The accompanying notes are an integral part
of these financial statements.
The accompanying notes are an integral part
of these financial statements.
The accompanying notes are an integral part
of these financial statements.
Notes to Financial Statements
September 30, 2012
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of operations and basis
of presentation
Poker Magic, Inc. (the “Company”) is a development
stage company that was incorporated in the State of Minnesota on January 10, 2006. Our business consists primarily of
marketing and licensing a new form of poker-based table game to casinos and on-line gaming facilities in the United States.
Interim financial information
The following condensed balance sheet as of December 31, 2011,
which has been derived from audited financial statements, and the unaudited interim condensed 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
months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December
31, 2012 or any other period. The accompanying financial statements and related notes should be read in conjunction with the audited
financial statements of the Company, and notes thereto, contained in this filing for the year ended December 31, 2011. The financial
information furnished in this report is unaudited and reflects all adjustments which are normal recurring adjustments and, which
in the opinion of management, are necessary to fairly present the results of the interim periods presented in order to make the
financial statements not misleading.
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, 2012, the Company incurred a net loss
of $1,105,776. The Company's ability to continue as a going concern is dependent on it ultimately achieving profitability, producing
additional revenues and/or raising additional capital. Management intends to obtain additional debt or equity capital to meet all
of its existing cash obligations and to support the revenue generating process; however, there can be no assurance that the sources
will be available or available on terms favorable to the Company, if at all.
Combination (Reverse Split) of Common
Stock
On July 18, 2012, the Company’s Board of Directors approved
a 1-to-11 reverse stock split subject to approval by the Company’s stockholders. The reverse stock split, approved by the
Company’s stockholders on September 7, 2012, became effective on September 10, 2012. The reverse stock split did not result
in a reduction in the number of authorized shares of common stock. The accompanying financial statements and footnotes have been
adjusted retroactively to reflect the reverse stock split.
Fair value of financial instruments
The carrying amounts of certain of the Company’s financial
instruments, including cash, accounts payable, and notes payable approximate fair value due to their relatively short maturities.
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 vested common shares outstanding during the period. A reconciliation of the numerator and
denominator used in the calculation of basic and diluted net loss per common share follows:
|
|
Three Months
Ended
September 30, 2012
|
|
|
Three Months
Ended
September 30, 2011
|
|
Numerator: Net Loss
|
|
$
|
(60,833
|
)
|
|
$
|
(29,142
|
)
|
Denominator: Weighted-average number of common shares outstanding
|
|
|
1,072,748
|
|
|
|
1,012,020
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.06
|
)
|
|
$
|
(0.03
|
)
|
|
|
Nine Months Ended
September 30, 2012
|
|
|
Nine Months Ended
September 30, 2011
|
|
|
Period from
January 10, 2006
(inception) to
September 30, 2012
|
|
Numerator: Net Loss
|
|
$
|
(137,550
|
)
|
|
$
|
(101,607
|
)
|
|
$
|
(1,105,776
|
)
|
Denominator: Weighted-average number of common shares outstanding
|
|
|
1,057,048
|
|
|
|
1,005,274
|
|
|
|
815,607
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.13
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(1.36
|
)
|
NOTE 3—COMMITMENTS AND CONTINGENCIES
The asset purchase agreement with Select Video dated March
10, 2006, provides that when the Company receives any revenue generated by Winner’s Pot Poker and other similar games, Select
Video will be entitled to receive an amount equal to five percent (5%) of all gross proceeds generated by these games.
As of both September 30, 2012 and December 31, 2011, $619 was
owed to Select Video under this agreement.
NOTE 4—SHAREHOLDERS’ DEFICIT
Common stock
On January 10, 2006, the founders of the Company purchased 227,273
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 274,817 shares of common stock issued at the deemed fair market value
of $.011 per share or $3,023.
On May 23, 2006, the Company issued 5,455 shares of common stock
at $2.75 per share in lieu of cash for liabilities assumed.
During 2006, the Company raised additional cash of $87,500 at
$2.75 per share through the issuance of 31,818 shares of common stock.
During 2006, the Company issued 2,000 shares to various consultants
at $2.75 per share for services rendered.
During 2006, the Company issued 9,091 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 54,545 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 45,455 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 1,818 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 $2.75 per
share through the issuance of 7,273 shares of common stock.
On August 1, 2007, the Company issued 5,909 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 9,091 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 2,273 shares of common
stock for services. These services were valued at $1,000.
On November 26, 2007, the Company issued 4,545 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 $2.75
per share through the issuance of 10,909 shares of common stock.
In January 2008, the Company raised cash of $25,000 at $2.75
per share through the issuance of 9,091 shares of common stock.
