
·
Obtain
state and other jurisdictional regulatory
approvals
·
Obtain
floorspace for our games in casinos and entertainment facilities,
primarily through marketing and sales and relationship-building
efforts
·
Satisfy
players with the playing experience of our games,
and
·
Protect
our intellectual property against infringing
parties.
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 and Shuffle Master. 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 we
begin operations, we will be subject to federal, state and, where applicable,
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.
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
by 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.
3
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 by the gaming authorities 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.
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 manufacture
or distribute gaming devices 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. In order to do
so,
the unlicensed applicant must maintain a completed application for CSI licensure
on file with the New Jersey Commission. In addition, the casino that desires
to
transact business with the unlicensed applicant must obtain the approval of
the
New Jersey Commission for each business transaction (transactional waiver)
by
filing a petition with the New Jersey Commission that demonstrates that good
cause exists for granting such petition. The New Jersey Commission is not
permitted to grant such a petition if the New Jersey Division objects to the
petition.
Currently,
although we have applied for licensure as a CSI, the New Jersey Commission
has
granted a waiver for the licensing of Winner’s Pot Poker in the Bally’s Park
Place & Boardwalk casino. In connection with our license application, the
New Jersey Division conducts an investigation of the applicant and its
individual qualifiers to determine their suitability for licensure. In order
for
a CSI license to be issued by the New Jersey Commission, the applicant and
its
individual qualifiers must demonstrate by clear and convincing evidence their
good character, honesty and integrity, their financial stability, integrity
and
responsibility.
4
The
New
Jersey Commission has broad discretion regarding the issuance, renewal,
suspension or revocation of CSI licenses. If our CSI 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 license is issued for an initial period of two years and
is
thereafter renewable for four-year periods.
On
August22, 2007, the New Jersey Casino Control Commission adopted new temporary rules
and amendments governing the implementation of Winner’s Pot Poker in Atlantic
City casinos. The temporary rules are effective as of a date to be determined.
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.
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:
·
Class
I gaming, which includes traditional Native American social and ceremonial
games. Class I gaming is regulated exclusively at the Native American
tribal level.
·
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.
·
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.
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.
5
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.
Research
and Development
To
date,
the Company has relied on outside parties for game development. The Company
does
not have employees with experience in game development, and currently has no
plans to hire employees focused on research and development activities.
Accordingly, the Company expects to continue to rely on outside parties and
consultants to develop games. The limited availability of funds may hinder
the
Company’s ability to acquire the rights to new games and market them
adequately.
6
Intellectual
Property
We
expect
to rely on a combination of patents, copyrights, trade secrets, trademarks
and
proprietary information to maintain and enhance our competitive position, and
in
this regard we have acquired certain patents and trademark protections in the
United States. The expiration dates of our patent rights vary and are based
on
their filing and issuances 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
Poker
Magic currently has two employees, Douglas M. Polinsky, chief executive officer
and Chairman of the board and Joseph A. Geraci II, chief financial officer
and
director. Company relies on sales and marketing agents and outside professional
services on an as-needed basis.
7
Risk
Factors
Persons
who may make an investment decision with respect to the Company should carefully
consider the following risk factors, as well as all other information contained
in this filing.
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,
the
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 has committed to testing our Winner’s Pot Poker game for only a probation
period permitted by New Jersey regulations. Moreover, our business is subject
to
all of the risks and uncertainties inherent in establishing a new business.
Our
results of operations for the year ending December 31, 2006 reflect a loss
of
$43,127. 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, 2008. 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 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 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.
8
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 extensive 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 table games or other then-current 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 location,
for the license of such game. Even if the Company and Winner’s Pot Poker obtain
the required licenses in the State of New Jersey, we may not be able to finalize
a license fee arrangement with Bally’s Park Place, or be able to maintain such
agreement for any definite period of time. The loss of such contract (or failure
to agree upon acceptable license fee terms), could in the absence of other
opportunities significantly and negatively affect the Company’s business
prospects.
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.
9
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. 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.
10
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 3,017,500
shares of our common stock, which currently represents approximately 38.9%
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. After the effectiveness of this filing, we expect that our common
stock will generally be thinly traded. We also expect that one or more
registered broker-dealers may apply to the NASD to serve as market makers for
our common stock on the OTC bulletin board. Nevertheless, even in the event
that
our common stock is listed on the OTC bulletin board (or the pink sheets),
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 generally
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.
