**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**




**x
      QUARTERLY REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**


**For
      the Quarterly Period Ended June 30, 2008**





**OR**




**o
      TRANSITION REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**




**For
      the transition period from
      _____________________to______________________**





Commission
      File Number: 000-51572









**PokerTek,
                Inc.**


*(Exact
      name of registrant as specified in its charter)*






**North
                Carolina**
            
            **61-1455265**(State
                or other jurisdiction of incorporation or organization)
            
            (I.R.S.
                Employer Identification No.)




**1150
                Crews Road, Suite F, Matthews, North Carolina
                28105**(Address
                of principal executive offices) (Zip
                Code)




**(704)
      849-0860**


(Registrant’s
                telephone number, including area
                code)




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. Yes
x No
o





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
      definitions of “large accelerated filer,” “accelerated filer,” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act (check one):




oLarge
              accelerated filer
            
            oAccelerated
              fileroNon-accelerated
              filer (do not check if a smaller reporting company)
            
            xSmaller
              reporting company




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes
o No
x




As
      of
      July 31, 2008, there were 10,934,464 shares outstanding of the registrant’s
      common stock.









**POKERTEK,
      INC.**




**TABLE
      OF CONTENTS**





**Page****PART
                I - FINANCIAL INFORMATION**Item 1.
            
            Financial
                Statements
            
            1Item
                2.
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            13Item
                3.
            
            Quantitative
                and Qualitative Disclosures about Market Risk
            
            20Item
                4T.
            
            Controls
                and Procedures
            
            21**PART
                II - OTHER INFORMATION**Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            22Item
                6.
            
            Exhibits
            
            23Signatures
            
            23Exhibit
                Index
            
            24







**POKERTEK,
        INC.**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **(unaudited)**




**Three
                    Months Ended June 30,**
                
                **Six
                    Months Ended June 30,****2008**
                
                **2007**
                
                **2008**
                
                **2007**Revenues:License
                    and service fees
                
                $
                1,420,263
                
                $
                601,991
                
                $
                2,941,939
                
                $
                1,110,102Product
                    sales
                
                
                2,419,827
                
                
                313,705
                
                
                4,099,647
                
                
                397,170**Total
                    revenues**
                
                
                3,840,090
                
                
                915,696
                
                
                7,041,586
                
                
                1,507,272Costs
                    and operating expenses:Cost
                    of product sales
                
                
                1,724,940
                
                
                243,865
                
                
                2,953,873
                
                
                317,452Selling,
                    general and administrative
                
                
                2,453,336
                
                
                2,060,840
                
                
                5,035,308
                
                
                3,923,543Research
                    and development
                
                
                743,921
                
                
                1,122,791
                
                
                1,719,233
                
                
                2,130,079Depreciation
                
                
                709,105
                
                
                467,443
                
                
                1,326,563
                
                
                833,251**Total
                    costs and operating expenses**
                
                
                5,631,302
                
                
                3,894,939
                
                
                11,034,977
                
                
                7,204,325**Operating
                    loss**
                
                
                (1,791,212
                )
                
                (2,979,243
                )
                
                (3,993,391
                )
                
                (5,697,053
                )Interest
                    income (expense), net
                
                
                (39,357
                )
                
                168,422
                
                
                26,498
                
                
                259,254**Net
                    loss before income taxes**
                
                
                (1,830,569
                )
                
                (2,810,821
                )
                
                (3,966,893
                )
                
                (5,437,799
                )Income
                    tax expense
                
                
                (123,473
                )
                
                -
                
                
                (123,473
                )
                
                -**Net
                    loss**
                
                $
                (1,954,042
                )
                $
                (2,810,821
                )
                $
                (4,090,366
                )
                $
                (5,437,799
                )Net
                    loss per common share - basic and diluted
                
                $
                (0.18
                )
                $
                (0.27
                )
                $
                (0.37
                )
                $
                (0.54
                )Weighted
                    average common shares outstanding - basic and diluted
                
                
                10,934,464
                
                
                10,503,810
                
                
                10,934,464
                
                
                9,990,765





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





1


**POKERTEK,
        INC.**
 **CONSOLIDATED
        BALANCE SHEETS**
  **June
                  30, 2008 (unaudited)**
              
              **December
                  31,**
                **2007****Assets**Current
                  assets:Cash
                  and cash equivalents
              
              $
              3,169,179
              
              $
              1,229,980Short-term
                  investments
              
              
              -
              
              
              5,950,000Accounts
                  receivable, net
              
              
              2,022,055
              
              
              968,536Inventory
              
              
              2,830,457
              
              
              2,642,481Prepaid
                  expenses and other assets
              
              
              178,778
              
              
              331,199**Total
                  current assets**
              
              
              8,200,469
              
              
              11,122,196Other
                  assets:PokerPro
                  systems, net
              
              
              4,314,549
              
              
              4,991,634Property
                  and equipment, net
              
              
              620,576
              
              
              605,046Long-term
                  investments
              
              
              3,673,950
              
              
              -Other
                  assets
              
              
              492,660
              
              
              377,029**Total
                  assets**
              
              $
              17,302,204
              
              $
              17,095,905**Liabilities
                  and Shareholders' Equity**Current
                  liabilities:Accounts
                  payable
              
              $
              2,310,218
              
              $
              1,465,202Accrued
                  liabilities
              
              
              1,067,754
              
              
              964,173Short-term
                  debt
              
              
              1,016,314
              
              
              -**Total
                  current liabilities**
              
              
              4,394,286
              
              
              2,429,375Long-term
                  debt
              
              
              2,034,172
              
              
              -Commitments
                  and contingenciesShareholders'
                  equity:Preferred
                  stock, no par value per share; authorized 5,000,000, none issued
                  and
                  outstanding
              
              
              -
              
              
              -Common
                  stock, no par value per share; authorized 100,000,000 shares, issued
                  and
                  outstanding 10,934,464 shares at June 30, 2008 and December 31,
                  2007
              
              
              -
              
              
              -Additional
                  paid-in capital
              
              
              41,876,852
              
              
              41,353,220Accumulated
                  deficit
              
              
              (30,777,056
              )
              
              (26,686,690
              )Accumulated
                  other comprehensive loss
              
              
              (226,050
              )
              
              -**Total
                  shareholders' equity**
              
              
              10,873,746
              
              
              14,666,530**Total
                  liabilities and shareholders' equity**
              
              $
              17,302,204
              
              $
              17,095,905




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





2


**POKERTEK,
        INC.**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(unaudited)**
   **Six
                  Months Ended June 30,****2008**
              
              **2007****Cash
                  flows from operating activities:**Net
                  loss
              
              $
              (4,090,366
              )
              $
              (5,437,799
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
              
              
              1,326,563
              
              
              833,251Share-based
                  compensation expense
              
              
              523,632
              
              
              363,081Changes
                  in assets and liabilities:Accounts
                  and other receivables
              
              
              (1,053,519
              )
              
              (436,257
              )Prepaid
                  expenses and other assets
              
              
              36,790
              
              
              (71,358
              )Inventory
              
              
              (187,976
              )
              
              8,655PokerPro
                  systems
              
              
              (549,493
              )
              
              (2,307,456
              )Accounts
                  payable and accrued expenses
              
              
              948,597
              
              
              (115,335
              )**Net
                  cash used in operating activities**
              
              
              (3,045,772
              )
              
              (7,163,218
              )**Cash
                  flows from investing activities:**Purchases
                  of property and equipment
              
              
              (63,481
              )
              
              (12,989
              )Sale
                  of investments
              
              
              2,050,000
              
              
              15,650,000Purchase
                  of investments
              
              
              -
              
              
              (20,400,000
              )**Net
                  cash provided by (used in) investing activities**
              
              
              1,986,519
              
              
              (4,762,989
              )**Cash
                  flows from financing activities:**Proceeds
                  from long-term debt
              
              
              2,000,000
              
              
              -Proceeds
                  from short-term debt
              
              
              1,000,000
              
              
              -Proceeds
                  from issuance of common stock, net of expenses
              
              
              -
              
              
              12,549,172Proceeds
                  from common stock options exercised
              
              
              -
              
              
              14,760Repayments
                  of capital lease obligation
              
              
              (1,548
              )
              
              -**Net
                  cash provided by financing activities**
              
              
              2,998,452
              
              
              12,563,932**Net
                  increase in cash and cash equivalents**
              
              
              1,939,199
              
              
              637,725**Cash
                  and cash equivalents, beginning of period**
              
              
              1,229,980
              
              
              1,803,501**Cash
                  and cash equivalents, end of period**
              
              $
              3,169,179
              
              $
              2,441,226**Supplemental
                  Disclosure of Cash Flow Information****Cash
                  paid for:**Interest
              
              $
              51,776
              
              $
              2,811Income
                  taxes
              
              
              77,255
              
              
              -**Non-cash
                  transaction:**Capital
                  lease obligation
              
              $
              52,034
              
              $
              -




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





3





**POKERTEK,
      INC.**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**








**Note
      1.**  **Nature
      of Business and Basis of Presentation**





**Nature
      of Business**





PokerTek,
      Inc. (“PokerTek” or the “Company”) is engaged in the development, manufacture
      and marketing of electronic poker-related products for use in the gaming and
      amusement markets.





