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 March 31, 2010





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 May
10, 2010 there were 10,083,224 shares of the issuer’s common stock, $0.001 par
value, outstanding.





Table of
Contents





Index





PagePART
      I. FINANCIAL INFORMATIONItem
      1. Financial Statements
              
              1Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
              
              9Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
              
              15Item
      4T. Controls and Procedures
              
              15PART
      II. OTHER INFORMATIONItem
      1. Legal Proceedings
              
              16Item
      1A. Risk Factors
              
              16Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
              
              16Item
      3. Defaults Upon Senior Securities
              
              16Item
      4. Reserved
              
              16Item
      5. Other Information
              
              16Item
      6. Exhibits
              
              16SIGNATURES
              
              17







PART
I – FINANCIAL INFORMATION





Item
1.  Financial Statements.





Poker
Magic, Inc.


(A
Development Stage Company)


Balance
Sheets





March 31, 2010
                        (unaudited)
                      
                      
                      December 31, 2009
                        (audited)ASSETSCurrent
      AssetsCash
                      
                      $
                      691
                      
                      
                      $
                      5,464Accounts
      receivable
                      
                      
                      225
                      
                      
                      
                      -Inventory
                      
                      
                      1,621
                      
                      
                      
                      1,621Total
      Current Assets
                      
                      
                      2,537
                      
                      
                      
                      7,085Intangible
      assets, net of amortization
                      
                      
                      8,272
                      
                      
                      
                      10,340Total
      Assets
                      
                      $
                      10,809
                      
                      
                      $
                      17,425Liabilities
      and Shareholders’ Equity (Deficit)Current
      LiabilitiesAccounts
      payable
                      
                      $
                      24,052
                      
                      
                      $
                      13,446Accrued
      royalty
                      
                      
                      180
                      
                      
                      
                      120Note
      payable related party – short-term
                      
                      
                      50,000
                      
                      
                      
                      40,000Interest
      payable
                      
                      
                      2,307
                      
                      
                      
                      873Deferred
      revenue
                      
                      
                      -
                      
                      
                      
                      975Total
      Current Liabilities
                      
                      
                      76,539
                      
                      
                      
                      55,414Total
      Liabilities
                      
                      
                      76,539
                      
                      
                      
                      55,414Shareholders’
      Equity (Deficit)Common
      Stock, $.001 par value: Authorized 250,000,000 shares:Issued
      and outstanding 10,083,224 and 9,963,224 shares.
                      
                      
                      10,083
                      
                      
                      
                      9,963Additional
      paid-in capital
                      
                      
                      656,757
                      
                      
                      
                      644,877Deficit
      accumulated during the development stage
                      
                      
                      (732,570
                      )
                      
                      
                      (692,829
                      )Total
      Shareholders’ Equity (Deficit)
                      
                      
                      (65,730
                      )
                      
                      
                      (37,989
                      )Total
      Liabilities and Shareholders’ Equity (Deficit)
                      
                      $
                      10,809
                      
                      
                      $
                      17,425





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
                        March 31, 2010
                      
                      
                      Three Months
                        Ended
                        March 31, 2009
                      
                      
                      Period from
                        January 10, 2006
                        (inception) to
                        March 31, 2010Revenues
                      
                      $
                      1,200
                      
                      
                      $
                      1,625
                      
                      
                      $
                      10,575Cost
      of revenue
                      
                      
                      2,128
                      
                      
                      
                      4,448
                      
                      
                      
                      51,817Gross
      loss
                      
                      
                      (928
                      )
                      
                      
                      (2,823
                      )
                      
                      
                      (41,242
                      )Operating
      expenses:Selling,
      general and administrative
                      
                      
                      37,379
                      
                      
                      
                      56,786
                      
                      
                      
                      691,225Operating
      Loss
                      
                      
                      (38,307
                      )
                      
                      
                      (59,609
                      )
                      
                      
                      (732,467
                      )Other
      Income (Expense)Interest
      income
                      
                      
                      -
                      
                      
                      
                      181
                      
                      
                      
                      2,203Interest
      expense
                      
                      
                      (1,434
                      )
                      
                      
                      -
                      
                      
                      
                      (2,306
                      )Total
      Other Income (Expense)
                      
                      
                      (1,434
                      )
                      
                      
                      181
                      
                      
                      
                      (103
                      )Net
      Loss
                      
                      $
                      (39,741
                      )
                      
                      $
                      (59,428
                      )
                      
                      $
                      (732,570
                      )Basic
      and diluted net loss per common share
                      
                      $
                      (0.00
                      )
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.09
                      )Weighted-average
      number of common shares outstanding
                      
                      
                      9,963,224
                      
                      
                      
                      9,128,872
                      
                      
                      
                      7,769,778





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


2





Poker
Magic, Inc.


