UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549





FORM
10-Q





x   
 QUARTERLY REPORT UNDER SECTION 13 OR 15(d)


OF THE
SECURITIES EXCHANGE ACT OF 1934


For the
quarterly period ended September 30, 2009





OR





 ̈  
  TRANSITION REPORT UNDER SECTION 13 OR 15(d)


OF THE
SECURITIES EXCHANGE ACT OF 1934


For the
transition period from _______ to _______





Commission
File Number 0-16686





POKER
MAGIC, INC.





(Exact
name of registrant as specified in its charter)





Minnesota
            20-4709758(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification No.)





130 West
Lake Street, Suite 300, Wayzata, MN


(Address
of Principal Executive Offices)





(952)
473-3442


(Registrant’s
telephone number, including area code)





(Former
name, former address and former fiscal year, if changed from last
report)





Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.  YesxNo ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).    Yes  ̈No
 ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer  ̈
              Accelerated
      filer  ̈Non-accelerated
      filer  ̈
      (Do not check if a smaller reporting company)
              Smaller
      reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes  ̈No  x





As of
November 2, 2009 there were 9,763,224 shares of the issuer’s common stock,
$0.001 par value, outstanding.









Table of
Contents




PagePART
      I – FINANCIAL INFORMATIONItem
      1.
                Financial
      Statements
                1Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                9Item
      4T.
                Controls
      and Procedures
                15PART
      II – OTHER INFORMATIONItem
      1A.
                Risk
      Factors
                17Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                17Item
      5.
                Other
      Information
                17Item
      6.
                Exhibits
                18SIGNATURES
                18EXHIBIT
      INDEX
                19









PART
I – FINANCIAL INFORMATION





Item
1.  Financial Statements.





Poker
Magic, Inc.


(A
Development Stage Company)


Balance
Sheets





September 30, 2009
                  (unaudited)
                
                
                December 31, 2008
                  (audited)ASSETSCurrent
      AssetsCash
                
                $
                2,873
                
                
                $
                145,117Inventory
                
                
                1,621
                
                
                
                750Prepaid
      Expense
                
                
                -
                
                
                
                2,916Total
      Current Assets
                
                
                4,494
                
                
                
                148,783Intangible
      Assets, Net of Amortization
                
                
                12,407
                
                
                
                18,611Total
      Assets
                
                $
                16,901
                
                
                $
                167,394LIABILITIES
      AND SHAREHOLDERS’ EQUITY (DEFICIT)Current
      LiabilitiesAccounts
      Payable
                
                $
                15,372
                
                
                $
                2,016Accrued
      Royalty
                
                
                101
                
                
                
                166Note
      Payable Related Party – short-term
                
                
                10,000
                
                
                
                -Total
      Current Liabilities
                
                
                25,473
                
                
                
                2,182Total
      Liabilities
                
                
                25,473
                
                
                
                2,182Shareholders’
      Equity (Deficit)Common
      Stock, $.001 par value: Authorized 250,000,000 shares:Issued
      and outstanding  9,763,224 and 9,267,391 shares.
                
                
                9,763
                
                
                
                9,267Additional
      Paid-in Capital
                
                
                633,077
                
                
                
                681,365Deficit
      Accumulated During the Development Stage
                
                
                (651,412
                )
                
                
                (525,420
                )Total
      Shareholders’ Equity (Deficit)
                
                
                (8,572
                )
                
                
                165,212Total
      Liabilities and Shareholders’ Equity (Deficit)
                
                $
                16,901
                
                
                $
                167,394





The
accompanying notes are an integral part of these financial
statements.




1




Poker
Magic, Inc.


(A
Development Stage Company)


Statements
of Operations


(unaudited)





Three months ended
                              
                              
                              Three months ended
                              
                              
                              Nine months ended
                              
                              
                              Nine months ended
                              
                              
                              Period from
                                January 10, 2006
                                (inception)
                                throughSeptember 30, 2009
                              
                              
                              September 30, 2008
                              
                              
                              September 30, 2009
                              
                              
                              September 30, 2008
                              
                              
                              September 30, 2009Revenues
                              
                              $
                              2,025
                              
                              
                              $
                              1,900
                              
                              
                              $
                              5,675
                              
                              
                              $
                              1,900
                              
                              
                              $
                              9,000Cost
      of Revenues
                              
                              
                              2,587
                              
                              
                              
                              21,572
                              
                              
                              
                              10,829
                              
                              
                              
                              21,572
                              
                              
                              
                              47,602Gross
      Loss
                              
                              
                              (562
                              )
                              
                              
                              (19,672
                              )
                              
                              
                              (5,154
                              )
                              
                              
                              (19,672
                              )
                              
                              
                              (38,602
                              )Operating
      Expenses:Selling,
      General and Administrative
                              
                              
                              28,240
                              
                              
                              
                              76,387
                              
                              
                              
                              120,830
                              
                              
                              
                              196,332
                              
                              
                              
                              614,813Operating
      Loss
                              
                              
                              (28,802
                              )
                              
                              
                              (96,059
                              )
                              
                              
                              (125,984
                              )
                              
                              
                              (216,004
                              )
                              
                              
                              (653,415
                              )Other
      Income (Expense)Interest
      Income
                              
                              
                              -
                              
                              
                              
                              1,069
                              
                              
                              
                              192
                              
                              
                              
                              1,462
                              
                              
                              
                              2,203Interest
      Expense
                              
                              
                              200
                              
                              
                              
                              -
                              
                              
                              
                              200
                              
                              
                              
                              -
                              
                              
                              
                              200Total
      Other Income (Expense)
                              
                              
                              (200
                              )
                              
                              
                              1,069
                              
                              
                              
                              (8
                              )
                              
                              
                              1,462
                              
                              
                              
                              2,003Net
      Loss
                              
                              $
                              (29,002
                              )
                              
                              $
                              (94,990
                              )
                              
                              $
                              (125,992
                              )
                              
                              $
                              (214,542
                              )
                              
                              $
                              (651,412
                              )Basic
      and diluted net loss per common share
                              
                              $
                              (0.00
                              )
                              
                              $
                              (0.01
                              )
                              
                              $
                              (0.01
                              )
                              
                              $
                              (0.03
                              )
                              
                              $
                              (0.08
                              )Weighted-average
      number of common shares outstanding
                              
                              
                              9,565,398
                              
                              
                              
                              8,963,687
                              
                              
                              
                              9,201,014
                              
                              
                              
                              8,295,940
                              
                              
                              
                              7,773,135





The
accompanying notes are an integral part of these financial
statements.