The
      Company currently has two product lines, PokerPro® gaming products and Heads-Up
      ChallengeTM amusement products. The PokerPro system is an electronic poker table
      that provides a fully-automated poker-room environment to tribal casinos,
      commercial casinos, cruise ships and card clubs. The Heads-Up Challenge World
      Series of Poker® edition is an innovative heads-up amusement poker table that
      enables two players to compete against each other in a game of Texas Hold’em
      poker for entertainment purposes in non-gambling venues such as bars and
      restaurants.





**Basis
      of Presentation and Significant Accounting Policies**





The
      accompanying consolidated financial statements include the accounts of PokerTek,
      Inc. and its consolidated subsidiary. All significant intercompany transactions
      and accounts have been eliminated.





These
      consolidated financial statements should be read in conjunction with the
      consolidated financial statements and related footnotes included in the
      Company’s Annual Report on Form 10-K for the year ended December 31, 2007.
      Certain reclassifications have been made to prior periods’ financial information
      to conform to the current period presentation. There were no material changes
      during the most recent fiscal quarter in the
      Company’s significant accounting policies as described
      in the Annual Report.





The accompanying consolidated
      financial statements have been prepared without audit and are presented in
      accordance with Article 8-03 of Regulation S-X. Accordingly, they do not include
      all of the information and footnotes required by generally accepted accounting
      principles in the United States (“U.S. GAAP”) for annual financial statements.
      In the opinion of management, these consolidated financial
      statements  include
      all adjustments, which consist only of normal recurring adjustments, necessary
      for a fair statement of the Company’s results of operations for the periods
      presented. The results of operations for the six months ended June 30, 2008
      are
      not necessarily indicative of the results to be expected for the entire year.





***Revenue
      recognition***





The
      Company recognizes revenue in accordance with Statement of Position No. 97-2
      (“SOP 97-2”), *Software Revenue Recognition* (as
      amended by SOP No. 98-4 and SOP No. 98-9), and Staff Accounting Bulletin No.
      101
      (“SAB 101”), *Revenue
      Recognition in Financial Statements* ,
      as
      updated by SAB 104, *Revenue
      Recognition.* If
      multiple product deliverables are included under a sale or license agreement,
      the Company allocates revenue to each product based upon their respective fair
      values in relation to the total contract value and defers revenue recognition
      on
      those deliverables that have not met all requirements of revenue
      recognition.





Revenues
      from product sales, including sales of casino products to Aristocrat
      International Pty. Limited (“Aristocrat”), the Company’s international
      distributor for PokerPro gaming products and a significant shareholder, are
      recognized when all of the following have occurred:




·
            Persuasive
                evidence of an arrangement exists;




·
            The
                fee is fixed or determinable;




·
            Delivery
                has occurred;




·
            Collectibility
                is reasonably assured; and




·
            Title
                and risk of loss have passed to the customer.




4




In
      many
      cases, arrangements include recurring fees based on either a fixed monthly
      fee
      or a pre-determined percentage of the amount the casino or card club charges
      for
      each hand of poker (the “rake”).  In some cases, the Company may also
      charge separately for installation, training and post contract customer support
      (“PCS”).  Where the Company is responsible for performing initial
      installation and training, all revenue is deferred until such time as those
      services have been rendered. Following installation, the Company accounts for
      hardware, software license, PCS and other elements in accordance with SOP 97-2
      and consistent with the guidance provided by the American Institute of Certified
      Public Accountants’ Technical Practice Aid 5100.76, *Fair
      Value in Multiple-Element Arrangements That Include Contingent Usage-Based
      Fees
      and Software Revenue Recognition* . 
      License and service fees are recognized when persuasive evidence of an
      arrangement exists, services have been rendered, the price is fixed and
      determinable and collectability is reasonably assured. This normally occurs
      on a
      monthly basis as the amounts contractually due are computed and invoiced, PCS
      is
      delivered and all other revenue recognition criteria are satisfied.





**Recent
      Accounting Pronouncements**





In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standard No. 157 (“FAS 157”), *Fair
      Value Measurements* .
      FAS 157
      defines fair value, establishes a framework for measuring fair value in
      accordance with accounting principles generally accepted in the United States,
      and expands disclosures about fair value measurements. FAS 157 established
      a
      three-tier fair value hierarchy, which prioritizes the inputs used in measuring
      fair value. These tiers include: Level 1, defined as observable inputs such
      as
      quoted prices in active markets; Level 2, defined as inputs other than quoted
      prices in active markets that are either directly or indirectly observable;
      and
      Level 3, defined as unobservable inputs in which little or no market data
      exists, therefore requiring an entity to develop its own
      assumptions.





The
      Company adopted the provisions of FAS 157 as of January 1, 2008, for financial
      instruments measured at fair value on a recurring and nonrecurring basis.
      Although the adoption of FAS 157 did not materially impact its financial
      condition, results of operations, or cash flows, the Company is now required
      to
      provide additional disclosures as part of its financial statements (see Note
      2 -
“Investments in Auction Rate Securities”).





In
      March
      2008, the FASB issued Statement of Financial Accounting Standard No. 161
      (“FAS 161”), *Disclosures
      about Derivative Instruments and Hedging Activities.* FAS 161 improves financial reporting on derivative instruments and hedging
      activities by requiring enhanced disclosures to enable investors to better
      understand their effects on an entity’s financial position, financial
      performance and cash flows. The new standard is effective for financial
      statements issued for fiscal years and interim periods beginning after
      November 15, 2008. The Company is not currently the holder of any
      derivative instruments; thus, adoption of FAS 161 would not currently have
      any
      effect on the Company's results of operations, financial condition, or cash
      flows.





In
      May
      2008, the FASB issued Statement
      of Financial Accounting Standard No.
      162, *The
      Hierarchy of Generally Accepted Accounting Principles* (“FAS
      162”). FAS 162 identifies the sources of accounting principles and the framework
      for selecting principles to be used in the preparation of financial statements
      that are presented in conformity with U.S. GAAP. The U.S. GAAP hierarchy was
      previously set forth in the American Institute of Certified Public Accountants
      (“AICPA”) Statement on Auditing Standards No. 69, *The
      Meaning of Present Fairly in Conformity With Generally Accepted Accounting
      Principles* .
      Though
      the FASB does not expect a change in current practice, the Board issued this
      statement in order for the U.S. GAAP hierarchy to reside in the accounting
      literature established by the FASB. FAS 162 is effective 60 days following
      the
      SEC’s approval of the Public Company Accounting Oversight Board amendments to AU
      Section 411, *The
      Meaning of Present Fairly in Conformity With Generally Accepted Accounting
      Principles.* Any
      effect of applying the provisions of FAS 162 shall be reported as a change
      in
      accounting principle in accordance with SFAS No. 154, *Accounting
      Changes and Error Corrections* .
      The
      Company does not expect FAS 162 to have a material impact on its financial
      statements.