(A
Development Stage Company)


Statements
of Cash Flows


(unaudited)





Three Months
                  Ended
                  March 31, 2010
                
                
                Three Months
                  Ended
                  March 31, 2009
                
                
                Period from
                  January 10, 2006
                  (inception) to
                  March 31, 2010Cash
      flows from operating activities:Net
      loss
                
                $
                (39,741
                )
                
                $
                (59,428
                )
                
                $
                (732,570
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Amortization
      of intangible asset
                
                
                2,068
                
                
                
                2,068
                
                
                
                33,085Common
      stock issued for services
                
                
                -
                
                
                
                -
                
                
                
                6,500Consulting
      service expense paid in stock
                
                
                -
                
                
                
                1,249
                
                
                
                123,841Officers
      compensation expense paid in stock
                
                
                12,000
                
                
                
                -
                
                
                
                110,000Officers
      compensation expense ascontributed
      capital
                
                
                -
                
                
                
                12,000
                
                
                
                50,000Changes
      in operating assets and liabilities:Accounts
      receivable
                
                
                (225
                )
                
                
                (200
                )
                
                
                (225
                )Inventory
                
                
                -
                
                
                
                450
                
                
                
                (871
                )Prepaid
      expense
                
                
                -
                
                
                
                -
                
                
                
                5,434Accounts
      payable
                
                
                10,606
                
                
                
                12,717
                
                
                
                24,052Accrued
      royalty
                
                
                60
                
                
                
                (85
                )
                
                
                180Interest
      payable
                
                
                1,434
                
                
                
                -
                
                
                
                2,307Deferred
      revenue
                
                
                (975
                )
                
                
                -
                
                
                
                -Net
      cash used in operating activities
                
                
                (14,773
                )
                
                
                (31,229
                )
                
                
                (378,267
                )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
                
                
                -
                
                
                
                -
                
                
                
                426,000Redemption
      of common stock
                
                
                -
                
                
                
                (91,667
                )
                
                
                (91,667
                )Proceeds
      from note payable related party
                
                
                10,000
                
                
                
                -
                
                
                
                50,000Payment
      of short-term debt
                
                
                -
                
                
                
                -
                
                
                
                (2,375
                )Net
      cash provided by (used in) financing activities
                
                
                10,000
                
                
                
                (91,667
                )
                
                
                395,958Net
      increase (decrease) in cash
                
                
                (4,773
                )
                
                
                (122,896
                )
                
                
                691Cash,
      beginning of the period
                
                
                5,464
                
                
                
                145,117
                
                
                
                -Cash,
      end of the period
                
                $
                691
                
                
                $
                22,221
                
                
                $
                691Non-cash
      investing and financing activities:Acquisition
      of certain assets and liabilities ofSelect
      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
                
                
                -
                
                
                
                -
                
                
                
                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


March 31,
2010





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, 2009, 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 months ended March
31, 2010 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2010 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, 2009.  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 March 31, 2010, the Company incurred a net
loss of $732,570. 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.





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.





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 $2,068 for both
of the three months ended March 31, 2010 and 2009 and $33,085 for the period
from January 10, 2006 (inception) to March 31, 2010. Estimated amortization
expense for the next two years of patents issued as of March 31, 2010 is as
follows:





Remainder
      of 2010
                  
                  $
                  6,2042011
                  
                  
                  2,068Total
                  
                  $
                  8,272


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 March 31, 2010 or December 31, 2009.





NOTE
2—NET LOSS PER COMMON SHARE





Basic net
loss per common share is computed by dividing net loss attributable to common
shareholders 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
                  March 31, 2010
                
                
                Three Months
                  Ended
                  March 31, 2009
                
                
                Period from
                  January 10, 2006
                  (inception)
                  to
                  March 31, 2010Numerator:  Net
      Loss
                
                $
                (39,741
                )
                
                $
                (59,428
                )
                
                $
                (732,570
                )Denominator:  Weighted-average
      number of common shares outstanding
                
                
                9,963,224
                
                
                
                9,128,872
                
                
                
                7,769,778Basic
      and diluted net loss per common share
                
                $
                (0.00
                )
                
                $
                (.01
                )
                
                $
                (0.09
                )





The
1,000,000 outstanding warrants at March 31, 2010 and 2009 and the period from
January 10, 2006 (inception) to March 31, 2010 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
March 31, 2010 and December 31, 2009, $180 and $120 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.