2




Poker
Magic, Inc.


(A
Development Stage Company)


Statements
of Cash Flows


(unaudited)





Nine Months
                  Ended
                  September 30,
                  2009
                
                
                Nine Months
                  Ended
                  September 30,
                  2008
                
                
                Period from January
                  10, 2006 (inception)
                  to September 30,
                  2009Cash
      flows from operating activities:Net
      loss
                
                $
                (125,992
                )
                
                $
                (214,542
                )
                
                $
                (651,412
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Amortization
      of intangible asset
                
                
                6,204
                
                
                
                6,204
                
                
                
                28,950Common
      stock issued for services
                
                
                -
                
                
                
                -
                
                
                
                6,500Consulting
      service expense paid in stock
                
                
                4,791
                
                
                
                36,717
                
                
                
                123,841Officers
      compensation expense paid in stock
                
                
                30,000
                
                
                
                2,000
                
                
                
                86,000Officers
      compensation expense as contributed capital
                
                
                12,000
                
                
                
                34,000
                
                
                
                50,000Changes
      in operating assets and liabilities:Inventory
                
                
                (871
                )
                
                
                -
                
                
                
                (871
                )Accounts
      receivable
                
                
                -
                
                
                
                (1,425
                )
                
                
                -Prepaid
      expense
                
                
                -
                
                
                
                -
                
                
                
                5,434Accounts
      payable
                
                
                13,356
                
                
                
                (5,663
                )
                
                
                15,372Accrued
      royalty
                
                
                (65
                )
                
                
                -
                
                
                
                101Net
      cash used in operating activities
                
                
                (60,577
                )
                
                
                (142,709
                )
                
                
                (336,085
                )Cash
      flows from investing activities:Acquisition
      of Select Video assets
                
                
                -
                
                
                
                -
                
                
                
                (17,000
                )Net
      cash used in investing activities
                
                
                -
                
                
                
                -
                
                
                
                (17,000
                )Cash
      flows from financing activities:Proceeds
      from subscription receivable
                
                
                -
                
                
                
                -
                
                
                
                14,000Proceeds
      from issuance of common stock
                
                
                -
                
                
                
                287,500
                
                
                
                426,000Redemption
      of common stock
                
                
                (91,667
                )
                
                
                -
                
                
                
                (91,667
                )Proceeds
      from note payable related party
                
                
                10,000
                
                
                
                -
                
                
                
                10,000Payment
      of short-term debt
                
                
                -
                
                
                
                -
                
                
                
                (2,375
                )Net
      cash provided by (used in) financing activities
                
                
                (81,667
                )
                
                
                287,500
                
                
                
                355,958Net
      increase (decrease) in cash
                
                
                (142,244
                )
                
                
                144,791
                
                
                
                2,873Cash,
      beginning of the period
                
                
                145,117
                
                
                
                37,003
                
                
                
                -Cash,
      end of the period
                
                $
                2,873
                
                
                $
                181,794
                
                
                $
                2,873Non-cash
      investing and financing activities:Acquisition
      of certain assets and liabilities of Select Video in exchange for common
      stockInventory
                
                $
                -
                
                
                $
                -
                
                
                $
                750Intangible
      Asset
                
                
                -
                
                
                
                -
                
                
                
                24,357Accounts
      Payable
                
                
                -
                
                
                
                -
                
                
                
                (32,000
                )Note
      Payable
                
                
                -
                
                
                
                -
                
                
                
                (7,084
                )Stock
      issued in lieu of cash for note payable
                
                
                -
                
                
                
                -
                
                
                
                19,709Stock
      issued in lieu of cash for prepaid services
                
                
                -
                
                
                
                37,500
                
                
                
                175,400Stock
      subscriptions received for common stock
                
                
                -
                
                
                
                -
                
                
                
                14,000





The
accompanying notes are an integral part of these financial
statements.




3




Poker
Magic, Inc.


(A
Development Stage Company)


Notes to
Financial Statements


September
30, 2009





NOTE
1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Description
of operations and basis of presentation





Poker
Magic, Inc. (the “Company”) is a development stage company that was incorporated
in the State of Minnesota on January 10, 2006.  Our business consists primarily
of marketing and licensing a new form of poker-based table game to casinos and
on-line gaming facilities in the United States.





Interim
financial information




The
accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States and pursuant
to the rules and regulations of the Securities and Exchange Commission (the
“SEC”) for interim financial information. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
have been omitted pursuant to such rules and regulations. Operating results for
the three and nine months ended September 30, 2009 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2009 or any other period. The accompanying financial statements and related
notes should be read in conjunction with the audited Financial Statements of the
Company, and notes thereto, contained in this filing for the year ended December
31, 2008.  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, 2009, the Company incurred a
net loss of $651,412. The Company's ability to continue as a going concern is
dependent on it ultimately achieving profitability, producing additional
revenues and/or raising additional capital. Management intends to obtain
additional debt or equity capital to meet all of its existing cash obligations
and to support the revenue generating process; however, there can be no
assurance that the sources will be available or available on terms favorable to
the Company.




Intangible
assets





On March
10, 2006, the Company purchased certain assets and assumed certain liabilities
of Select Video, Inc. (Select Video). Three patents were acquired as a part of
the March 10, 2006 purchase. The patents are stated at cost and are amortized on
a straight-line basis over 60 months. Amortization expense was $6,204 for both
of the nine months ended September 30, 2009 and 2008 and $28,950 for the period
from January 10, 2006 (inception) to September 30, 2009. Estimated amortization
expense for the next three years of patents issued as of September 30, 2009 is
as follows:





Remainder
      of 2009
                      
                      $
                      2,0682010
                      
                      
                      8,2712011
                      
                      
                      2,068Total
                      
                      $
                      12,407




4




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 September 30, 2009 or December 31, 2008.





Recent
accounting pronouncement





On
September 15, 2009, we adopted new accounting guidance on codification
referencing that encourages the use of plain English to describe broad
accounting topic areas in an attempt to make financial statements more useful to
users and more clearly explain accounting concepts.




No other
new accounting pronouncement issued or effective during the fiscal year has had
or is expected to have a material impact on the Consolidated Financial
Statements.