11
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
2.Management’s
Plan of Operation.
The
accompanying Plan of Operation should be read in conjunction with the audited
financial statements, and notes thereto, included in this
prospectus.
Plan
of Operation
Assets;
Property Acquisitions and Dispositions.
Poker
Magic’s primary assets are cash and intellectual property rights and trademarks,
which are the foundation for the Company’s proposed offerings. At this time, the
Company does not anticipate purchasing or selling any significant equipment
or
other assets in the near term. Neither does the Company anticipate changes
in
its number of employees.
Initial
Product Offerings.
Poker
Magic’s first product is the patented Winner’s Pot Poker table game, which is a
new version of stud poker which we intend to license to gaming establishments.
Poker Magic will attempt to internally develop new casino games, but will likely
focus its game-development activities by means of acquisition (i.e., through
works for hire obtained from and developed by independent contractors or other
third parties, or purchases of games, assets, intellectual property, etc. from
third parties). Poker Magic believes that the commercial viability of future
games, either developed or acquired, will materially depend on two
characteristics: first, whether the games will be novel enough to attract
players to the game; and second, whether the games will have economic
characteristics that will motivate casinos to license the games. We currently
expect to reach an agreement with Bally’s Park Place, Inc. respecting license
fees payable to us by April 2008, although we cannot be certain that we will
be
able to reach any such agreement with Bally’s Park Place, Inc. (or any other
gaming establishment).
Research
and Development.
To
date, the Company has relied on outside parties for game development. The
Company does not have employees with experience in game development, and
currently has no plans to hire employees focused on research and development
activities. As such, the Company does not expect to incur significant research
and development expenses over the next 12 months of operation, and instead
expects to continue to rely on outside parties and consultants to develop games.
The limited availability of funds may hinder the Company’s ability to acquire
the rights to new games and market them adequately.
Our
management believes we will require additional capital to continue operations.
We will maintain limited operations until we received additional capital. We
cannot be certain that any required additional financing will be available
on
terms favorable to us. If additional funds are raised by the issuance of our
equity securities, such as through the issuance and exercise of warrants, the
existing shareholders will experience dilution of their ownership interest.
If
additional funds are raised by the issuance of debt or other equity instruments,
we may be subject to certain limitations in our operations, and issuance of
such
securities may have rights senior to those of the then existing holders of
common stock. If adequate funds are not available or not available on acceptable
terms, we may be unable to expansion, develop or enhance products or to respond
to competitive pressures. The Company believes that its current cash will be
sufficient to finance operations through June 30, 2008.
There
are
no material capital expenditures expected in the near future or during the
next
12 months.
On
August22, 2007, the New Jersey Casino Control Commission in a public hearing adopted
new temporary rules and amendments governing the implementation of Winner’s Pot
Poker, the Company’s only current gaming product, in Atlantic City casinos. The
temporary rules are effective as of a date to be determined by the New Jersey
Casino Control Commission. 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.
In
December 2007, the Company entered into a License Agreement with Bally’s Park
Place, Inc. (doing business at the Bally’s Park Place & Boardwalk casinos)
to license the use of the Winner’s Pot Poker game at Bally’s Atlantic City
property. The Company expects to continue seeking final regulatory approval
in
New Jersey and regulatory approval in other jurisdictions concurrently with
the
Company’s efforts to enter into additional agreements with other gaming venues
for the installation of Winner’s Pot Poker. The Company also plans to develop
new gaming products primarily by utilizing the services of outside developers,
sales agents and regulatory and compliance service providers in an effort to
minimize capital expenditures and corporate expenses.
13
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.
Item
3.Description
of Property.
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 Lake Street West, Wayzata,
Minnesota. Great North Capital Corp. does not currently charge the Company
any
rent for the use of the premises. The premises are adequate for the Company’s
current and anticipated future use. The Company does not currently lease or
own
any real property.
14
Item
4.Security
Ownership of Certain Beneficial Owners and Management.