5





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.





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.


6


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.





On
December 31, 2009, the Company issued 200,000 shares of common stock for officer
compensation with a fair value of $12,000.





On March
31, 2010, the Company issued 120,000 shares of common stock for officer
compensation with a fair value of $12,000.





At March
31, 2010, a total of 10,083,224 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 March 31, 2010, which expire in
May 2010.


7


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 March 31,
2010 and December 31, 2009.





At March
31, 2010, the Company had federal and state net operating loss carryforward of
approximately $698,000 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 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.





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 twelve percent (12.0%) 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.





On
December 14, 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 $20,000 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 December 13,
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.





On
January 21, 2010, 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 January 20,
2011, 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.





For the
three months ended March 31, 2010, the Company has accrued interest and interest
expense of $2,307 and $1,434, respectively, related to the notes payable with a
related party.





NOTE
7—SUBSEQUENT EVENT





On April
1, 2010, 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 March 31, 2011, 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.


8





On May 1,
2010, 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 $20,000 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 April 30, 2011, 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.





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
filed with the SEC on February 26, 2010 and related to our year ended December
31, 2009, and the period from January 10, 2006 (inception) to December 31,
2009.




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.


9


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.”





For the
three months ended March 31, 2010, we generated $1,200 in revenues. For the
three months ended March 31, 2010, we incurred $2,128 in revenue-related costs
and $37,380 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 executive management for
services rendered, and (ii) expenses for professional services such as legal and
accounting services.





As of
March 31, 2010, we had $691 in cash on hand and current liabilities of
$76,539.  As of the date of this filing, we had approximately $13,750
in cash on hand, and our management presently believes this cash will be
sufficient to continue operations through June 2010 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 June 2010.





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 March 31, 2010 Compared to the Three
Months Ended March 31, 2009





Three Months Ended
                
                
                % Change
                
                
                % of 2010
                
                
                % of 2009Item
                
                3/31/10
                
                
                3/31/09
                
                
                (YearOverYear)
                
                
                NetLoss
                
                
                NetLossRevenues
                
                $
                1,200
                
                
                $
                1,625
                
                
                
                (26.15
                )%
                
                
                (3.02
                )%
                
                
                (2.73
                )%Cost
      of Revenues
                
                
                2,128
                
                
                
                4,448
                
                
                
                (52.16
                )%
                
                
                5.35
                %
                
                
                7.48
                %Operating
      Expenses:General
      Operating Expenses
                
                
                544
                
                
                
                6,189
                
                
                
                (91.21
                )%
                
                
                1.37
                %
                
                
                10.41
                %Legal
      and Accounting Expenses
                
                
                24,835
                
                
                
                38,597
                
                
                
                (35.65
                )%
                
                
                62.49
                %
                
                
                64.95
                %Executive
      Management Compensationin
      Stock
                
                
                12,000
                
                
                
                12,000
                
                
                
                0
                %
                
                
                30.20
                %
                
                
                20.19
                %Other
      Income (Expense)
                
                
                (1,434
                )
                
                
                181
                
                
                
                (891.71
                )%
                
                
                3.61
                %
                
                
                (0.30
                )%Net
      Loss
                
                $
                39,741
                
                
                $
                59,428
                
                
                
                (33.13
                )%
                
                
                100
                %
                
                
                100
                %





As the
table above demonstrates, during the three months ended March 31, 2010 and 2009,
we had revenues of $1,200 and $1,625, respectively and incurred $2,218 and
$4,448, respectively, in revenue-related costs.  We currently have one
contract with one client and have had that contract with that one client since
August 2008.  During the three months ended March 31, 2010, our one
client utilized one weekend-only game compared to their use of one
seven-day-per-week game and one weekend-only game for the three months ended
March 31, 2009.





Our
operating expenses decreased 34.17% in the three months ended March 31, 2010
compared to the three months ended March 31, 2009 due to realized efficiency
savings in our ongoing operations which has helped to reduce our operating and
legal, accounting and general operating expenses.  We expect these
expenses will remain stable throughout the remainder of
2010.


10





Our legal
and accounting expenses decreased 35.65% for the three months ended March 31,
2010 compared to the three months ended March 31, 2009.  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 2009.





We
presently expect that compensation expense arising from share issuances to our
executive management will remain consistent with our fiscal
2009.   We issue 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 reduce 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 2010.





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
2010.