On May 28, 2008, the Company raised cash
of $250,000 at $2.75 per share through the issuance of 90,909 shares of common stock together with a warrant, classified as permanent
equity, to purchase up to 90,909 shares of common stock, which was immediately exercisable. The warrants do not possess
any embedded derivative features. The exercise price was $2.75 per share if purchased within six months of issuance. The
exercise price increased to $4.675 for months seven through twelve (after the date of issuance) and to $5.50 after twelve months. The
warrant expired on May 27, 2010.
In May 2008, the Company raised cash of $12,500 at $2.75 per
share through the issuance of 4,545 shares of common stock.
On August 26, 2008, the Company issued 18,182 shares of common
stock to a consultant for services to be provided over a five month period commencing on August 1, 2008. These services
were valued at $20,000.
On August 26, 2008, the Company issued 5,455 shares of common
stock for services to be provided over a five month period commencing retroactively on August 1, 2008. These services
were valued at $5,000.
On August 26, 2008, the Company issued 5,455 shares of common
stock for services to be provided over a twelve month period commencing retroactively on August 1, 2008. These services
were valued at $5,000.
On August 26, 2008, the Company issued 909 shares of common
stock for services. These services were valued at $2,500.
On August 26, 2008, the Company issued 4,545 shares of common
stock for services. These services were valued at $5,000.
On December 16, 2008, the Company issued 3,673 shares of common
stock for services. These services were valued at $10,100.
On December 31, 2008, the Company issued 2,909 shares of common
stock for officer compensation. These services were valued at $8,000.
On February 25, 2009, the Company redeemed, at the request of
a non-affiliate shareholder, 33,333 shares of common stock held by a single shareholder at a price of $2.75 per share, for a total
amount of $91,667, which was the price originally paid for the redeemed shares.
On June 30, 2009, the Company issued 36,367 shares of common
stock for officer compensation with a fair value of $12,000.
On June 30, 2009, the Company issued 18,182 shares of common
stock for officer bonus compensation with a fair value of $6,000.
On June 30, 2009, the Company issued 4,545 shares of common
stock for consultant service bonus with a fair value of $1,500.
On June 30, 2009, the Company issued 455 shares of common stock
for services with a fair value of $150.
On June 30, 2009, the Company issued 682 shares of common stock
for services with a fair value of $225.
On September 30, 2009, the Company issued 18,182 shares of common
stock for officer compensation with a fair value of $12,000.
On December 31, 2009, the Company issued 18,182 shares of common
stock for officer compensation with a fair value of $12,000.
On March 31, 2010, the Company issued 10,909 shares of common
stock for officer compensation with a fair value of $12,000.
On June 30, 2010, the Company issued 13,636 shares of common
stock for officer compensation with a fair value of $12,000.
On September 30, 2010, the Company issued 18,182 shares of common
stock for officer compensation with a fair value of $12,000.
On December 31, 2010, the Company issued 18,182 shares of common
stock for officer compensation with a fair value of $12,000.
On December 31, 2010, the Company issued 18,182 shares of common
stock for officer bonus compensation with a fair value of $12,000.
On December 31, 2010, the Company issued 11,364 shares of common
stock as a bonus to a consultant for services with a fair value of $7,500.
On December 31, 2010, the Company issued 4,545 shares of common
stock for consultant services with a fair value of $3,000.
On March 31, 2011, the Company issued 2,182 shares of common
stock for officer compensation with a fair value of $12,000.
On June 30, 2011, the Company issued 9,091 shares of common
stock for officer compensation with a fair value of $12,000.
On September 30, 2011, the Company issued 4,364 shares of common
stock for officer compensation with a fair value of $12,000.
On December 31, 2011, the Company issued 27,273 shares of common
stock for officer compensation with a fair value of $12,000.
On March 31, 2012, the Company issued 10,909 shares of common
stock for officer compensation with a fair value of $12,000.
On June 30, 2012, the Company issued 18,182 shares of common
stock for officer compensation with a fair value of $12,000.
On September 7, 2012, the Company’s shareholders approved
a 1-for-11 combination (reverse split) of the Company’s common stock without a corresponding reduction in the number of
authorized shares of the Company’s capital stock effective on September 10, 2012.
On September 30, 2012, the Company issued 18,182 shares of
common stock for officer compensation with a fair value of $12,000.
At September 30, 2012, a total of 1,090,930 shares of common
stock were issued and outstanding.
NOTE 5—INCOME TAXES
The Company applies the guidance for accounting for uncertainty
in income tax provisions. As such, the Company is required 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. There are no uncertain tax positions at September 30, 2012 and December 31, 2011.