In
      June
      2008, the FASB issued FSP No. EITF 03-6-1, *Determining
      Whether Instruments Granted in Share-Based Payment Transactions Are
      Participating Securities* (“FSP
      EITF 03-6-1”). The FASB concluded in this FSP that unvested share-based payment
      awards that contain nonforfeitable rights to dividends or dividend equivalents
      are participating securities and shall be included in the calculation of
      earnings per share pursuant to the two-class method. This FSP is effective
      for
      financial statements issued for fiscal years beginning after December 15, 2008,
      requiring all prior-period earnings per share data presented to be adjusted
      retrospectively. The Company does not expect FSP EITF 03-6-1 to have a material
      impact on its calculation of earnings per share.





5




In
      December 2007, the FASB issued Statement of Financial Accounting Standard
      No. 160 (“FAS 160”), *Noncontrolling
      Interest in Consolidated Financial Statements - an amendment of ARB
      No. 51* .
      FAS 160
      changes reporting standards for noncontrolling interests in a subsidiary. The
      standard is effective for fiscal years beginning on or after December 15,
      2008. The Company does not expect the adoption of FAS No. 160 to have a material
      impact on the Company's
      results of operations, financial condition, or cash flows.





In
      February 2007, the FASB issued Statement of Financial Accounting Standard No.
      159, *The
      Fair Value Option for Financial Assets and Liabilities* (“FAS
      159”). FAS 159 provides entities with the option to report selected financial
      assets and liabilities at fair value. Business entities adopting FAS 159 will
      report unrealized gains and losses in earnings at each subsequent reporting
      date
      on items for which the fair value option has been elected. The Company has
      not
      elected the fair value option for any of its assets or liabilities.





**Note
      2.** ***Investments
      in Auction Rate Securities (“ARS”)***





The
      Company accounts for its ARS in accordance with Statement
      of Financial Accounting Standards No. 115 (“FAS
      115”), *Accounting
      for Certain Investments in Debt and Equity Securities* ,
      and
      classifies them as “available for sale.” Investments in available-for-sale
      securities are recorded at fair value, and unrealized gains or losses (that
      are
      deemed to be temporary) are recognized, net of tax, through shareholders’
equity, as a component of other comprehensive income in the Company’s
      consolidated balance sheet. The Company records an impairment charge to earnings
      when an investment has experienced a decline in value that is deemed to be
      other-than-temporary.





The
      ARS
      held by the Company are securities with long-term nominal maturities for which
      the interest rates have historically been reset through a dutch auction each
      month. The monthly auctions historically have provided a liquid market for
      these
      securities. The Company’s investments in ARS represent interests in
      collateralized debt obligations supported by pools of federally backed student
      loans. Consistent with the Company’s investment policy, the ARS investments held
      by the Company all have AAA/Aaa credit ratings and are backed by The Federal
      Family Education Loan Program. With the liquidity issues experienced in global
      credit and capital markets, the ARS held by the Company have experienced failed
      auctions as the amount of securities submitted for sale has exceeded the amount
      of purchase orders during the first six months of 2008.





Historically,
      given the liquidity created by the auctions, ARS were presented as current
      assets. However, given the recently failed auctions, the Company’s ARS have
      become illiquid until there is a successful auction or a secondary market
      develops. Based on the long-term maturities of the underlying student loans,
      the
      Company determined that the carrying value of the investment in ARS should
      be
      reclassified to long-term assets on the accompanying consolidated balance sheet
      as of June 30, 2008.




As
      of
      June 30, 2008, the Company also concluded that the cost exceeded fair value
      for
      its investment in ARS and that this decline in fair value was temporary. Based
      on the information currently available, management believes that the underlying
      investments in the student loan portfolios remain sound and that this impairment
      is the result of the failure of the auction mechanisms to provide current
      liquidity. In addition, the Company continues to receive interest on its ARS
      on
      a timely basis, there have been no defaults on the ARS, and the ARS are insured
      by The Federal Family Education Loan Program. Therefore, the Company has
      recorded an unrealized loss of $226,050 (original cost and par value was $3.9
      million) to accumulated other comprehensive income during the
      period.





Any
      future fluctuation in fair value related to the ARS that the Company deems
      to be
      temporary, including any recoveries of previous write-downs, would be recorded
      to accumulated other comprehensive income. If the Company determines that any
      future valuation adjustment is other than temporary, it will record an
      impairment charge to earnings.





As
      of
      June 30, 2008, the Company’s investments in ARS were required to be measured at
      fair value on a recurring basis in accordance with FAS 157. The Company
      estimated the fair value of its auction rate securities based on information
      contained in the broker statements that were compiled utilizing Level 3 inputs
      including, but not limited to, factors such as tax status, credit quality,
      duration, insurance wraps and the portfolio composition of The Federal Family
      Education Loan Program loans.





6




The
      Company's assets measured at fair value on a recurring basis subject to the
      disclosure requirements of FAS 157 at June 30, 2008, were as
      follows:




**Fair
                  Value Measurements at Reporting Date Using****Quoted
                  Prices in****Active
                  Markets****for
                  Identical****Assets**
              
              **Significant**
                **Other****Observable**
                **Inputs**
              
              **Significant
                  Unobservable Inputs**Investment
                  in auction rate securities
              
              $
              -
              
              $
              -
              
              $
              3,673,950Total
                  assets measured at fair value
              
              $
              -
              
              $
              -
              
              $
              3,673,950





The
      following table presents information about the Company's financial assets
      measured at fair value on a recurring basis using significant unobservable
      inputs (Level 3) as defined in FAS 157 at June 30, 2008:




**Level
                  3 Auction Rate Securities**Balance
                  at December 31, 2007
              
              $
              -Purchases
                  and (sales), net
              
              
              -Transfers
                  to Level 3
              
              
              3,900,000Included
                  in accumulated other comprehensive loss
              
              
              (226,050
              )Balance
                  at June 30, 2008
              
              $
              3,673,950




At
      June
      30, 2008, the Company’s ARS (par value of $3.9 million and fair value of $3.7
      million) were classified as long-term investments. At December 31, 2007, the
      Company’s ARS ($5.95 million par value and fair value) were classified as
      short-term investments.





**Note
      3.**  **Inventory**




Inventory
      at June 30, 2008 and December 31, 2007 consists of the following:




**June
                    30, 2008**
                
                **December
                    31, 2007**Raw
                    materials and components
                
                $
                967,217
                
                $
                1,398,752PokerPro
                    systems in process
                
                
                220,955
                
                
                620,224Finished
                    goods
                
                
                1,642,285
                
                
                623,505Inventory
                
                $
                2,830,457
                
                $
                2,642,481


7





**Note
      4.**  **Prepaid
      Expenses and Other Assets**





Prepaid
      expenses and other assets at June 30, 2008 and December 31, 2007 consist of
      the
      following:




**June
                  30, 2008**
              
              **December
                  31, 2007**Prepaid
                  expenses
              
              $
              166,618
              
              $
              252,418Other
              
              
              12,160
              
              
              78,781Prepaid
                  expenses and other assets
              
              $
              178,778
              
              $
              331,199Deferred
                  licensing fees, net
              
              $
              440,227
              
              $
              329,229Other
              
              
              52,433
              
              
              47,800Other
                  assets
              
              $
              492,660
              
              $
              377,029
  **Note
      5.**  **PokerPro
      Systems**





PokerPro
      systems represent equipment owned by PokerTek. The majority of this equipment
      is
      operated at customer sites pursuant to contractual license agreements. PokerPro
      systems may also include temporarily idle equipment returned from customer
      locations and equipment used by the Company for demonstration or testing
      purposes.





PokerPro
      systems are transferred from the Company’s inventory account to the PokerPro
      systems account at the time the units are fully assembled, configured, tested
      and otherwise ready for use by a customer. Because the configuration of each
      PokerPro system is unique to the specific customer environment in which it
      is
      being placed, the final steps to configure and test the unit generally occur
      immediately prior to shipment. Depreciation expense for PokerPro systems begins
      in the month of transfer of each PokerPro system from the Company’s inventory
      account to the PokerPro systems account .