The
table
below sets forth certain information with respect to beneficial ownership of
our
common stock as of January 18, 2008 (on which date there were an aggregate
of
7,764,991 shares of common stock outstanding), by:
each
person named in the Summary Compensation Table (see
Item 6 below)
·
all
current directors and executive officers of the Company as a group,
and
·
each
person or entity known by us to own beneficially 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,
Minnesota55391, 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)
1,577,500
20.3
%
Joseph
A. Geraci, II (3)
1,440,000
18.5
%
Marilyn
Culotta (4)
757,500
9.7
%
All
current directors and executive officers as a group (5)
(two persons)
3,017,500
38.9
%
*
Less
than one percent
(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, 187,500 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
1,250,000 common shares held by Isles Capital, LLC, a Minnesota limited
liability company, beneficially owned by Mr. Geraci, and 190,000
common
shares held individually by Mr. Geraci’s
spouse.
(4)
All
shares are common shares and are held
individually.
(5)
Includes
Messrs. Polinsky and Geraci.
15
Item
5.Directors
and Executive Officers, Promoters and Control Persons.
Name
Age
Positions
Douglas
M. Polinsky
48
Chairman,
Chief Executive Officer and President
Joseph
A. Geraci, II
38
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 2000 until December 2004, Mr. Geraci was
a
broker with Oak Ridge Financial Services, Inc., a Minneapolis-based
broker-dealer firm.
Messrs.
Polinsky and Geraci are equal owners of Lantern Advisers, LLC, a Minnesota
limited liability company, that makes investments in and provides
management-related services to a variety of public and private companies.
Under
the
Company’s bylaws, the directors serve for indefinite terms expiring upon the
next annual meeting of the Company’s shareholders.
Family
Relationships
The
board
of directors has affirmatively determined that there are no familial
relationships among any of the Company’s officers or directors.
Involvement
in Certain Legal Proceedings
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.
16
Item
6.Executive
Compensation.
Executive
Compensation
Summary
Compensation Table
The
following table sets forth the total compensation paid by the Company during
its
last fiscal year, ended December 31, 2006, to the persons who served as
President or Chief Executive Officer of the Company and each other executive
officer of the Company, and the most highly compensated executive officers
with
decision-making abilities.
Name
and Principal Position
Year
Salary
($)
Bonus
($)
Stock
Awards ($)
All
Other Compensation ($)
Total
($)
Douglas
M. Polinsky,
Chief
Executive Officer
2006
$0
(1)
-
-
-
$0
Joseph
A. Geraci, II,
Chief
Financial Officer
2006
$0
(1)
-
-
-
$0
(1)
The
named executive officers did not receive salaries during the fiscal
year
ended December 31, 2006, because the Company did not then have the
resources to pay, or commit to pay, such individuals for their services.
Any services provided during fiscal 2006 were minimal. Nevertheless,
each
named executive officer received a stock award of 250,000 fully vested
common shares in January 2007, in exchange for services to be rendered
during 2007 to the Company in their respective roles as corporate
officers
and directors. The Company’s board of directors valued these shares at
$0.25 per share, based primarily on the offering price of a near
contemporaneous private placement of common shares.
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, 2006. In addition, the Company has
no
options, warrants, unvested stock awards or equity incentive plan awards
outstanding as of the date of this filing.
Director
Compensation
The
Company did not pay any director compensation in 2006, nor did the Company
reimburse any directors for their expenses incurred in attending or
participating in meetings of the board of directors or other Company-related
meetings.
17
Item
7.Certain
Relationships and Related Transactions, and Director
Independence.
Transactions
with Related Persons.
On July26, 2007, the Company issued 20,000 common shares to Marilyn Culotta. Ms.
Culotta was a beneficial holder of more than ten percent of the Company’s
outstanding common stock at the time of such issuance. The shares were issued
in
satisfaction of outstanding principal, in the amount of $7,084, under a loan
Ms.
Culotta made to the Company. In connection with the share issuance, the Company
also paid Ms. Culotta cash in the amount of $2,375.
Director
Independence.
The
Company currently has two directors, Messrs. Joseph A. Geraci, II and Douglas
M.
Polinsky, neither of whom 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. 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
8.Description
of Securities.
General
The
Company is authorized to issue an aggregate of 250,000,000 shares of capital
stock, $0.001 par value. Unless otherwise specifically so designated upon
issuance, all shares of capital issued by the Company shall be common stock.