NOTE
2—NET LOSS PER COMMON SHARE





Basic net
loss per common share is computed by dividing net loss attributable to common
stockholders by the weighted average number of vested common shares outstanding
during the period. A reconciliation of the numerator and denominator used in the
calculation of basic and diluted net loss per common share follows:





Three months ended
                    
                    
                    Three months endedSeptember 30, 2009
                    
                    
                    September 30, 2008Numerator:Net
      loss attributable to common stockholders
                    
                    $
                    (29,002
                    )
                    
                    $
                    (94,990
                    )Denominator:Weighted-average
      number of common shares outstanding
                    
                    
                    9,565,398
                    
                    
                    
                    8,963,687Basic
      and diluted net loss per common share
                    
                    $
                    (0.00
                    )
                    
                    $
                    (0.01
                    )




Nine months ended
                      September 30, 2009
                    
                    
                    Nine months ended
                      September 30, 2008
                    
                    
                    Period from
                      January 10, 2006
                      (inception) to
                      September 30, 2009Numerator:Net
      loss attributable to common stockholders
                    
                    $
                    (125,992
                    )
                    
                    $
                    (214,542
                    )
                    
                    $
                    (651,412
                    )Denominator:Weighted-average
      number of common shares outstanding
                    
                    
                    9,201,014
                    
                    
                    
                    8,295,940
                    
                    
                    
                    7,773,135Basic
      and diluted net loss per common share
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.03
                    )
                    
                    $
                    (0.08
                    )




5




The
1,000,000 outstanding warrants during the three and nine months ended September
30, 2009 and the period from January 10, 2006 (inception) to September 30, 2009
were excluded from the calculation of diluted loss per share as their effects
were anti-dilutive due to the Company’s net losses for the periods.





NOTE
3—COMMITMENTS AND CONTINGENCIES




The asset
purchase agreement with Select Video dated March 10, 2006, provides that when
the Company receives any revenue generated by 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
September 30, 2009 and December 31, 2008, $101 and $166 were owed to Select
Video under this agreement.





NOTE
4—SHAREHOLDERS’ EQUITY




Common
stock





On
January 10, 2006, the founders of the Company purchased 2,500,000 shares of
common stock for $2,500.





On March
10, 2006, the Company purchased certain assets and assumed certain liabilities
of Select Video in exchange for 3,022,991 shares of common stock issued at the
deemed fair market value of $.001 per share or $3,023.





On May
23, 2006, the Company issued 60,000 shares of common stock at $0.25 per share in
lieu of cash for liabilities assumed.





During
2006, the Company raised additional cash of $87,500 at $0.25 per share through
the issuance of 350,000 shares of common stock.





During
2006, the Company issued 22,000 shares to various consultants at $0.25 per share
for services rendered.





During
2006, the Company issued 100,000 shares valued at $4,000 (value of the services
to be provided) for services rendered and to be rendered.





On
January 15, 2007, the Company issued 600,000 shares of common stock to two
consultants for services to be provided over a 12 month period commencing on
January 15, 2007.  These services were valued at $50,000.





On
January 15, 2007, the Company issued 500,000 shares of common stock to the two
founders for their services to be provided over a 12 month period commencing
January 15, 2007.  These services were valued at $48,000.





On July
26, 2007, the Company settled the note payable of $7,084 for a cash payment of
$2,375 and the issuance of 20,000 shares of common stock valued at $4,709 for
payment in full on the note.





In July
2007, the Company raised cash of $20,000 at $0.25 per share through the issuance
of 80,000 shares of common stock.





On August
1, 2007, the Company issued 65,000 shares of common stock for services to be
provided over a 12 month period commencing retroactively on June 1, 2007.  These
services were valued at $5,000.





On August
1, 2007, the Company issued 100,000 shares of common stock to a consultant for
services to be provided over a 12 month period commencing on August 1, 2007.
These services were valued at $8,300.





On August
1, 2007, the Company issued 25,000 shares of common stock for services.  These
services were valued at $1,000.





On
November 26, 2007, the Company issued 50,000 shares of common stock to a
consultant for services to be provided over a 12 month period commencing on
November 26, 2007.  These services were valued at $12,500.




6




In
December 2007, the Company raised cash of $30,000 at $0.25 per share through the
issuance of 120,000 shares of common stock.





In
January 2008, the Company raised cash of $25,000 at $0.25 per share through the
issuance of 100,000 shares of common stock.





On May
28, 2008, the Company raised cash of $250,000 at $0.25 per share through the
issuance of 1,000,000 shares of common stock together with a warrant, classified
as permanent equity, to purchase up to 1,000,000 shares of common stock, which
was immediately exercisable.  The warrants do not possess any embedded
derivative features.  The exercise price was $0.25 per share if purchased within
six months of issuance.  The exercise price increased to $0.425 for months seven
through twelve (after the date of issuance) and to $0.50 after twelve months.
The warrant expires on May 27, 2010.





In May
2008, the Company raised cash of $12,500 at $0.25 per share through the issuance
of 50,000 shares of common stock.





On August
26, 2008, the Company issued 200,000 shares of common stock to a consultant for
services to be provided over a five month period commencing on August 1, 2008.
These services were valued at $20,000.





On August
26, 2008, the Company issued 60,000 shares of common stock for services to be
provided over a five month period commencing retroactively on August 1, 2008.
These services were valued at $5,000.





On August
26, 2008, the Company issued 60,000 shares of common stock for services to be
provided over a twelve month period commencing retroactively on August 1, 2008.
These services were valued at $5,000.





On August
26, 2008, the Company issued 10,000 shares of common stock for services.  These
services were valued at $2,500.





On August
26, 2008, the Company issued 50,000 shares of common stock for services.  These
services were valued at $5,000.





On
December 16, 2008, the Company issued 40,400 shares of common stock for
services.  These services were valued at $10,100.





On
December 31, 2008, the Company issued 32,000 shares of common stock for officer
compensation.  These services were valued at $8,000.





On
February 25, 2009, the Company redeemed, at the request of a non-affiliate
shareholder, 366,667 shares of common stock held by a single shareholder at a
price of $.25 per share, for a total amount of $91,667, which was the price
originally paid for the redeemed shares.





On June
30, 2009, the Company issued 400,000 shares of common stock for officer
compensation with a fair value of $12,000.





On June
30, 2009, the Company issued 200,000 shares of common stock for officer bonus
compensation with a fair value of $6,000.





On June
30, 2009, the Company issued 50,000 shares of common stock for consultant
service bonus with a fair value of $1,500.





On June
30, 2009, the Company issued 5,000 shares of common stock for services with a
fair value of $150.





On June
30, 2009, the Company issued 7,500 shares of common stock for services with a
fair value of $225.





On
September 30, 2009, the Company issued 200,000 shares of common stock for
officer compensation with a fair value of $12,000.




7




At
September 30, 2009, a total of 9,763,224 shares of common stock were issued and
outstanding.  1,000,000 warrants to purchase additional common stock at $0.50
per share are also outstanding as of September 30, 2009.





