SUIG

SEC Filing Summary: Poker Magic, Inc. (Form 10-K)

Business Context and Reporting Period

Company: Poker Magic, Inc.
Reporting Period: Fiscal year ended December 31, 2008
Business Model: A development-stage company incorporated in January 2006, focused on licensing its proprietary table game, "Winner's Pot Poker," to casinos and entertainment facilities. The company operates on a licensing model to minimize capital expenditure, relying on intellectual property (patents and trademarks) acquired from Select Video, Inc. in 2006.
Current Status: The company has one active customer, Bally's Park Place, Inc., in Atlantic City, New Jersey, under a month-to-month license agreement. The company has no employees and relies on consultants and executive officers.

Key Financial Metrics

Note: The filing text does not provide specific margin percentages due to the lack of profitability and minimal revenue base.

Material Changes vs. Prior Period

• Revenue Generation: The company recorded its first revenue of $3,325 in 2008, compared to zero in 2007, following the amendment of its license agreement with Bally's Park Place in June 2008.
• Net Loss Increase: Net loss increased by 41.7% to $282,719 in 2008 from $199,574 in 2007. This was driven by the introduction of cost of revenue and a 149.8% increase in legal and accounting expenses ($139,892 vs. $56,000) related to SEC registration amendments and regulatory compliance.
• General Operating Expenses: Decreased by 58.2% to $40,823 in 2008 from $97,574 in 2007.
• Liquidity: Cash on hand increased significantly to $145,117 in 2008 from $37,003 in 2007, primarily due to $287,500 in proceeds from private placement sales of common stock.

Guidance, Outlook, Risks, and Contingencies

Outlook and Guidance: Management believes current cash is sufficient to fund operations through June 30, 2009. The company anticipates requiring additional capital thereafter to fund marketing, regulatory licensing applications (specifically in Nevada and Minnesota), and ongoing compliance costs. Future revenues are expected to be offset by expenses related to the licensing and compliance process.

Key Risks and Contingencies:

• Going Concern: The company has incurred cumulative losses since inception and negative cash flows from operations, raising substantial doubt about its ability to continue as a going concern without additional financing.
• Regulatory Approval: The company has not yet obtained final Casino Service Industry (CSI) supplier licenses in New Jersey, Nevada, or Minnesota. Failure to secure these licenses would prevent commercial expansion.
• Customer Concentration: The company relies entirely on a single customer (Bally's Park Place) under a month-to-month agreement that can be cancelled by either party at any time.
• Financing Needs: Additional financing is required to sustain operations. If raised through equity, existing shareholders will face dilution. If raised through debt, the company may face operational restrictions.
• Market Conditions: The 2008 economic downturn has negatively impacted the gaming industry, with gaming revenues falling in key jurisdictions, potentially reducing demand for new table games.

Investor Verification Checklist

• Regulatory Status: Verify the current status of the CSI supplier license application with the New Jersey Casino Control Commission and pending applications in Nevada and Minnesota.
• Liquidity Runway: Confirm current cash balances and burn rate to validate the management estimate of operations continuing through mid-2009.
• Customer Retention: Assess the stability of the month-to-month license agreement with Bally's Park Place and the likelihood of renewal or expansion.
• Capital Requirements: Review the specific capital raise plans and terms for the period after June 2009 to understand potential dilution or debt obligations.
• Intellectual Property: Confirm the validity and enforceability of the patent (No. 5,839,732) and trademarks acquired from Select Video, Inc.