PokerPro
      systems at June 30, 2008 and December 31, 2007 consist of the
      following:




**June
                  30, 2008**
              
              **December
                  31, 2007**PokerPro
                  systems
              
              $
              7,551,863
              
              $
              6,837,941Temporarily
                  idle PokerPro systems(a)
              
              
              334,336
              
              
              501,7017,886,199
              
              
              7,339,642Less:
                  accumulated depreciation(a)
              
              
              (3,571,650
              )
              
              (2,348,008
              )PokerPro
                  systems, net
              
              $
              4,314,549
              
              $
              4,991,634




*(a)
      The systems will be redeployed as scheduling allows. Included in the June 30,
      2008 and December 31, 2007 accumulated depreciation is $122,327 and $206,178,
      respectively, related to the temporarily idle PokerPro
      systems.*




8





**Note
      6.**  **Property
      and Equipment**





Property
      and equipment at June 30, 2008 and December 31, 2007 consists of the
      following:


**June
                  30, 2008**
              
              **December
                  31, 2007**Equipment
                  and software
              
              $
              788,251
              
              $
              673,188Leasehold
                  improvements
              
              
              189,609
              
              
              189,157977,860
              
              
              862,345Less:
                  accumulated depreciation
              
              
              (357,284
              )
              
              (257,299
              )Property
                  and equipment, net
              
              $
              620,576
              
              $
              605,046




**Note
      7.**  **Accrued
      Liabilities**





Accrued
      liabilities at June 30, 2008 and December 31, 2007 consist of the
      following:




**June
                      30, 2008**
                  
                  **December
                      31, 2007**Deferred
                      revenue
                  
                  $
                  191,138
                  
                  $
                  399,900Accrued
                      professional fees
                  
                  
                  228,287
                  
                  
                  334,731Other
                  
                  
                  648,329
                  
                  
                  229,542Accrued
                      liabilities
                  
                  $
                  1,067,754
                  
                  $
                  964,173




**Note
      8.**  **Comprehensive
      Loss**





Comprehensive
      loss at June 30, 2008 and June 30, 2007 consists of the following:





**June
                  30, 2008**
              
              **June
                  30, 2007**Net
                  loss
              
              $
              (4,090,366
              )
              $
              (5,437,799
              )Unrealized
                  loss on investments
              
              
              (226,050
              )
              
              -Comprehensive
                  loss
              
              $
              (4,316,416
              )
              $
              (5,437,799
              )




9





**Note
      9. Debt**





The
      Company’s outstanding debt balances as of June 30, 2008 and December 31, 2007
      consist of the following:




**June
                  30, 2008**
              
              **December
                  31, 2007**UBS
                  Credit Facility
              
              $
              1,000,000
              
              $
              -Founders'
                  loan
              
              
              2,000,000
              
              
              -Capital
                  lease obligation
              
              
              50,486
              
              
              -Total
                  debt
              
              
              3,050,486
              
              
              -Current
                  portion of debt
              
              
              1,016,314
              
              
              -Total
                  long-term debt
              
              $
              2,034,172
              
              $
              -




***UBS
      Credit Facility:*** On March
      19, 2008, the Company received an extension of credit from UBS Financial
      Services resulting in the creation of a direct financial obligation. The Company
      received $1.0 million from UBS Financial Services bearing interest payable
      monthly at 30-day LIBOR plus 0.25%. This extension of credit is payable on
      demand and is collateralized by the Company’s portfolio of $3.9 million of ARS
      held at UBS.





***Founders’
      Loan:*** On
      March
      24, 2008, the Company entered into a loan agreement with Lyle A. Berman, James
      T. Crawford III, Arthur Lee Lomax and Gehrig H. “Lou” White. Messrs. Crawford,
      Lomax and White are the founders of the Company. Each of the lenders are also
      members of our board of directors, with Mr. Berman serving as Chairman and
      Mr.
      White serving as Vice Chairman. Upon closing, the lenders loaned the Company
      $2.0 million and the Company issued the lenders a promissory note in the
      principal amount of $2.0 million. The loan bears interest at 13% with all unpaid
      principal and interest payable on March 24, 2010. The Company intends to pay
      interest on a monthly basis and the loan may be repaid prior to maturity without
      penalty. The loan contains no restrictive covenants and is collateralized by
      security interests in the Company’s PokerPro systems deployed in North America
      and on cruise ships as of December 31, 2007.





***Capital
      Lease Obligation:*** On May
      15, 2008, the Company entered into a capital lease obligation that bears
      interest at an annual rate of 9.4% in the amount of $52,034 in connection with
      its purchase of a new internal-use ERP system. Under the terms of the capital
      lease, the Company is required to make payments of $1,696 per month for a period
      of 36 months. At the end of the lease term, the company has the option to
      purchase the software for $101. The amount of the capital lease asset is
      included in property and equipment, net on the balance sheet. The Company will
      begin depreciating this asset when the ERP system is placed into
      service.





**Note
      10. Employee Benefit Plan**




The
      Company has established a salary deferral plan under Section 401(k) of the
      Internal Revenue Code covering substantially all employees. The plan allows
      eligible employees to defer 3% to 5% of their annual compensation. The Company
      matches the contributions equal to 100% on the first 3% of the deferral and
      50%
      on the deferral from 3% to 5%. For the three months ended June 30, 2008 and
      June 30, 2007, the Company recorded contribution expense of $34,496 and $23,480,
      respectively. For the six months ended June 30, 2008 and June 30, 2007, the
      Company recorded contribution expense of $71,152 and $51,594,
      respectively.





**Note
      11. Commitments and Contingencies**





**Indemnifications**





The
      Company maintains directors’ and officers’ liability insurance for the benefit
      of its directors and certain of its officers. The Company has entered into
      a
      separate indemnification agreement with Lyle Berman, the Chairman of the Board
      of Directors, which provides for indemnification for related expenses including
      attorneys’ fees, judgments, fines and settlement amounts incurred by Mr. Berman
      in any action or proceeding arising from his service as a director of the
      Company.




10




The
      Company also indemnifies its casino customers from any claims or suits brought
      by a third party alleging infringement of a United States patent, copyright
      or
      mask work right. The Company typically agrees to pay all costs and damages,
      provided the customer provides prompt written notice of any claim.





**Legal
      Proceedings**





***Lightning
      PokerTM:*** On
      March
      17, 2008, the Company was served with a complaint filed on March 6, 2008 in
      the
      United States District Court for the District of New Jersey, by Lightning
      Gaming, Inc. and Lightning Poker, Inc. The complaint alleges that the Company
      infringes United States Patent No. 7,306,516, owned by Lightning Poker. The
      complaint is seeking unspecified monetary damages from the Company as well
      as a
      permanent injunction enjoining the Company from infringing the patent or
      unfairly competing with the plaintiffs. The Company believes that either its
      products do not violate the patent that forms the basis of the lawsuit, that
      the
      patent is invalid, or both.





**Note
      12.**  **Shareholders’ Equity**





**Stock
      Incentive Plan**





Option
      activity under the Company’s stock incentive plan for the six months ended June
      30, 2008 was as follows:


**Weighted
                  Average****Shares**
              
              **Exercise
                  Price**
              
              **Remaining
                  Contractual Term**
              
              **Aggregate
                  Intrinsic Value**Outstanding
                  at December 31, 2007
              
              
              2,034,825
              
              $
              8.42Granted
              
              
              110,000
              
              
              3.74Exercised
              
              
              -
              
              
              -Forfeited
              
              
              (91,088
              )
              
              10.38Expired
              
              
              -Outstanding
                  at June 30, 2008
              
              
              2,053,737
              
              $
              8.08
              
              
              7.9
              
              $
              (9,046,297
              )Exercisable
                  at June 30, 2008
              
              
              1,005,545
              
              $
              6.82
              
              
              7.2
              
              $
              (3,155,285
              )





The
      Company recorded share-based compensation expense of $227,804 and $160,582
      for
      the three months ended June 30, 2008 and June 30, 2007, respectively. The
      Company recorded share-based compensation expense of $523,632 and $363,081
      for
      the six months ended June 30, 2008 and June 30, 2007, respectively.