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.





At
September 30, 2009, the Company had federal and state net operating loss
carryforward of approximately $631,000 available to offset future taxable
income. The Company’s federal and state net operating loss carryforwards will
begin to expire in 2026 if not used before such time to offset future taxable
income or tax liabilities. Current and future changes in the stock ownership of
the Company may place limitations on the use of these net operating loss
carryforwards.





NOTE
6—NOTE PAYABLE





On July
30, 2009, Lantern Advisers, LLC, a Minnesota limited liability company owned
equally by Douglas Polinsky and Joseph A. Geraci, II (each of whom is an officer
and director of the Company), loaned the Company $10,000 under terms and
conditions set forth in a related unsecured term promissory note.  The
promissory note provides for simple interest to accrue on the unpaid principal
balance of the promissory note at the rate of twelve percent (12.0%) per annum,
and requires that accrued interest be paid on a monthly basis until July 29,
2010, at which time the entire unpaid principal balance of the promissory note
will become due.  The loan was made to provide working capital to the
Company.





NOTE
7—SUBSEQUENT EVENT





On
October 13, 2009, Lantern Advisers, LLC, a Minnesota limited liability company
owned equally by Douglas Polinsky and Joseph A. Geraci, II (each of whom is an
officer and director of the Company), loaned the Company $10,000 under terms and
conditions set forth in a related unsecured term promissory note.  The
promissory note provides for simple interest to accrue on the unpaid principal
balance of the promissory note at the rate of 12% per annum, and requires that
accrued interest be paid on a monthly basis until October 12, 2010, at which
time the entire unpaid principal balance of the promissory note will become due.
 The loan was made to provide working capital to the Company.





The
Company did not have any other subsequent events through November 13, 2009,
which is the date the financial statements were available to be issued for
events requiring recording or disclosure in the financial statements for the
three and nine months ended September 30, 2009.




8




Item 2.
              Management’s Discussion and
      Analysis of Financial Condition and Results of
      Operations.





Our
Management’s Discussion and Analysis of Financial Condition and Results of
Operations set forth below should be read in conjunction with our audited
financial statements, and notes thereto, contained in our Form 10-K and Form
10-K/A filed with the SEC on March 27, 2009 and October 30, 2009, respectively,
and related to our year ended December 31, 2008, and the period from January 10,
2006 (inception) to December 31, 2008.




Forward-Looking
Statements




Some of
the statements made in this section of our report are forward-looking
statements. These forward-looking statements generally relate to and are based
upon our current plans, expectations, assumptions and projections about future
events.  Our management currently believes that the various plans, expectations,
and assumptions reflected in or suggested by these forward-looking statements
are reasonable.  Nevertheless, all forward-looking statements involve risks and
uncertainties and our actual actions or future results may be materially
different from the plans, objectives or expectations, or our assumptions and
projections underlying our present plans, objectives and expectations, which are
expressed in this report.  Examples of specific factors that might cause our
actual results to differ from our current expectations include but are not
limited to:





·
            Our lack of a significant prior
      operating history to provide our management with a basis to better
      evaluate certain likelihoods





·
            Our need for additional
      financing





·
            The significant risk that our
      game may not be accepted by casinos or gaming establishments or,
      ultimately, by gaming consumers and
  enthusiasts





·
            Our inability to obtain required
      registrations, licenses and approvals with or from appropriate state
      gaming authorities





·
            Changes in legal and regulatory
      regimes applicable to our business or our
  games





·
            Our inability to effectively
      protect our intellectual property,
or





·
            Our inability, for any reason, to
      retain our executive management
  personnel.





The
foregoing list is not exhaustive.  In light of the foregoing, prospective
investors are cautioned that the forward-looking statements included in this
filing may ultimately prove to be inaccurate—even materially inaccurate.
Because of the significant uncertainties inherent in such forward-looking
statements, the inclusion of such information should not be regarded as a
representation or warranty by Poker Magic, Inc. or any other person that our
objectives, plans, expectations or projections that are contained in this filing
will be achieved in any specified time frame, if ever.





General
Overview





Poker
Magic Inc. is a Minnesota corporation formed in January 2006.  In this report,
we refer to Poker Magic, Inc. as “we,” “us,” “Poker Magic” or the “Company.”  We
are a development-stage company focused on promoting and placing our Winner’s
Pot Poker game into casinos and entertainment facilities country-wide, including
those located in Native American tribal lands.  We believe that the long-term
success of our operations will be determined by our ability to bring new and
innovative products, game play and services to the market.





Our
current gaming product is “Winner’s Pot Poker,” which is a table game form of
five-card stud poker.  In the Winner’s Pot Poker game, the dealer deals each
player, and the dealer himself, two cards face down and three cards face up.
Each player “antes” before the deal to be eligible to receive cards in the game.
 After each player has received his or her first three cards from the dealer,
each player may either fold or place a first bet equal to the ante.  The first
bet may not be any more or less than the ante.  After the next card is dealt,
each of the remaining players has a choice between folding or placing a second
bet that must be equal to twice the ante.  The dealer may not fold.  After the
last card is dealt, the hands are compared and the winning hand (determined by
using standard poker rankings) takes a predetermined percentage of the total
bets and antes made in the course of the game.  In addition, players are
entitled to make certain optional “bonus bets.”




9




We had no
revenues from January 10, 2006 (inception) through December 31, 2007, or from
January 1, 2008 through August 27, 2008.  We began generating revenues August
28, 2008 under the license agreement with Bally’s Park Place, Inc.





For the
three and nine months ended September 30, 2009 we generated $2,025 and $5,675 in
revenues. For the three and nine months ended September 30, 2009, we incurred
$2,587 and $10,829, respectively, in revenue-related costs and $28,240 and
$120,830, respectively, in operating expenses.  Our expenses related primarily
to our efforts to market our Winner’s Pot Poker game to casinos and gaming
establishments, generate revenues and expand our revenue base, as well as other
selling, general and administrative expenses.  The most significant components
of these other selling, general and administrative expenses were (i)
compensation expense attributable to share issuances to third-party consultants
and executive management for services rendered, and (ii) expenses for
professional services such as legal and accounting services.





As of
September 30, 2009, we had $2,873 in cash on hand and current liabilities of
$25,473.  As of the date of this filing, we had approximately $3,850 in cash on
hand, and our management presently believes this cash will be sufficient to
continue operations through December 2009 due to additional capital raised
through execution of short-term notes.  Thereafter, we expect we will require
additional capital.  If our present expectations relating to our expenses prove
inaccurate and we incur more expenses than anticipated, we will be required to
seek additional financing prior to the end of December 2009.