At September 30, 2012, the Company had federal and state net
operating loss carryforward of approximately $1,038,000 available to offset future taxable income. The Company’s federal
and state net operating loss carryforwards will begin to expire in 2027 if not used before such time to offset future taxable
income or tax liabilities. Current and future changes in the stock ownership of the Company may place limitations on the use of
these net operating loss carryforwards.
NOTE 6—NOTES PAYABLE RELATED PARTY
On October 19, 2010, Douglas Polinsky and Joseph A. Geraci,
II, both officers of the Company, each loaned the Company $5,000 under terms and conditions set forth in a related unsecured term
promissory note. Each promissory note provided for simple interest to accrue on the unpaid principal balance of the promissory
notes at the rate of 12% per annum, and required that accrued interest be paid on a monthly basis until October 18, 2011, at which
time the entire unpaid principal balance of $5,000 together with the unpaid accrued interest of $569 (accrued at 12% per annum)
became due and payable. Messrs. Polinsky and Geraci both agreed to renew the promissory notes and interest payable totaling $11,139
on September 30, 2011 for a term of six months. Subsequently, Messrs. Polinsky and Geraci both again agreed to renew the promissory
notes and interest payable totaling $11,807 on March 31, 2012 for a term of three years. The promissory notes have the same terms
as those contained in the original promissory notes and have a maturity date of March 31, 2015.
From July 30, 2009 to July 15, 2011, Lantern Advisers, LLC,
a Minnesota limited liability company owned equally by Douglas Polinsky and Joseph A. Geraci, II (each of whom is an officer and
director of the Company), loaned the Company a total of $150,000 under terms and conditions set forth in unsecured term promissory
notes. The promissory notes provided for simple interest to accrue on the unpaid principal balance of the promissory note
at the rate of 12% per annum, and required that accrued interest be paid on a monthly basis until maturity, at which time the entire
unpaid principal balance of the promissory note became due. On September 30, 2011, Lantern Advisers and the Company consolidated
these promissory notes and the accrued but unpaid interest into a new promissory note in the amount of $172,364. The new promissory
note had the same terms as those contained in the original promissory notes and had a maturity date of March 31, 2012. On December
30, 2011, Lantern Advisers, LLC loaned the Company an additional $25,000 under terms and conditions set forth in an unsecured term
promissory note. The Company consolidated this promissory note with the promissory note referenced above with a principal amount
of $172,364 and unpaid interest of $5,172 for a new promissory note in the amount of $202,536. The new unsecured promissory note
had the same terms as those contained in the original promissory notes and had a maturity date of June 30, 2012. Subsequently,
Lantern Advisers agreed to renew the unsecured term promissory note and interest payable totaling $214,688 on June 30, 2012 for
a term of three years. The promissory note has the same terms as those contained in the original promissory note and has a maturity
date of June 30, 2015.
On June 1, 2012, Lantern Advisers loaned the Company $25,000
under terms and conditions set forth in an unsecured term promissory note for a term of three years. The promissory note
provides for simple interest to accrue on the unpaid principal balance of the promissory note at the rate of 12% per annum, and
requires that accrued interest be paid on a monthly basis until maturity, at which time the entire unpaid principal balance of
the promissory note becomes due.
Total short-term related party notes at September 30, 2012 and
December 31, 2011 were $0 and $213,675, respectively, and provided working capital for the Company. Total long-term related party
notes as September 30, 2012 and December 31, 2011 were $251,495 and $0, respectively.
The Company incurred interest expense associated with the related
party notes as follows:
|
|
Three Months
Ended
September 30,
2012
|
|
|
Three Months
Ended
September 30,
2011
|
|
|
Nine Months
Ended
September 30,
2012
|
|
|
Nine Months
Ended
September 30,
2011
|
|
|
Period from
January 10, 2006
(inception) to
September 30, 2012
|
|
Interest Expense
|
|
$
|
7,545
|
|
|
$
|
5,190
|
|
|
$
|
20,635
|
|
|
$
|
13,476
|
|
|
$
|
49,644
|
|
NOTE 7—SUBSEQUENT EVENT
On October 31, 2012, Lantern Advisers loaned the Company $50,000
under terms and conditions set forth in an unsecured term promissory note for a term of three years. The promissory note
provides for simple interest to accrue on the unpaid principal balance of the promissory note at the rate of 12% per annum, and
requires that accrued interest be paid on a monthly basis until maturity, at which time the entire unpaid principal balance of
the promissory note becomes due.
On November 9, 2012, the Company entered into a subscription
agreement for the sale of 100,000 shares of common stock at a per-share price of $1.00. The subscription agreement contained standard
and customary representations, warranties and other terms and conditions.