The
Company’s board of directors has authority, without any further vote or action
by our shareholders, to designate and issue shares in such classes or series
(including classes or series of common or 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 classes or series of common stock or preferred stock that may be
issued could be superior to the rights of our common stock. Our board of
directors’ ability to designate and issue shares could impede or deter an
unsolicited tender offer or takeover proposal. Further, the issuance of
additional shares having preferential rights could adversely affect other rights
appurtenant to our common stock. Any such issuances will dilute the percentage
of ownership interest of our current holders of common shares and may dilute
the
book value per share of the Company.
Common
Stock
As
of the
date of this filing, there were 7,764,991 shares of our common stock outstanding
held by approximately 170 shareholders of record. Also as of the date of this
filing, there are no shares of our common stock reserved for issuance upon
the
exercise of outstanding options and warrants. The holders of our common
stock:
·
have
equal ratable rights among themselves to dividends from funds legally
available therefor, when, as and if declared by our board of
directors
·
are
entitled to share ratably in all of our assets available for distributions
to holders of the common stock upon liquidation, dissolution or winding
up
of our affairs, subject to any liquidation preferences in favor of
issued
and outstanding classes of preferred
stock
·
do
not have preemptive, subscription or conversion rights and there
are no
redemption or sinking-fund provisions applicable thereto,
and
18
·
are
entitled to one vote per share on all matters submitted to a vote
of our
shareholders.
The
holders of our common stock do not have cumulative-voting rights, which means
that the holders of more than 50% of such outstanding shares voting for the
election of directors can elect all of the directors of the Company to be
elected.
PART
II
Item
1.
Market
Price of and Dividends on the Registrant’s Common Equity and Related
Stockholder Matters.
Market
Information
Our
common stock is not, and has never been publicly traded. As such, there is
currently no market for our common stock. We anticipate that one or more
registered broker-dealers may apply to have our common stock listed on the
OTC
Bulletin Board following the effective date of this registration statement.
Nevertheless, the process of applying for quotation on the OTC Bulletin Board
is
undertaken and controlled by one or more market-makers (broker-dealers who
agree
to make a market for our common stock) and is largely outside of our control.
Accordingly, we cannot be certain that our common stock will be listed on the
OTC Bulletin Board or that, even if listed at some time in the future, an active
market will ever develop.
As
of the
date of this filing, there are no outstanding options or warrants to purchase
shares of the Company’s common stock. As of the date of this filing, there are
currently 7,204,991 shares of common stock that may potentially be sold pursuant
to Rule 144 under the Securities Act (all of which would be subject to volume
restrictions and other limitations under Rule 144). The Company has not, as
of
the date of this filing, agreed to register the resale of any common shares
by
securityholders.
Holders
As
of the
date of this filing, we had approximately 170 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.
19
Securities
Authorized for Issuance Under Equity Compensation Plans
The
table
below sets forth information, as of December 31, 2006, regarding equity
compensation plans (including individual compensation arrangements) under which
securities of Poker Magic, Inc. are authorized for issuance.
Number
of Securities to be Issued Upon Exercise of Outstanding Options,
Warrants
and Rights
Weighted-Average
Exercise Price of Outstanding Options, Warrants and
Rights
Number
of Securities Remaining Available for Issuance Under Equity Compensation
Plans (excluding securities reflected in column
a)
(a)
(b)
(c)
Equity
compensation plans approved by securityholders
0
n/a
n/a
Equity
compensation plans not approved by securityholders
0
(1)
n/a
None
(1)
(1)
The
Company is not a party to an equity compensation plan, nor is the
Company
obligated under “individual compensation arrangements” (as defined in Item
202 of Regulation S-B) to issue any further 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.
Item
2.Legal
Proceedings.
None.
Item
3.Changes
in and Disagreements with Accountants.
None.
Item
4.Recent
Sales of Unregistered Securities.
Since
inception, the Company has offered and sold equity and equity-linked securities
in unregistered transactions as indicated below:
2006:
In
January 2006, the Company issued 2,500,000 shares of common stock to affiliates
of the Company’s founders and directors for aggregate cash consideration of
$2,500.
In
March
2006, the Company issued 3,022,991 shares of common stock to Select Video,
Inc.,
a Delaware corporation, in connection with the Company’s acquisition of certain
intellectual property (which shares, for accounting purposes, had an aggregate
value of $3,023).