Management
believes that the most significant uncertainties facing the Company relate to
our ability to increase our revenues, the accuracy of our expense forecast, our
ability to acquire necessary licenses, registrations and approvals, and our
ability to obtain financing when and as needed and on terms acceptable to us.
These uncertainties are discussed in greater detail under the caption “Trends
and Uncertainties.”





Results
of Operations for the Three Months Ended September 30, 2009 Compared to the
Three Months Ended September 30, 2008





Three Months EndedItem
                
                9/30/09
                
                
                9/30/08
                
                
                % Change
                  (Year Over Year)
                
                
                % of 2009
                  Net Loss
                
                
                % of 2008
                  Net LossRevenues
                
                $
                2,025
                
                
                $
                1,900
                
                
                
                6.6
                %
                
                
                (7.0
                )%
                
                
                (2.0
                )%Cost
      of Revenues
                
                
                2,587
                
                
                
                21,572
                
                
                
                (88.0
                )%
                
                
                8.9
                %
                
                
                22.7
                %Operating
      Expenses:General
      Operating Expenses
                
                
                2,667
                
                
                
                6,183
                
                
                
                (56.9
                )%
                
                
                9.2
                %
                
                
                6.5
                %Legal
      and Accounting Expenses
                
                
                13,573
                
                
                
                58,204
                
                
                
                (76.7
                )%
                
                
                46.8
                %
                
                
                61.3
                %Executive
      Management Compensation in Stock
                
                
                12,000
                
                
                
                12,000
                
                
                
                -
                
                
                
                41.4
                %
                
                
                12.6
                %Other
      Income (Expense)
                
                
                (200
                )
                
                
                1,069
                
                
                
                (118.7
                )%
                
                
                0.7
                %
                
                
                (1.1
                )%Net
      Loss
                
                $
                29,002
                
                
                $
                94,990
                
                
                
                (69.5
                )%
                
                
                N/A
                
                
                
                N/A





As the
table above demonstrates, during the three months ended September 30, 2009 and
2008, we had revenues of $2,025 and $1,900 respectively, and incurred $2,587 and
$21,572, respectively, in revenue-related costs.  During both periods, we were
focused primarily on efforts to (i) ensure temporary regulatory approval and
compliance of the Winner’s Pot Poker game, and (ii) obtain the agreement of
casinos and gaming establishments to provide gaming table space to the Winner’s
Pot Poker game.  During 2008, we were also focused on completing the process of
filing and amending our Registration Statement on Form 10 (originally filed with
the SEC on January 29, 2008) in response to comments received from the SEC.
Amendments to our Registration Statement were completed and filed with the SEC
on March 11 and August 6, 2008.  We currently have one contract with one client
and have had that contract with that one client since August 2008.





Our
operating expenses decreased 63% in the three months ended September 30, 2009
compared to the three months ended September 30, 2008 primarily due to realized
efficiency savings in our ongoing operations which has helped to reduce our
legal, accounting and consulting expenses.  We expect these expenses will remain
stable throughout the remainder of 2009.




10




Our legal
and accounting expenses decreased 76.7% for the three months ended September 30,
2009 compared to the three months ended September 30, 2008.  This significant
decrease was mainly due to one-time expenses related to amending our
Registration Statement on Form 10 filed with the SEC.  As we continue to seek
gaming regulatory compliance and licenses, prepare and file periodic reports
with the SEC under the Securities and Exchange Act of 1934, and generally seek
to comply with the various legal, accounting and governance rules and
regulations applicable to public reporting companies, we anticipate our
professional fees expenses will remain high but less than the amounts reached
during fiscal 2008.





Results
of Operations for the Nine Months Ended September 30, 2009 Compared to the Nine
Months Ended September 30, 2008





Nine Months EndedItem
                
                9/30/09
                
                
                9/30/08
                
                
                % Change
                  (Year Over Year)
                
                
                % of 2009
                  Net Loss
                
                
                % of 2008
                  Net LossRevenues
                
                $
                5,675
                
                
                $
                1,900
                
                
                
                199.0
                %
                
                
                (4.5
                )%
                
                
                (0.9
                )%Cost
      of Revenues
                
                
                10,829
                
                
                
                21,572
                
                
                
                (49.8
                )%
                
                
                8.6
                %
                
                
                10.1
                %Operating
      Expenses:General
      Operating Expenses
                
                
                9,395
                
                
                
                50,014
                
                
                
                (81.2
                )%
                
                
                7.5
                %
                
                
                23.3
                %Legal
      and Accounting Expenses
                
                
                69,435
                
                
                
                102,318
                
                
                
                (32.1
                )%
                
                
                55.1
                %
                
                
                47.7
                %Executive
      Management Compensation
                
                
                42,000
                
                
                
                44,000
                
                
                
                (4.5
                )%
                
                
                33.3
                %
                
                
                20.5
                %Other
      Income (Expense)
                
                
                (8
                )
                
                
                1,462
                
                
                
                (100.5
                )%
                
                
                (0.0
                )%
                
                
                (0.7
                )%Net
      Loss
                
                $
                125,992
                
                
                $
                214,542
                
                
                
                (41.3
                )%
                
                
                N/A
                
                
                
                N/A





As the
table above demonstrates, during the nine months ended September 30, 2009 and
2008, we had revenues of $5,675 and $1,900 respectively, and incurred $10,829
and $21,572, respectively, in revenue-related costs.  During both periods, we
were focused primarily on efforts to (i) ensure temporary regulatory approval
and compliance of the Winner’s Pot Poker game, and (ii) obtain the agreement of
casinos and gaming establishments to provide gaming table space to the Winner’s
Pot Poker game.  During 2008, we were also focused on completing the process of
filing and amending our Registration Statement on Form 10 (originally filed with
the SEC on January 29, 2008) in response to comments received from the SEC.
Amendments to our Registration Statement were completed and filed with the SEC
on March 11 and August 6, 2008.  We currently have one contract with one
client.





Our
operating expenses decreased 38.5% in the nine months ended September 30, 2009
compared to the nine months ended September 30, 2008 because we realized
efficiency savings in our ongoing operations and reduced our consulting expense
significantly.  We expect these expenses will remain stable throughout the
remainder of 2009.