Liquidity
and Capital Resources





Summary
cash flow data is as follows:




Three Months Ended March 31,2010
                  
                  2009Cash
      flows provided (used) by :Operating
      activities
                  
                  $
                  (14,773
                  )
                  
                  $
                  (31,229
                  )Investing
      activities
                  
                  
                  -
                  
                  
                  
                  -Financing
      activities
                  
                  
                  10,000
                  
                  
                  
                  (91,667
                  )Net
      decrease in cash
                  
                  
                  (4,773
                  )
                  
                  
                  (122,896
                  )Cash,
      beginning of period
                  
                  
                  5,464
                  
                  
                  
                  145,117Cash,
      end of period
                  
                  $
                  691
                  
                  
                  $
                  22,221




The
decrease in cash used in operating activities was primarily the result of a
reduction in consulting service expense paid in stock and a reduction in
professional services fees.  As of March 31, 2010, we had $691
cash on hand and current liabilities of $76,539.  As of the date
of this filing, our management believes we have sufficient capital to continue
operations through June 2010 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.




11


Our
primary non-cash asset at March 31, 2010 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.





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 March 31, 2010 (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 2010.


12


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





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





Expenses





As
indicated above under the caption “Results of Operations,” our selling, general
and administrative expenses overall decreased in the three months ended March
31, 2010 compared to the three months ended March 31, 2009 and are expected to
remain stable throughout 2010.  However, we expect to make applications and
seek gaming regulatory compliance and licenses that will increase that component
of our selling, general and administrative expenses for 2010.  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





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 through July 24, 2009.  On July 24,
2009, the New Jersey Casino Control Commission extended our term through
January 24, 2010 and on January 5, 2010 the New Jersey Casino Control Commission
extended our term through July 24, 2010.  It is, however, extremely
difficult to anticipate 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.  We anticipate expansion of our marketing efforts into tribal nations
in Oklahoma during 2010. 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;
      and


13





·
            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
      Oklahoma.





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 material
aspects of these laws and regulations may be found in our Annual Report on Form
10-K filed with the SEC on February 26, 2010.





Financing





As
discussed above under the caption “Liquidity and Capital Resources,” our
management believes we have sufficient capital to continue operations through
June 2010.  Thereafter, we expect we will require additional capital. 
Our current forecast for financing needs is largely based on our understanding
of the expenses we anticipate incurring in our efforts to comply with gaming
regulatory and public reporting company disclosure requirements.  In this
regard, we note that our current forecasts are largely based on our past
experience with other enterprises and proposed budgets proposed by our
professional consultants.  If our actual expenses significantly exceed our
present expectations we will likely require additional financing prior to June
2010.





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 March 31, 2010, we had an
accumulated deficit of approximately $732,570. These factors, among others,
raise substantial doubt about our ability to continue as a going concern. Our
financial statements included in this filing do not include any adjustments
related to recoverability and classification of asset carrying amounts, or the
amount and classification of liabilities that might result, should we be unable
to continue as a going concern. Our ability to continue as a going concern
ultimately depends on achieving profitability, producing revenues or raising
additional capital to sustain operations. Although we intend to obtain
additional financing to meet our cash needs and to support the
revenue-generating process, we may be unable to secure any additional financing
on terms that are favorable or acceptable to us, if at all.





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 March 31, 2010 or December 31, 2009.


14


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
Annual Report on Form 10-K filed with the SEC in February 2010.  There have
been no material changes to our critical accounting policies and estimates from
those disclosed in our Annual Report on Form 10-K.





Item 3. Quantitative and
Qualitative Disclosures About Market Risk





Not
applicable.





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.





As of
March 31, 2010, 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 March 31, 2010.





Changes
in Internal Controls





There
were no changes in our internal control over financial reporting during the
quarter ended March 31, 2010 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.




15


PART
II – OTHER INFORMATION





PART
II. OTHER INFORMATION




Item 1.
Legal Proceedings





None.





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 Annual Report on Form 10-K filed with the SEC on February 26,
2010.





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





On March
31, 2010, we issued a total of 120,000 shares of common stock to our Chief
Executive Officer (60,000 shares) and Chief Financial Officer (60,000 shares)
for officer compensation.  The Company offered and sold the shares in
reliance on the exemptions from registration set forth in Sections 4(2) or 4(6)
of the Securities Act of 1933 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 3.
Defaults upon Senior Securities.





None.





Item 4.
Reserved.





Item
5.  Other Information.





On April
1, 2010, 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 March 31, 2011, 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.





On April
1, 2010, 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 March 31, 2011, 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.





Item
6.  Exhibits.





Exhibit No.
              
              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




16





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:  May
      14, 2010/s/ Joseph A. Geraci, IIJoseph
      A. Geraci, IIChief
      Financial OfficerDated:  May
      14, 2010


17