20
In
May
2006, the Company issued a total of 432,000 shares of common stock to eight
accredited investors for aggregate cash consideration of $95,500 and a
subscription receivable for an additional $12,500.
In
August
2006, the Company issued a total of 50,000 shares of common stock to two
accredited investors for aggregate cash consideration of $12,500.
In
December 2006, the Company issued a total of 100,000 shares of common stock
to a
consultant an accredited investor for gaming-industry related services
rendered.
2007:
In
January 2007, the Company issued a total of 1,100,000 shares of common stock
to
accredited investors for management-related services rendered and to be
rendered, and for gaming-related services rendered and to be
rendered.
In
July
2007, the Company issued a total of 100,000 shares of common stock to three
accredited investors for aggregate cash consideration of $24,709, including
the
conversion of a $20,000 debt.
In
August
2007, the Company issued a total of 165,000 shares of common stock to two
accredited investors for professional services rendered, and strategic
consulting services rendered.
In
September 2007, the Company issued a total of 25,000 shares of common stock
to
an accredited investor for professional services rendered.
In
November 2007, the Company issued a total of 50,000 shares of common stock
an
accredited investor for consulting services rendered.
In
December 2007, the Company issued a total of 120,000 shares of common stock
to
two accredited investors for aggregate cash consideration of
$30,000.
2008:
In
January 2008, the Company issued a total of 100,000 shares of common stock
to
one accredited investor for cash consideration of $25,000.
The
offers, sales and issuances of the Company’s common shares in unregistered
transactions were exempt from registration under Sections 4(6) or 4(2) of the
Securities Act of 1933, including Rule 506 of Regulation D thereunder. The
Company relied on the representations of the investors as set forth in
subscription agreements or investment representation letters for its
determination that the investors were (i) purchasing for investment purposes
only and not with a view toward distribution, (ii) either alone or through
a
purchaser representative, knowledgeable and experienced in financial and
business matters such that each was capable of evaluating the risks of the
investment, (iii) “accredited investors” as defined in Rule 501 under the
Securities Act, or (iv) all of the foregoing. In addition, the transactions
enumerated above all involved only a limited number of investors. In some cases
involving the issuance of common shares in exchange for management or consulting
services, the Company may also claim the exemption from registration permitted
by Rule 701 under the Securities Act.
Item
5.Indemnification
of Directors and Officers.
Minnesota
law permits a corporation to indemnify its directors and officers, except for
any act of dishonesty. The Company has provided in its bylaws for the
indemnification of officers and directors to the fullest extent possible under
Minnesota law against expenses (including attorney’s fees), judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was
an
agent of the Company. In addition, the Company has the power, to the maximum
extent and in the manner permitted by Minnesota Business Corporation Act, to
indemnify each of our employees and agents (other than directors and officers)
against expenses (including attorneys’ fees), judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with any proceeding
arising by reason of the fact that such person is or was an agent of Poker
Magic, Inc.
21
The
Company’s articles of incorporation limit or eliminate the personal liability of
its officers and directors for damages resulting from breaches of their
fiduciary duty for acts or omissions except for damages resulting from acts
or
omissions which involve intentional misconduct, fraud, a knowing violation
of
law, or the inappropriate payment of dividends in violation of the Minnesota
Business Corporation Act.
Insofar
as indemnification for liabilities arising under the Securities Act pursuant
to
the foregoing provisions, or otherwise, the Company has been advised that,
in
the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer
or
controlling person of the Company in the successful defense of any such action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Company will, unless
in
the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act, and will be governed by the final adjudication of such issue.
22
INDEX
TO FINANCIAL STATEMENTS AND INFORMATION
Page
Report
of Independent Registered Public Accounting Firm
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
online 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 consolidated financial statements and the reported amounts of expenses
during the reporting period. Actual results could differ from those estimates.
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. Based on borrowing rates currently available to the Company
for
loans with similar terms, the carrying value of the note payable at December31,2006 approximates fair value.