Our legal
and accounting expenses decreased 32.1% for the nine months ended September 30,
2009 compared to the nine months ended September 30, 2008.  This significant
decrease was due to one-time expenses related to working with broker-dealers to
complete an application with FINRA and obtain our trading symbol, and our
initial Sarbanes-Oxley compliance efforts.  As we continue to seek gaming
regulatory compliance and licenses, prepare and file periodic reports with the
SEC under the Securities and Exchange Act of 1934, and generally seek to comply
with the various legal, accounting and governance rules and regulations
applicable to public reporting companies, we anticipate our professional fees
expenses will remain high but less than the amounts reached during fiscal
2008.





We
presently expect that compensation expense arising from share issuances to our
executive management will remain consistent with our fiscal 2008.   We issued
shares to executive management for services rendered in lieu of cash payment.
We expect that we will continue to issue shares to executive management and
consultants to compensate them for services rendered, primarily as a means to
conserve our cash resources.  In this regard, we do not anticipate hiring
employees in the near future and expect instead, where necessary or appropriate,
to rely on services provided by consultants through at least fiscal
2009.





Finally,
we anticipate that the portion of our selling, general and administrative
expenses relating to the general operations and the marketing of our Winner’s
Pot Poker game to casinos and gaming establishments will increase during fiscal
2009.




11




Liquidity
and Capital Resources





Summary
cash flow data is as follows:




Nine Months Ended September 30,2009
                            
                            2008Cash
      flows provided (used) by :Operating
      activities
                            
                            $
                            (60,577
                            )
                            
                            $
                            (142,709
                            )Investing
      activities
                            
                            
                            -
                            
                            
                            
                            -Financing
      activities
                            
                            
                            (81,667
                            )
                            
                            
                            287,500Net
      increase (decrease) in cash
                            
                            
                            (142,244
                            )
                            
                            
                            144,791Cash,
      beginning of period
                            
                            
                            145,117
                            
                            
                            
                            37,003Cash,
      end of period
                            
                            $
                            2,873
                            
                            
                            $
                            181,794




The
decrease in cash used in operating activities was primarily the result of a
reduction in consulting service expense paid in stock.  As of September 30,
2009, we had $2,873 cash on hand and current liabilities of $25,473.  As of the
date of this filing, our management believes we have sufficient capital to
continue operations through December 2009 due to additional capital raised
through execution of short-term notes.  Thereafter, we expect we will require
additional capital.  If we are unable to obtain additional financing when
needed, we may be required to abandon our business or our status as a public
reporting company.





Presently,
we anticipate that additional financing could be sought from a number of
sources, including but not limited to additional sales of equity or debt
securities, or loans from banks, other financial institutions or affiliates of
the Company. We cannot, however, be certain that any such financing will be
available on terms favorable to us if at all. If additional funds are raised by
the issuance of our equity securities, such as through the issuance of stock,
convertible securities, or the issuance and exercise of warrants, then the
ownership interest of our existing shareholders will be diluted. If additional
funds are raised by the issuance of debt or other equity instruments, we may
become subject to certain operational limitations, and such securities may have
rights senior to the rights of our common shareholders. If we are unable to
obtain additional financing when needed, we may be required to abandon our
business or our status as a public reporting company.





Our
primary non-cash asset at September 30, 2009 was intellectual property rights
and trademarks, which are the foundation for our product offerings.  We
currently own the rights to United States Patent Number 5,839,732, issued on
November 24, 1998, that relates to our current Winner’s Pot Poker table game.
This patent was acquired from Select Video, Inc., a Delaware corporation,
pursuant to an Asset Purchase Agreement dated March 10, 2006.  In addition, we
own a federally registered trademark for “WINNER’S POT POKER,” Registration
Number 2,172,043, issued on July 7, 1998, which was acquired pursuant to that
same agreement. Finally, we also own registered trademarks for “POKER MAGIC” and
to “AC (ATLANTIC CITY) STUD POKER,” which we similarly acquired pursuant to the
Asset Purchase Agreement with Select Video.  Other than the trademark “Poker
Magic” which we have adopted as our corporate name, we do not have any current
plans for the sale or license of such other trademarks.  We do not have any
currently pending applications for un-issued patents, trademarks or copyrights.
The expiration dates of our patent rights vary based on their filing and
issuance dates.  We intend to continue to actively file for patent protection,
where reasonable, within the United States.  We expect also to seek protection
for our future products by filing for copyrights and trademarks in the United
States.





Currently,
we do not have any employees. Mr. Douglas M. Polinsky, the Chief Executive
Officer and Chairman of our Board of Directors, and Joseph A. Geraci, II, our
Chief Financial Officer and a director of the Company, both serve as consultants
to the Company in their officer capacities.  We rely on sales and marketing
agents and outside professional services on an as-needed basis.  We believe that
using consultants to perform necessary operational functions is currently more
cost effective than hiring full-time employees, and such practice affords us
flexibility in directing our resources during our development stage.   We plan
to develop new gaming products primarily by utilizing the services of outside
developers, sales agents and regulatory and compliance service providers in an
effort to minimize capital expenditures and corporate expenses.  We presently do
not expect to incur any material capital expenditures in the near future or
during the next 12 months.  At this time, we do not anticipate purchasing or
selling any significant equipment or other assets in the near term.




12




Trends
and Uncertainties





As a
development-stage company involved in the gaming business, we believe we can
identify certain broad trends in our revenues and expenses, and components
thereof.  We also believe that the most significant risks and uncertainties
surrounding our business relate to revenues and expenses, and regulatory and
financing matters.  These trends and uncertainties are discussed
below.





Revenues





From
inception through September 30, 2009 (and presently), the Company has been
primarily focused sequentially on the acquisition of the intellectual property
forming the basis for its Winner’s Pot Poker table game and, thereafter, efforts
to ensure at least temporary regulatory compliance of the game and obtain the
agreement of casinos and gaming establishments to provide gaming table space to
the Winner’s Pot Poker game.





These
efforts culminated in our license agreement with Bally’s Park Place, Inc. d/b/a/
Bally’s Atlantic City, permitting Bally’s, on a non-exclusive basis, to use one
unit of the Winner’s Pot Poker game on a trial basis at no charge until such
time that the New Jersey Casino Control Commission ended the test period for the
game. We entered into that license agreement on December 26, 2007. We had
earlier (on August 22, 2007) secured the issuance of temporary rules and
amendments governing the implementation of Winner’s Pot Poker in Atlantic City
casinos. The amendments and rules added Winner’s Pot Poker to the list of
authorized table games in New Jersey, governed the physical characteristics of
the Winner’s Pot Poker game layout, defined the card deck for use with the
Winner’s Pot Poker game, specified the terms of the use of the cards during
Winner’s Pot Poker game play, and contained technical proposals governing the
operation of Winner’s Pot Poker. We had also earlier obtained a transactional
waiver from the New Jersey Casino Control Commission for the licensure
requirement applicable to casino service industry (CSI), which waiver permitted
us to legally license to Bally’s Park Place, Inc. the play of our Winner’s Pot
Poker game in Bally’s Atlantic City casinos.