**Note
      13. Income taxes**





For
      the
      six months ended June 30, 2008, the Company recognized tax expense of $123,473
      based principally on the Company’s estimated foreign income tax withholding
      liability.  The non-recoverable withholding taxes incurred for the period
      ended June 30, 2008 were attributable to the Company’s Canadian revenues. As the
      Company’s Canadian operations commenced during the current fiscal year, no such
      withholding liabilities were incurred during the six months ended June 30,
      2007.





The
      effective rates for the periods ending June 30, 2008 and 2007 differ from the
      U.S. federal statutory rate principally because: (1) the tax benefit arising
      from the Company’s net operating losses are fully offset by the valuation
      allowance established against the Company’s deferred tax assets: and (2) the
      Company incurs withholding taxes in Canada.




11





**Note
      14.**  **Related Party Transactions**





**Transactions
      with Aristocrat**





License
      fees from and equipment sales to Aristocrat of $138,682 and $1,171,816,
      respectively, were recorded in the three months ended June 30, 2008, while
      $92,005 and $302,743, respectively, were recorded during the three months ended
      June 30, 2007. License fees from and equipment sales to Aristocrat of $285,725
      and $1,980,305, respectively, were recorded in the six months ended June 30,
      2008, while $173,281 and $374,126, respectively, were recorded during the six
      months ended June 30, 2007. As
      of
      June 30, 2008, $402,942 due from Aristocrat was included in accounts receivable
      in the accompanying balance sheet.





**Office
      Lease**





The
      Company leases its office and manufacturing facility under an annual operating
      lease from an entity owned and controlled by the Company’s President and the
      Company’s Vice Chairman of the Board of Directors. The lease expires in August
      2011. Rent expense recorded for the leased space for the three months ended
      June
      30, 2008 and June 30, 2007 was $54,900 and $35,978, respectively. Rent expense
      recorded for the leased space for the six months ended June 30, 2008 and June
      30, 2007 was $109,800 and $70,367, respectively.





**Note
      15.**  **Subsequent Events**





On
      July
      25, 2008, the Company secured a $5 million credit facility, with a maximum
      availability of approximately $4.15 million based on specified percentages
      of
      domestic and foreign accounts receivable and inventory, which will vary from
      time to time (the “SVB Credit Facility”), from Silicon Valley Bank to support
      the Company’s working capital needs. The SVB Credit Facility has a one-year term
      and bears interest at an annual rate of prime plus 1.5%. The SVB Credit Facility
      includes covenants requiring the achievement of specified EBITDA or Quick Ratio
      thresholds and contains other terms and conditions customary for this type
      of
      credit facility.




On
      August
      8, 2008, UBS Financial Services, Inc. (“UBS”), the securities brokerage firm
      that holds the Company’s ARS investments, issued a press release announcing a
      settlement in principle with the New York Attorney General, the Massachusetts
      Securities Division, the Securities and Exchange Commission and other state
      regulatory agencies represented by North American Securities Administrators
      Association. Under the terms of the agreement in principle disclosed in its
      press release, UBS has committed to purchase a total of $8.3 billion of ARS,
      at
      par, from most private clients during a two-year time period generally
      beginning on January 1, 2009. The agreement in principle also provides that
      UBS
      will provide liquidity solutions to institutional investors and will agree
      from
      June 2010 to purchase all or any of the remaining $10.3 billion of ARS, at
      par,
      from its institutional clients.




The
      Company is continuing its discussions with UBS to determine a more precise
      time
      frame within which UBS will agree to purchase ARS held by the Company. As UBS
      provides the Company with additional information, management will continue
      to
      assess the related impact on liquidity and on the Company’s accounting for ARS,
      including management’s assessment that the ARS impairment is temporary.




On
      August
      13, 2008, the Company entered into a Credit Line Agreement (the “Line of
      Credit”) with UBS Bank USA for a demand revolving line of credit with respect to
      the Company’s ARS held in an account with UBS. Advances under the Line of
      Credit, to be made at the sole discretion of UBS Bank USA at up to 80% of the
      par value of the Company’s ARS, bear interest at LIBOR plus 0.50%. The Line of
      Credit replaces the $1,000,000 loan made by UBS to the Company under the terms
      of a March 19, 2008 Client’s Agreement between the Company and UBS.




12





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




**Forward-Looking
      Statements**




This
      Quarterly Report on Form 10-Q contains forward-looking statements within the
      meaning of Section 27A of the Securities Act of 1933, as amended, and Section
      21E of the Securities Exchange Act of 1934, as amended. Statements expressing
      expectations regarding our future (including pending gaming and patent
      approvals) and projections relating to products, sales, revenues and earnings
      are typical of such statements and are made under the Private Securities
      Litigation Reform Act of 1995. These forward-looking statements include, but
      are
      not limited to, statements about our plans, objectives, representations and
      contentions and are not historical facts and typically are identified by use
      of
      terms such as "may," "will," "should," "could," "expect," "plan," "anticipate,"
      "believe," "estimate," "predict," "potential," "continue" and similar words,
      although some forward-looking statements are expressed differently.





All
      forward-looking statements are subject to the risks and uncertainties inherent
      in predicting the future. Our actual results may differ materially from those
      projected, stated or implied in these forward-looking statements as a result
      of
      many factors, including our critical accounting policies and risks and
      uncertainties related, but not limited to, overall industry environment,
      customer acceptance of our products, delay in the introduction of new products,
      the further approvals of regulatory authorities, adverse court rulings,
      production and/or quality control problems, the denial, suspension or revocation
      of permits or licenses by governmental authorities, termination or non-renewal
      of customer contracts, cancellation of orders or failure to convert perceived
      customer interest to orders, competitive pressures and general economic
      conditions, and our financial condition. These and other risks and uncertainties
      are described in more detail in our most recent Annual Report on Form 10-K,
      as
      well as other reports and statements that we file with the Securities and
      Exchange Commission.





Forward-looking
      statements speak only as of the date they are made and should not be relied
      upon
      as representing our views as of any subsequent date. We undertake no obligation
      to update or revise such statements to reflect new circumstances or
      unanticipated events as they occur, except as required by applicable laws,
      and
      you are urged to review and consider disclosures that we make in this and other
      reports that we file with the Securities and Exchange Commission that discuss
      factors germane to our business.




**Overview**




PokerTek,
      Inc. is engaged in the development, manufacture and marketing of electronic
      poker-related products for use in the gaming and amusement markets.





We
      currently have two product lines, PokerPro gaming products and Heads-Up
      Challenge amusement products. The PokerPro system is an electronic poker table
      that provides a fully-automated poker-room environment to tribal casinos,
      commercial casinos, cruise ships and card clubs. The Heads-Up Challenge World
      Series of Poker edition is an innovative heads-up amusement device that enables
      two players to compete against each other in a game of Texas Hold’em poker for
      entertainment purposes in non-gambling venues such as bars and
      restaurants.




**Results
      of Operations for the Three Months Ended June 30, 2008 Compared to the Three
      Months Ended June 30, 2007**





***Revenues.*** Revenues
      increased by $2.9 million (319%) to $3.8 million for the three months ended
      June
      30, 2008 as compared to $915,696 for the three months ended June 30, 2007 due
      to
      increases in both license and service fees and product sales.





License
      and service fees increased by $818,272 (136%) to $1.4 million for the three
      months ended June 30, 2008 as compared to $601,991 for the three months ended
      June 30, 2007. The increase in license and service fees was driven primarily
      by
      domestic casino placements and a significantly larger base of installed PokerPro
      systems.





13




Product
      sales increased by $2.1 million (671%) to $2.4 million for the three months
      ended June 30, 2008 as compared to $313,705 for the three months ended June
      30,
      2007. Product sales consist of casino products, primarily PokerPro systems
      sold
      to Aristocrat for deployment in international casinos, as well as sales of
      our
      Heads-Up Challenge amusement product. The growth in product sales was
      attributable to both the successful launch of the new Heads-Up Challenge
      amusement product in late 2007 and growth of Aristocrat’s PokerPro business
      internationally.