Liquidity
The
accompanying financial statements have been prepared assuming the Company
will
continue as a going concern that contemplates the realization of assets
and
satisfaction of liabilities in the normal course of business. For the period
from January 10, 2006 (inception) to December 31, 2006, the Company incurred
a
net loss of $43,127. The Company's ability to continue as a going concern
is
dependent on it ultimately achieving profitability, producing revenues
and/or
raising additional capital. Management intends to obtain additional debt
or
equity capital to meet all of its existing cash obligations and to support
the
revenue generating process; however, there can be no assurance that the
sources
will be available or available on terms favorable to the Company.
On
March10, 2006, the Company purchased certain assets and assumed certain liabilities
of Select Video, Inc. (See Note 8). 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 $6,204 for
the
period ended December 31, 2006. Estimated amortization expense for the
next five
years of patents issued as of December 31, 2006 is as follows:
Years
ending December 31:
2007
$
8,271
2008
8,271
2009
8,271
2010
8,271
2011
2,069
Total
$
35,153
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, 2006.
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.
Recent
accounting pronouncements
In
July
2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of
SFAS No. 109” (FIN 48), which clarifies the accounting for uncertainty
in tax positions. This Interpretation requires that the Company recognize
in its
financial statements the impact of a tax position if that position is more
likely than not of being sustained on audit, based on the technical merits
of
the position. The provisions of FIN 48 are effective for fiscal years
beginning after December 16, 2006, with the cumulative effect, if any, of
the change in accounting principle recorded as an adjustment to opening
retained
earnings. The adoption of FIN 48 is not expected to have a material impact
on
the Company’s financial statements.
In
September 2006, the FASB issued SFAS No. 157 (SFAS No. 157), Fair Value
Measurements, to eliminate the diversity in practice that exists due to
the
different definitions of fair value and the limited guidance for applying
those
definitions in GAAP that are dispersed among the many accounting pronouncements
that require fair value measurements. SFAS No. 157 retains the exchange
price
notion in earlier definitions of fair value, but clarifies that the exchange
price is the price in an orderly transaction between market participants
to sell
an asset or liability in the principal or most advantageous market for
the asset
or liability. Moreover, the SFAS states that the transaction is hypothetical
at
the measurement date, considered from the perspective of the market participant
who holds the asset or liability. Consequently, fair value is defined as
the
price that would be received to sell an asset or paid to transfer a liability
in
an orderly transaction between market participants at the measurement date
(an
exit price), as opposed to the price that would be paid to acquire the
asset or
received to assume the liability at the measurement date (an entry price).
SFAS
No.
157 also stipulates that, as a market-based measurement, fair value measurement
should be determined based on the assumptions that market participants
would use
in pricing the asset or liability, and establishes a fair value hierarchy
that
distinguishes between (a) market participant assumptions developed based
on
market data obtained from sources independent of the reporting entity
(observable inputs) and (b) the reporting entity's own assumptions about
market
participant assumptions developed based on the best information available
in the
circumstances (unobservable inputs). Finally, SFAS No. 157 expands disclosures
about the use of fair value to measure assets and liabilities in interim
and
annual periods subsequent to initial recognition. Entities are encouraged
to
combine the fair value information disclosed under SFAS No. 157 with the
fair
value information disclosed under other accounting pronouncements, including
SFAS No. 107, Disclosures about Fair Value of Financial Instruments, where
practicable. The guidance in this Statement applies for derivatives and
other
financial instruments measured at fair value under SFAS No. 133 , Accounting
for
Derivative Instruments and Hedging Activities, at initial recognition and
in all
subsequent periods.
SFAS
No.
157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years,
although
earlier application is encouraged. Additionally, prospective application
of the
provisions of SFAS No. 157 is required as of the beginning of the fiscal
year in
which it is initially applied, except when certain circumstances require
retrospective application.
The
Company does not expect the adoption SFAS No. 157 to have a material effect
on
its financial statements.
Basic
net
loss per common share is computed by dividing net loss attributable to
common
stockholders by the weighted average number of vested common shares outstanding
during the period. A reconciliation of the numerator and denominator used
in the
calculation of basic and diluted net loss per common share follows :
With
the
issuance of common stock to the founders on January 10, 2006, the Company
issued
a subscription receivable of $1,500 which was subsequently paid on July27,2007.
50,000
shares of common stock were issued to an investor on May 23, 2006 under
a
subscription receivable for $12,500, which was paid on October 15,2007.