After a
successful trial period, we amended our license agreement with Bally’s Park
Place, Inc. on June 26, 2008. Under the amended license agreement, Bally’s Park
Place, Inc. pays the Company a license fee in the amount of (i) $475 per month
for the right to use our Winner’s Pot Poker game in the Atlantic City casinos
for up to seven days per week, and (ii) $200 per month for the right to use of
our Winner’s Pot Poker game in the Atlantic City casinos on weekends only during
that month. The amendment currently contemplates the licensure of only two
Winner’s Pot Poker game units—one for the seven days per week use and the other
for the weekend-only use. This amendment was entered into after the adoption by
the New Jersey Casino Control Commission of temporary regulations governing the
rules of the Winner’s Pot Poker game. The amended license agreement is a
month-to-month agreement that may be cancelled by either party at any time.  The
month-to-month character of this licensing arrangement, which is currently our
only revenue-generating license, presents a material uncertainty in our ability
to accurately forecast revenues for 2009.





Since
approximately May 2006, we have also been focused on securing Winner’s Pot Poker
licensing arrangements with various other casinos and gaming establishments. In
particular, our management has met with the management or representatives of
over ten different casinos or gaming establishments during the past year in an
effort to secure additional licensing arrangements.  To date, our licensing
efforts have been focused on entering into such agreements with casinos and
gaming establishments in Minnesota, New Jersey and Nevada.





Based on
our recent amendment of the license agreement with Bally’s Park Place, Inc., we
began to recognize revenue from operations during fiscal 2008. Given that the
present terms of the license agreement, as amended, provide only that Bally’s
Park Place, Inc. will license the right to use two game units of our Winner’s
Pot Poker product, we do not expect that our initial revenues will be
significant. Instead, we expect that we must continue to market our game to
casinos and gaming establishments that present suitable opportunities for us,
and that the most efficient way for us to begin generating more significant
revenues will be to consummate a definitive license agreement with Harrah’s
Entertainment or some other enterprise that involves a wider group of
gaming-related affiliates and establishments. For example, Harrah’s
Entertainment, indirectly (through subsidiaries and other affiliates) operates
approximately 40 casinos across the United States.  It is extremely difficult to
anticipate, however, how much success we will have in our efforts to license our
games to establishments other than Bally’s Park Place, Inc., if any at all, and
thereby generate additional revenues.




13




Expenses





As
indicated above under the caption “Results of Operations for the Three Months
Ended September 30, 2009 Compared to the Three Months Ended September 30, 2008,”
and “Results of Operations for the Nine Months Ended September 30, 2009 Compared
to the Nine Months Ended September 30, 2008,” our selling, general and
administrative expenses overall decreased in both the three and nine months
ended September 30, 2009 compared to the three and nine months ended September
30, 2008 and are expected to remain stable throughout 2009.  We expect to make
applications and seek gaming regulatory compliance and licenses that will
increase that component of our selling, general and administrative expenses for
2009.  Because our business has a short operating history and our present
revenues are limited, in general it is difficult to accurately forecast our
expenses and impact of those expenses on our operating results.





Regulation





As part
of our marketing efforts for the Winner’s Pot Poker game, our management has met
with the management or representatives of over ten different casinos or gaming
establishments during the past year in an effort to secure additional licensing
arrangements.  To date, our licensing efforts have been focused on entering into
such agreements with casinos and gaming establishments in New Jersey, Nevada and
Minnesota. On August 22, 2007, the New Jersey Casino Control Commission adopted
temporary regulations governing the Winner’s Pot Poker game.  We have yet to
obtain the final casino service industry (CSI) supplier license from the New
Jersey Casino Control Commission, which is more broad and flexible than the
current transactional waiver which we have thus far secured.  On January 23,
2009, the New Jersey Casino Control Commission approved our petition to continue
conducting business with Bally’s while the issuance of the final license is
underway and extended our term to expire on July 24, 2009.  On July 24, 2009,
the New Jersey Casino Control Commission extended our term to January 24, 2010.
It is extremely difficult to anticipate, however, how much success we will have
in our efforts to license our games to establishments other than Bally’s Park
Place, if any at all, and thereby generate additional revenues.  It is also
difficult to assess how long we will be able to maintain our present arrangement
with Bally’s Park Place in light of the fact that our amended license agreement
has a month-to-month term.





We have
yet to obtain the final licensure required in the states of Nevada and
Minnesota, which jurisdictions have been the focus of our marketing efforts thus
far.  In particular, we expect that we will require at least the following
licenses, registrations and approvals in the near future to permit us to license
our gaming products to casinos and gaming establishments in the relevant
jurisdictions:





·
            Casino service industry (CSI)
      supplier license issued by the New Jersey Casino Control Commission
      (described above)





·
            Distribution licenses permitting
      us to distribute Winner’s Pot Poker game units (i.e., table layouts) to
      casinos and gaming establishments in Nevada, issued by the Nevada State
      Gaming Control Board





·
            Registration with the Nevada
      Gaming Commission as a publicly traded
  company





·
            Distribution licenses permitting
      us to distribute Winner’s Pot Poker game units to casinos and gaming
      establishments in Minnesota





·
            Approval from the applicable
      Tribal Councils permitting us to distribute Winner’s Pot Poker game units
      to casinos and gaming establishments located in tribal lands in
      Minnesota.





As we
seek to begin operations in other states and, where applicable, Native American
tribal lands, we will be subject to additional state and Native American laws
and regulations that affect both our general commercial relationships with our
customers as well as the products and services provided to them. The following
summarizes the material aspects of these laws and regulations.





Financing





As
discussed above under the caption “Liquidity and Capital Resources,” our
management believes we have sufficient capital to continue operations through
December 2009.  Thereafter, we expect we will require additional capital.  Our
current forecast for financing needs is largely based on our understanding of
the expenses we anticipate incurring in our efforts to comply with gaming
regulatory and public reporting company disclosure requirements.  In this
regard, we note that our current forecasts are largely based on our past
experience with other enterprises and proposed budgets proposed by our
professional consultants.  If our actual expenses significantly exceed our
present expectations we will likely require additional financing prior to
December 2009.