Sales
      of
      the Heads-Up Challenge amusement product contributed $1.4 million in revenue
      for
      the three months ended June 30, 2008, with 303 units sold as compared to no
      activity in the comparable period of 2007. Sales of casino products for the
      three months ended June 30, 2008 amounted to $1.1 million, an increase of
      $743,902 (237%) over the comparable period in 2007. Sales of casino products
      increased largely due to Aristocrat’s increasing penetration in several European
      markets, notably Bulgaria where poker was just recently legalized.





***Cost
      of Sales*** .
      Cost of
      sales increased by $1.5 million (607%) to $1.7 million for the three months
      ended June 30, 2008 as compared to $243,865 for the three months ended June
      30,
      2007. This increase in cost of sales is attributable to the 671% growth in
      product sales. Cost of sales of the Heads-Up Challenge amusement product was
      $0.9 million, resulting in a gross margin percentage of 35.7% for the three
      months ended June 30, 2008. There were no sales and, accordingly, no cost of
      sales of the Heads-Up Challenge product for the three months ended June 30,
      2007. Cost of sales of casino products was $0.8 million, and $0.2 million for
      the three month periods ended June 30, 2008 and 2007, respectively. The
      resulting gross margin percentage for casino products was 19.7% and 22.3% for
      the three month periods ended June 30, 2008 and 2007, respectively. The
      reduction in the gross margin percentage was due to changes in product mix,
      with
      more consumables and other non-Aristocrat purchases occurring during the three
      months ended June 30, 2008 at lower margins than in the comparable period of
      2007.





***Selling,
      General and Administrative Expenses.*** Selling,
      general and administrative expenses (“SG&A”) increased by $392,496 (19%) to
      $2.5 million for the three months ended June 30, 2008 as compared to $2.1
      million for the three months ended June 30, 2007. This increase was primarily
      the result of higher salaries and related personnel costs in support of our
      growth strategy, as well as increased spending on customer marketing, regulatory
      compliance and professional fees. As a percentage of total revenues, SG&A
      expenses improved to 64% of total revenues for the three months ended June
      30,
      2008, compared with 225% of total revenues for the three months ended June
      30,
      2007.





***Research
      and Development Expenses.*** **** Research
      and development expenses (“R&D”) decreased by $378,870 (34%) to $743,921 for
      the three months ended June 30, 2008 as compared to $1.1 million for the three
      months ended June 30, 2007. We continue to invest in software and hardware
      development to improve our gaming and amusement products through the addition
      of
      new games and features, but as our Heads-Up Challenge and PokerPro products
      are
      now commercialized, spending on pre-production engineering and internal
      development has declined.





***Depreciation*** **.** Depreciation
      increased by $241,662 (52%) for the three months ended June 30, 2008 to $709,105
      from $467,443 for the three months ended June 30, 2007. The change in
      depreciation is primarily attributable to the increase in the number of
      depreciable PokerPro tables deployed in the United States, Canada and on cruise
      ships.





***Interest
      Income (Expense), net*** **.** Interest
      income (expense), net decreased by $207,779 (123%) for the three months ended
      June 30, 2008 to an expense of $39,357 from income of $168,422 for the three
      months ended June 30, 2007, primarily as a result of interest expense on the
      founders’ and UBS loans incurred during the second quarter of 2008 combined with
      a lower average invested balances and lower average interest rates on our
      investments.





***Income
      Taxes.*** Income
      tax expense was $123,473 for the three months ended June 30, 2008 and zero
      in
      the comparable period of 2007. Income tax expense for 2008 was attributable
      to
      non-recoverable taxes incurred in Canada, where we started doing business during
      the current year.





***Net
      Loss.*** Net
      loss
      for the three months ended June 30, 2008 was $2.0 million, an improvement of
      $856,779 (30%) from $2.8 million for the three months ended June 30, 2007.
      Net
      loss per share, basic and diluted, was $0.18 per share for the three months
      ended June 30, 2008, an improvement of 33% or $0.09 per share from $0.27 for
      the
      comparable period of 2007. Net loss and net loss per share improved over the
      prior year period due primarily to the combination of significantly higher
      revenues from the casino and amusement product lines, partially offset by higher
      cost of sales and operating expenses associated with the growth of the
      business.





14




**Results
      of Operations for the Six Months Ended June 30, 2008 Compared to the Six Months
      Ended June 30, 2007**





***Revenues.*** Revenues
      increased by $5.5 million (367%) to $7.0 million for the six months ended June
      30, 2008 as compared to $1.5 million for the six months ended June 30, 2007
      due
      to increases in both license and service fees and product sales.





License
      and service fees increased by $1.8 million (165%) to $2.9 million for the six
      months ended June 30, 2008 as compared to $1.1 million for the six months ended
      June 30, 2007. The increase in license and service fees was driven primarily
      by
      a significantly larger base of installed PokerPro systems in the United States,
      Canada and on cruise ships.





Product
      sales increased by $3.7 million (932%) to $4.1 million for the six months ended
      June 30, 2008 as compared to $397,170 for the six months ended June 30, 2007.
      Product sales consist of casino products, primarily PokerPro systems sold to
      Aristocrat for deployment in international casinos, as well as sales of our
      Heads-Up Challenge amusement product. The growth in product sales was
      attributable to both the successful launch of the new Heads-Up Challenge
      amusement product in late 2007 and growth of Aristocrat’s PokerPro business
      internationally. Heads-Up Challenge contributed $2.4 million in revenue for
      the
      first six months of 2008 with 540 units sold, as compared to no activity in
      the
      comparable period of 2007. Sales of casino products amounted to $1.7 million,
      an
      increase of $1,294,506 (326%) over the comparable period in 2007. Sales of
      casino products increased largely due to Aristocrat’s increasing penetration in
      several European markets, notably Bulgaria where poker was just recently
      legalized.





***Cost
      of Sales*** .
      Cost of
      sales increased by $2.6 million (830%) to $3.0 million for the six months ended
      June 30, 2008 as compared to $317,452 for the six months ended June 30, 2007.
      This increase in cost of sales is attributable to the 932% growth in product
      sales. Cost of sales of the Heads-Up Challenge amusement product was $1.6
      million, resulting in a gross margin percentage of 33.4% for the six months
      ended June 30, 2008. There were no sales and, accordingly, no cost of sales
      of
      the Heads-Up Challenge product for the six months ended June 30, 2007. Cost
      of
      sales of casino products was $1.4 million and $0.3 million for the six month
      periods ended June 30, 2008 and 2007, respectively. The resulting gross margin
      percentage for casino products was 20.2% and 20.1% for the six month periods
      ended June 30, 2008 and 2007, respectively.





***Selling,
      General and Administrative Expenses.*** SG&A
      increased by $1.1 million (28%) to $5.0 million for the six months ended June
      30, 2008 as compared to $3.9 million for the six months ended June 30, 2007.
      This increase was primarily due to higher salaries and related personnel costs
      in support of our growth strategy and higher legal and professional fees. As
      a
      percentage of total revenues, SG&A expenses improved to 72% of total
      revenues for the six months ended June 30, 2008, compared with 260% of total
      revenues for the six months ended June 30, 2007.





***Research
      and Development Expenses.*** **** R&D
      decreased by $410,846 (19%) to $1.7 million for the six months ended June 30,
      2008 as compared to $2.1 million for the six months ended June 30, 2007. We
      continue to invest in software and hardware development to improve our gaming
      and amusement products through the addition of new games and features, but
      as
      our Heads-Up Challenge and PokerPro products are now commercialized, spending
      on
      pre-production engineering and internal development has declined.





***Depreciation*** **.** Depreciation
      increased by $493,312 (59%) for the six months ended June 30, 2008 to $1.3
      million from $833,251 for the six months ended June 30, 2007. The change in
      depreciation is primarily attributable to the increase in the number of
      depreciable PokerPro tables deployed in the United States, Canada and on cruise
      ships.