NOTE
4—NOTE PAYABLE
With
the
purchase of certain assets and the assumption of certain liabilities of
Select
Video on March 10, 2006, the Company assumed $7,084 of debt that was unsecured,
due on demand and non-interest bearing until January 1, 2007 at which time
interest was to begin accruing at 8% that was not paid as of December 31,2006.
Subsequently in 2007, the Company issued 20,000 shares of common stock
in
settlement for $4,709 of this debt. The remaining $2,375 was paid on July26,2007.
NOTE
5—COMMITMENTS AND CONTINGENCIES
The
asset
purchase agreement with Select Video dated March 10, 2006, stated that
if and
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.
On
March10, 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
May23, 2006, the Company issued 60,000 shares of common stock at $.25 per
share in
lieu of cash payments for liabilities assumed.
During
2006, the Company raised 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.
NOTE
7—INCOME TAXES
Reconciliation
between the federal statutory rate and the effective tax rates for the
period
from January 10, 2006 (inception) to December 31, 2006 is as follows:
At
December 31, 2006, the Company had federal and state net operating loss
carryforward of approximately $40,000 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 has established a valuation allowance against its deferred tax
assets
due to the uncertainty surrounding the realization of such assets.
The
Company’s deferred tax asset is the net operating loss carry forward and the
difference in patent amortization expense.
NOTE
8—ACQUISITION OF CERTAIN ASSETS AND ASSUMPTION OF
LIABILITIES
On
March10, 2006, the Company entered into an asset purchase agreement with Select
Video
to purchase assets of Select Video for a total of 3,022,991 shares of the
Company's common stock. The common shares were valued at fair market value
on
the date of agreement which was $0.001 per share for a purchase price of
$3,023.
The Company also assumed liabilities of Select Video in the amount of $39,084.
The
reason for the purchase was to acquire the technology and design of the
products
which are anticipated to be the Company’s first product to sell. The purchase
price of $42,107 was allocated to inventory of $750 and patents of
$41,357.
NOTE
9—SUBSEQUENT EVENTS
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
July26, 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 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
August1, 2007, the Company issued 65,000 shares of common stock for services.
These
services were valued at $5,000.
On
August1, 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
September 10, 2007, the Company issued 25,000 shares of common stock for
services. These services were valued at $1,000.
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
online gaming facilities in the United States.
Interim
Financial Information
The
accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States and
pursuant
to the rules and regulations of the Securities and Exchange Commission
(the
“SEC”) for interim financial information. Accordingly, certain information
and
footnote disclosures normally included in financial statements prepared
in
accordance with accounting principles generally accepted in the United
States
have been omitted pursuant to such rules and regulations. Operating results
for
the three and nine month periods ended September 30, 2007 are not necessarily
indicative of the results that may be expected for the year ending December31,2007 or any other period. The accompanying financial statements and related
notes should be read in conjunction with the audited financial statements
of the
Company, and notes thereto, contained in this filing for the period ended
January 10, 2006 (inception) to December 31, 2006.
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 consolidated financial statements and the reported amounts of expenses
during the reporting period. Actual results could differ from those estimates.
Inventory
Poker
table felt inventory is valued using the lower of cost (first-in, first-out
method) or market.
Liquidity
The
accompanying financial statements have been prepared assuming the Company
will
continue as a going concern that contemplates the realization of assets
and
satisfaction of liabilities in the normal course of business. For the
period
from January 10, 2006 (inception) to September 30, 2007, the Company
incurred a
net loss of $160,551. The Company's ability to continue as a going concern
is
dependent on it ultimately achieving profitability, producing revenues
and/or
raising additional capital. Management intends to obtain additional debt
or
equity capital to meet all of its existing cash obligations and to support
the
revenue generating process; however, there can be no assurance that the
sources
will be available or available on terms favorable to the Company.
Intangible
Assets
On
March10, 2006, the Company purchased certain assets and assumed certain liabilities
of Select Video, Inc. (Select Video). Three patents were acquired as
a part of
the March 10, 2006 purchase. The patents are stated at cost and are amortized
on
a straight-line basis over 60 months. Amortization expense was $2,068
and $6,204
for the three and nine months ended September 30, 2007 and $2,068 and
$4,136 for
the three months ended September 30, 2006 and the period from January10, 2006
(inception) to September 30, 2006. Estimated amortization expense for
the next
five years of patents issued as of December 31, 2006 is as follows:
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 September 30, 2007 or December 31, 2006.