14




Once
needed, we cannot be certain that any required additional financing will be
available on terms favorable to us, if at all.  This is especially true in light
of the current poor state of the U.S. capital markets and the general economic
downturn that has occurred.  If, however, we are able to raise additional funds
by the issuance of our equity or equity-linked securities, including through the
issuance and exercise of warrants, our existing shareholders will experience
dilution of their ownership interest.  If additional funds are instead raised by
the issuance of debt or other senior or preferred equity instruments such as
preferred stock, we may be subject to certain limitations in our operations, and
such securities may have rights senior to those of our holders of common stock.
If adequate funds are not available on acceptable terms, we may be unable to
expand, develop or enhance products or to respond to competitive pressures.  If
we are unable to obtain additional financing when needed, we may be required to
abandon our business or our status as a public reporting company.





Going
Concern





We have
incurred operating losses, accumulated deficit and negative cash flows from
operations since January 10, 2006 (inception). As of September 30, 2009, we had
an accumulated deficit of $651,412. These factors, among others, raise
substantial doubt about our ability to continue as a going concern. Because of
these factors disclosed, among others, our independent registered public
accountants have issued a going concern opinion that raises substantial doubt
about our ability to continue as a going concern.  Our financial statements
included in this filing do not include any adjustments related to recoverability
and classification of asset carrying amounts, or the amount and classification
of liabilities that might result, should we be unable to continue as a going
concern. Our ability to continue as a going concern ultimately depends on
achieving profitability, producing revenues or raising additional capital to
sustain operations. Although we intend to obtain additional financing to meet
our cash needs and to support the revenue-generating process, we may be unable
to secure any additional financing on terms that are favorable or acceptable to
us, if at all.





Critical
Accounting Policies





Our
policy for the recognition of revenue is a critical accounting policy.  The
Company recognizes revenue from sales under a license agreement when the
following four criteria are met:  (1) there exists persuasive evidence of an
arrangement (e.g., a fully executed license agreement); (2) delivery of the
Winner’s Pot Poker game, felt and instructions has been made and the licensee
thereafter becomes responsible to replace such materials in the event of damage
or normal wear and tear; (3) the price is fixed or determinable; and (4) the
ability of the Company to collect amounts owed is reasonably
assured.





Our
policy regarding the determination of impairment of long-lived and intangible
assets is another critical accounting policy.  In this regard, our management
reviews the Company’s long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of a long-lived or
intangible asset may not be recoverable.  If indications of impairment are
present and the estimated future undiscounted cash flows are less than the
carrying value of the asset under scrutiny, the value of that asset will be
adjusted appropriately.  No impairment indicators were present as of December
31, 2008 or December 31, 2007.





Further
information on our critical accounting policies and estimates can be found in
our financial statements and notes thereto included in this report and in our
report Form 10-K filed with the SEC in March 2009.  There have been no material
changes to our critical accounting policies and estimates from those disclosed
in our report Form 10-K.




Item
4T.  Controls and Procedures.





Evaluation
of Disclosure Controls and Procedures





We
maintain disclosure controls and procedures designed to provide reasonable
assurance that information required to be disclosed in our reports filed
pursuant to the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer as
appropriate, to allow timely decisions regarding required disclosure. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance the objectives of the control system are
met.




15




As of
September 30, 2009, our Chief Executive Officer and Chief Financial Officer
carried out an evaluation of the effectiveness of our disclosure controls and
procedures as such term is defined in Rule 13a-15(e) under the Securities and
Exchange Act of 1934. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer recognized the additional risks to an effective internal
control environment with a limited accounting staff and the inability to fully
segregate all duties within our accounting and financial functions, including
the financial reporting and quarterly close process.  Management has concluded
that, with certain oversight controls that are in place and the duties we have
been able to successfully segregate, the remaining risks associated with the
lack of segregation of duties are not sufficient to justify the costs of
potential benefits to be gained by adding additional employees given our
development stage, the limited scope of our operations, and the number of
business transactions we currently process, nor do these remaining risks rise to
the level of a material weakness.  Management intends to periodically reevaluate
this situation and continue to assess ways in which duties can be further
segregated as our business evolves.  Based on these evaluations, our Chief
Executive Officer and Chief Financial Officer concluded our disclosure controls
and procedures are effective as of September 30, 2009.





Changes
in Internal Controls





There
were no changes in our internal control over financial reporting during the
quarter ended September 30, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.




16




PART
II – OTHER INFORMATION





Item
1A.  Risk Factors.





There
have been no material changes to our risk factors and uncertainties during or
since the period covered by this report.  For a discussion of risk factors
applicable to Poker Magic and its business, please refer to the “Risk Factors”
section of our report Form 10-K filed with the SEC on March 27,
2009.





Item
2.  Unregistered Sales of Equity Securities and Use of Proceeds.





On
September 30, 2009, we issued a total of 200,000 shares of common stock to our
Chief Executive Officer (100,000 shares) and Chief Financial Officer (100,000)
for officer compensation.  The Company offered and sold the shares in reliance
on the exemptions from registration set forth in Sections 4(2) or 4(6) of the
Securities Act of 1933 since the recipients of the shares were “accredited
investors” as defined in Rule 501 under the Securities Act.  In addition, all
certificates representing the shares offered and sold contained a restrictive
legend indicating that such shares constituted “restricted securities” under the
Securities Act of 1933.





Item
5.  Other Information.





On
October 13, 2009, Lantern Advisers, LLC, a Minnesota limited liability company
owned equally by Douglas Polinsky and Joseph A. Geraci, II (each of whom is an
officer and director of the Company), loaned the Company $10,000 under terms and
conditions set forth in a related unsecured term promissory note.  The
promissory note provides for simple interest to accrue on the unpaid principal
balance of the promissory note at the rate of 12% per annum, and requires that
accrued interest be paid on a monthly basis until October 12, 2010, at which
time the entire unpaid principal balance of the promissory note will become due.
 The loan was made to provide working capital to the Company.




17




Item
6.  Exhibits.





ExhibitNo.
              
              Description31.1
              
              Certification
      of Chief Executive Officer31.2
              
              Certification
      of Chief Financial Officer32
              
              Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002





SIGNATURES





In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.





POKER
      MAGIC, INC./s/ Douglas PolinskyDouglas
      PolinskyChief
      Executive OfficerDated:  November
      13, 2009/s/ Joseph A. Geraci, IIJoseph
      A. Geraci, IIChief
      Financial OfficerDated:  November
      13, 2009




18




INDEX
TO EXHIBITS FILED WITH THIS REPORT





ExhibitNo.
              
              Description31.1
              
              Certification
      of Chief Executive Officer31.2
              
              Certification
      of Chief Financial Officer32
              
              Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002




19