***Interest
      Income (Expense), net*** **.** Interest
      income (expense), net decreased by $232,756 (90%) for the six months ended
      June
      30, 2008 to $26,498 from $259,254 for the six months ended June 30, 2007, due
      primarily to lower average invested balances and lower average interest rates
      on
      our investments, as well as the impact of interest expense on the founders’ and
      UBS loans incurred during the second quarter of 2008.





***Income
      Taxes.*** Income
      tax expense was $123,473 for the six months ended June 30, 2008 and zero in
      the
      comparable period of 2007. Income tax expense for 2008 was attributable to
      non-recoverable taxes incurred in Canada, where we started doing business during
      the current year.





15




***Net
      Loss.*** Net
      loss
      for the six months ended June 30, 2008 was $4.1 million, an improvement of
      $1.3
      million (25%) from $5.4 million for the six months ended June 30, 2007. Net
      loss
      per share, basic and diluted, was $0.37 per share for the six months ended
      June
      30, 2008, an improvement of $0.17 (31%) per share from $0.54 for the comparable
      period of 2007. Net loss and net loss per share improved over the prior year
      period due primarily to the combination of significantly higher revenues from
      the casino and amusement product lines, partially offset by higher cost of
      sales
      and operating expenses associated with the growth of the business.




**Liquidity
      and Capital Resources**





We
      have
      incurred net operating losses since inception and operating expenses may
      continue to exceed revenues through at least 2008 as we continue to invest
      in
      growing our installed base of PokerPro systems and increasing sales of the
      Heads-Up Challenge amusement product. We have typically funded our operating
      costs, research and development activities, working capital investments and
      capital expenditures associated with our growth strategy with proceeds from
      the
      issuances of our common stock, although during the first quarter of 2008 we
      obtained additional capital through an extension of credit from a financial
      institution and a loan from certain members of our Board of Directors. These
      transactions are described in more detail below.




**Six
                  Months Ended June 30,****2008**
              
              **2007**
              
              **Change**Net
                  cash used in operating activities
              
              $
              (3,045,772
              )
              $
              (7,163,218
              )
              $
              4,117,446Net
                  cash provided by (used in) investing activities
              
              
              1,934,485
              
              
              (4,762,989
              )
              
              6,697,474Net
                  cash provided by financing activities
              
              
              3,050,486
              
              
              12,563,932
              
              
              (9,513,446
              )Net
                  increase in cash and cash equivalents
              
              
              1,939,199
              
              
              637,725
              
              
              1,301,474Cash
                  and cash equivalents, beginning of period
              
              
              1,229,980
              
              
              1,803,501Cash
                  and cash equivalents, end of period
              
              $
              3,169,179
              
              $
              2,441,226





For
      the
      six months ended June 30, 2008, net cash used in operating activities was $3.0
      million, as compared to $7.1 million for the six months ended June 30, 2007,
      a
      decrease of $4.1 million. The decrease in cash used in operating activities
      was
      due to reduced net losses combined with a reduction in cash used for working
      capital, primarily inventory and PokerPro systems. We have recently focused
      increased attention on managing the level of working capital employed in the
      business, particularly with regard to reducing the level of inventory carried
      in
      our gaming operations.





Net
      cash
      provided by investing activities was $2.0 million for the six months ended
      June
      30, 2008, compared to net cash used by investing activities of $4.8 million
      for
      the six months ended June 30, 2007. Cash provided by investing activities is
      primarily a function of investments and redemptions of our auction rate
      securities (“ARS”) portfolio, and to a smaller degree, capital expenditures for
      assets used in our operations.





Net
      cash
      provided by financing activities was $3.0 million for the six months ended
      June
      30, 2008, primarily consisting of a $2.0 million loan from certain members
      of
      our Board of Directors and a $1.0 million loan from UBS Financial Services,
      Inc,
      each described in more detail below. For the six months ended June 30, 2007,
      net
      cash provided by financing activities was $12.6 million, consisting primarily
      of
      proceeds from an equity offering completed in April 2007.





Our
      need
      for cash to fund our operations is determined primarily by four factors: (i)
      the
      pace of growth in our casino business and the related investments we may make
      in
      inventory and PokerPro systems, (ii) the pace of growth in sales of our Heads-Up
      Challenge amusement product, (iii) our ability to generate positive operating
      leverage as we grow, and (iv) our ability to manage working capital and
      negotiate favorable payment terms with our customers and vendors. We have the
      ability to impact the timing and extent of our cash needs primarily by managing
      the pace of growth in both our PokerPro and Heads-Up-Challenge products and
      managing our operating expenses. However, we also have certain contractual
      obligations as set forth below and our ability to control all the cash needs
      of
      the business is not unlimited.. Our management intends to maximize revenues
      while carefully monitoring the impact on the Company’s cash needs and cash
      balances, however, any reduction in the pace of investment may also impact
      our
      ability to increase our revenues. If we are unable to execute our
      operating plan, manage our working capital effectively or are impacted by other
      events, however, we may need to liquidate our ARS, perhaps at a loss, or raise
      additional funds through additional public or private offerings of our
      securities, a sale/leaseback arrangement, a credit facility or other available
      sources.





16




***Auction
      rate securities.*** At
      June
      30, 2008, we had $3.7 million ($3.9 million par value) invested in ARS. The
      ARS
      held by us are securities with long-term nominal maturities for which the
      interest rates historically have been reset through a dutch auction each month.
      The monthly auctions historically have provided a liquid market for these
      securities. Our investments in ARS represent interests in collateralized debt
      obligations supported by pools of student loans. Consistent with our investment
      policy, the ARS investments held by us all have AAA/Aaa credit ratings and
      are
      backed by The Federal Family Education Loan Program. With the liquidity issues
      experienced in global credit and capital markets, the ARS held by us have
      experienced failed auctions as the amount of securities submitted for sale
      has
      exceeded the amount of purchase orders during early 2008. If uncertainties
      in
      these credit and capital markets continue, the market for ARS could deteriorate
      further, which could negatively affect our financial condition, cash flows
      and
      reported earnings.





Historically,
      given the liquidity created by the auctions, ARS were presented as current
      assets. However, given the recently failed auctions, our ARS have become
      illiquid until there is a successful auction or a secondary market develops.
      Based on our review of the underlying collateral, current market conditions
      and
      the market prices indicated on the monthly statements, we determined: (i) the
      carrying value of our investment in ARS should be reclassified to long-term
      assets on the balance sheet to reflect the long-term maturities of the
      underlying student loans and (ii) the fair value of our ARS was below book
      value
      as of June 30, 2008. Based on the information currently available, we believe
      that the underlying investments in the student loan portfolios remains sound
      and
      that this impairment is temporary and the result of the failure of the auction
      mechanisms to provide current liquidity. Accordingly, the value of the
      investment was written down to fair value with a corresponding charge to other
      comprehensive income. While we believe this impairment to be temporary, the
      situation in the ARS market is relatively new and continues to evolve. We will
      continue to monitor the situation and update our impairment evaluation in future
      periods and, if the impairment is subsequently determined to be other than
      temporary, an impairment charge to earnings would be required at that
      time.




On
      August
      8, 2008, subsequent to the end of the quarterly period ended June 30, 2008,
      UBS,
      the securities brokerage firm that holds the Company’s ARS investments, issued a
      press release announcing a settlement in principle with the New York Attorney
      General, the Massachusetts Securities Division, the Securities and Exchange
      Commission and other state regulatory agencies represented by North American
      Securities Administrators Association. Under the terms of the agreement in
      principle disclosed in its press release, UBS has committed to purchase a total
      of $8.3 billion of ARS, at par, from most private clients during a two-year
      time
      period generally beginning on January 1, 2009. The agreement in principle also
      provides that UBS will provide liquidity solutions to institutional investors
      and will agree to purchase all or any of the remaining $10.3 billion of ARS,
      at
      par, from its institutional clients.




We
      are
      continuing our discussions with UBS to determine a more precise time frame
      within which UBS will agree to purchase our ARS. As UBS provides us with
      additional information, we will continue to assess the related impact on
      liquidity and on the accounting for ARS, including our assessment that the
      ARS
      impairment is temporary.