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.
Recent
accounting pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measures” (“SFAS
157”). SFAS 157 defines fair value, establishes a framework for measuring
fair
value and enhances disclosures about fair value measures required under
other
accounting pronouncements, but does not change existing guidance as to
whether
or not an instrument is carried at fair value. SFAS 157 is effective
for fiscal
years beginning after November 15, 2007. The Company is currently reviewing
the
provisions of SFAS 157 to determine the impact on the Company's financial
statements.
In
February 2007, the FASB issued 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. The objective is to expand the use of fair value measurements
in
accounting for financial instruments. SFAS 159 is effective for fiscal
years
beginning after November 15, 2007. The Company is currently reviewing
the
provisions of SFAS 159 to determine the impact on the Company's financial
statements.
On
January 1, 2007, the Company adopted the provisions of FIN 48, which
clarifies
the accounting for uncertainty in income tax positions. This interpretation
requires the Company to recognize in the consolidated 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. The adoption of FIN 48 did not result
in an
adjustment to the Company's financial statements.
In
December 2007, the FASB issued SFAS No. 160 Noncontrolling Interests
in
Consolidated Financial Statements-an amendment of ARB No. 51. SFAS 160
establishes accounting and reporting standards for the noncontrolling
interest
in a subsidiary and for the deconsolidation of a subsidiary. The guidance
will
become effective as of the beginning of the Company's fiscal year beginning
after December 15, 2008. Management believes the adoption of this pronouncement
will not have a material impact on the Company's financial
statements.
Basic
net
loss per common share is computed by dividing net loss attributable to
common
stockholders by the weighted average number of vested common shares outstanding
during the period. A reconciliation of the numerator and denominator
used in the
calculation of basic and diluted net loss per common share follows :
With
the
issuance of common stock to the founders on January 10, 2006, the Company
issued
a subscription receivable of $1,500 which was subsequently paid on July27,2007.
50,000
shares of common stock were issued to an investor on May 23, 2006 under
a
subscription receivable for $12,500, which was paid on October 15,2007.
NOTE
4—COMMITMENTS AND CONTINGENCIES
The
asset
purchase agreement with Select Video dated March 10, 2006, stated that
if and
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.
On
March10, 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
May23, 2006, the Company issued 60,000 shares of common stock at $.25 per
share in
lieu of cash payments for liabilities assumed.
During
2006, the Company raised 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.
On
January 15, 2007, the Company issued 600,000 shares of common stock to
two
consultants at $.083 per share for services to be rendered over a twelve
month
period.
On
January 15, 2007, the Company issued 500,000 shares of common stock to
the two
founders at $.096 per share for services to be rendered over a twelve
month
period.
During
July 2007, the Company raised cash of $20,000 at $.25 per share through
the
issuance of 80,000 shares of common stock.
On
July26, 2007, the Company issued 20,000 shares of common stock at $.2354
per share
in settlement of $4,709 note payable.
On
August1, 2007, the Company issued 100,000 shares of common stock to a consultant
at
$.083 per share for services to be rendered over a twelve month
period.
On
August1, 2007, the Company issued 65,000 shares of common stock at $.077 per
share for
accounting services rendered.
At
September 30, 2007, a total of 7,494,991 shares of common stock were
issued and
outstanding. No warrants or options were issued as of September 30,2007.
The
Company believes the value of the sevices provided during 2007 was the
best
measurement of the value of the common stock.
At
September 30, 2007, the Company had federal and state net operating loss
carryforward of approximately $153,000 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.
NOTE
7—SUBSEQUENT EVENTS
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.
Amended
and Restated Bylaws of Poker Magic, Inc. (filed
herewith).
4.1
Form
of Common Stock Certificate (filed
herewith).
10.1
Asset
Purchase Agreement with Select Video, Inc., dated March 10, 2006
(filed
herewith).
10.2
License
Agreement with Bally’s Park Place, Inc., dated December 26, 2007
(filed
herewith).
Item
2.Description
of Exhibits.
See
Part
III, Item 1 above.
SIGNATURES
Pursuant
to the requirements of Section 12 of the Securities Exchange Act of 1934, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