***Founders’
      Loan.*** On
      March
      24, 2008, we entered into a loan agreement with Lyle A. Berman, James T.
      Crawford III, Arthur Lee Lomax and Gehrig H. “Lou” White. Messrs. Crawford,
      Lomax and White are the founders of the Company. Each of the lenders are also
      members of our board of directors, with Mr. Berman serving as Chairman and
      Mr.
      White serving as Vice Chairman. Upon closing, the lenders loaned us $2.0 million
      and we issued the lenders a promissory note in the principal amount of $2.0
      million. The loan bears interest at 13% with all unpaid principal and interest
      payable on March 24, 2010. We are paying and intend to continue to pay interest
      on a monthly basis. The loan principal may be repaid prior to maturity without
      penalty. The loan contains no restrictive covenants and is collateralized by
      a
      security interest in our PokerPro systems deployed in North America and on
      cruise ships as of December 31, 2007.





17




***SVB
      Credit Facility*** .
      On July
      25, 2008, subsequent to the end of the quarterly period ended June 30, 2008,
      we
      secured a $5 million credit facility with a maximum availability of
      approximately $4.15 million based on specified percentages of domestic and
      foreign accounts receivable and inventory, which will vary from time to time
      (the “SVB Credit Facility”), from Silicon Valley Bank to support our working
      capital needs. The SVB Credit Facility has a one-year term and bears interest
      at
      an annual rate of prime plus 1.5%. The SVB Credit Facility includes covenants
      requiring the achievement of specified EBITDA or Quick Ratio thresholds and
      contains other terms and conditions customary for this type of credit
      facility.





***UBS
      Credit Facility.*** On
      March
      19, 2008, we received a $1.0 million extension of credit from UBS Financial
      Services, Inc. bearing interest payable monthly at 30-day LIBOR plus 0.25%.
      This
      extension of credit is collateralized by our portfolio of $3.9 million of ARS
      held at UBS.





On
      August
      13, 2008, subsequent to the end of the quarterly period ended June 30, 2008,
      we
      entered into a Credit Line Agreement (the “Line of Credit”) with UBS Bank USA
      for a demand revolving line of credit with respect to our investment in ARS
      held
      in an account with UBS. Advances under the Line of Credit, to be made at the
      sole discretion of UBS Bank USA at up to 80% of the par value of our ARS,
      bear interest at LIBOR plus 0.50%. The Line of Credit replaces the $1,000,000
      loan made by UBS under the terms of a March 19, 2008 Client’s Agreement between
      us and UBS.





**Contractual
      Obligations**





The
      table
      below sets forth our known contractual obligations as of June 30,
      2008:




`
              
              **Total**
              
              **Less
                  than 1 year**
              
              **1
                  - 3 years**
              
              **3
                  - 5 years**
              
              **More
                  than 5 years**Debt
                  obligations
              
              $
              3,000,000
              
              $
              1,000,000
              
              $
              2,000,000
              
              $
              -
              
              $
              -Operating
                  lease obligations
              
              
              769,707
              
              
              262,572
              
              
              470,535
              
              
              36,600
              
              
              -Capital
                  lease obligations
              
              
              50,486
              
              
              16,314
              
              
              34,172
              
              
              -
              
              
              -Purchase
                  obligations
              
              
              4,351,723
              
              
              4,351,723
              
              
              -
              
              
              -
              
              
              -Other
                  long-term liabilities
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Total
              
              $
              8,171,916
              
              $
              5,630,609
              
              $
              2,504,707
              
              $
              36,600
              
              $
              -




Contractual
      obligations increased to $8.2 million as of June 30, 2008 from $2.1 million
      as
      of December 31, 2007 due principally to the incurrence of new debt and capital
      lease obligations, accompanied by an increase in the level of inventory purchase
      commitments, particularly commitments associated with our anticipated purchases
      of Heads-Up Challenge amusement products from our contract manufacturer.





**Customer
      Dependence**





As
      of
      June 30, 2008, four of our customers made up approximately 73% of our total
      revenues. The loss of any of these customers would have a material adverse
      effect on our business.





**Critical
      Accounting Policies**





We
      follow
      accounting principles generally accepted in the United States in preparing
      our
      financial statements, which require us to make certain estimates and apply
      judgments that affect our financial position and results of operations. We
      continually review our accounting policies and financial information
      disclosures. A summary of our significant accounting policies that require
      the
      use of estimates and judgments in preparing the financial statements was
      provided in our Annual Report on Form 10-K for the year ended December 31,
      2007.
      During the three months ended June 30, 2008, there were no material changes
      to
      the accounting policies and assumptions previously disclosed.





18




**Recent
      Accounting Pronouncements**





In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standard No. 157 (“FAS 157”), *Fair
      Value Measurements* .
      FAS 157
      defines fair value, establishes a framework for measuring fair value in
      accordance with accounting principles generally accepted in the United States,
      and expands disclosures about fair value measurements. FAS 157 established
      a
      three-tier fair value hierarchy, which prioritizes the inputs used in measuring
      fair value. These tiers include: Level 1, defined as observable inputs such
      as
      quoted prices in active markets; Level 2, defined as inputs other than quoted
      prices in active markets that are either directly or indirectly observable;
      and
      Level 3, defined as unobservable inputs in which little or no market data
      exists, therefore requiring an entity to develop its own
      assumptions.





We
      adopted the provisions of FAS 157 as of January 1, 2008, for financial
      instruments measured at fair value on a recurring and nonrecurring basis.
      Although the adoption of FAS 157 did not materially impact our financial
      condition, results of operations, or cash flows, we are now required to provide
      additional disclosures as part of our financial statements. (see Note 2 -
“Investments in Auction Rate Securities”).





In
      March
      2008, the FASB issued Statement of Financial Accounting Standard No. 161
      (“FAS 161”), *Disclosures
      about Derivative Instruments and Hedging Activities.* FAS 161 improves financial reporting on derivative instruments and hedging
      activities by requiring enhanced disclosures to enable investors to better
      understand their effects on an entity’s financial position, financial
      performance and cash flows. The new standard is effective for financial
      statements issued for fiscal years and interim periods beginning after
      November 15, 2008. We are not currently the holder of any derivative
      instruments; thus, adoption of FAS 161 would not currently have any effect
      on
      our results of operations, financial condition, or cash flows.





In
      May
      2008, the FASB issued Statement
      of Financial Accounting Standard No.
      162, *The
      Hierarchy of Generally Accepted Accounting Principles* (“FAS
      162”). FAS 162 identifies the sources of accounting principles and the framework
      for selecting principles to be used in the preparation of financial statements
      that are presented in conformity with U.S. GAAP. The U.S. GAAP hierarchy was
      previously set forth in the American Institute of Certified Public Accountants
      (“AICPA”) Statement on Auditing Standards No. 69, *The
      Meaning of Present Fairly in Conformity With Generally Accepted Accounting
      Principles* .
      Though
      the FASB does not expect a change in current practice, the Board issued this
      statement in order for the U.S. GAAP hierarchy to reside in the accounting
      literature established by the FASB. FAS 162 is effective 60 days following
      the
      SEC’s approval of the Public Company Accounting Oversight Board amendments to AU
      Section 411, *The
      Meaning of Present Fairly in Conformity With Generally Accepted Accounting
      Principles.* Any
      effect of applying the provisions of FAS 162 shall be reported as a change
      in
      accounting principle in accordance with SFAS No. 154, *Accounting
      Changes and Error Corrections* .
      We do
      not expect FAS 162 to have a material impact on our financial
      statements.





In
      June
      2008, the FASB issued FSP No. EITF 03-6-1, *Determining
      Whether Instruments Granted in Share-Based Payment Transactions Are
      Participating Securities* (“FSP
      EITF 03-6-1”). The FASB concluded in this FSP that unvested share-based payment
      awards that contain nonforfeitable rights to dividends or dividend equivalents
      are participating securities and shall be included in the calculation of
      earnings per share pursuant to the two-class method. This FSP is effective
      for
      financial statements issued for fiscal years beginning after December 15, 2008,
      requiring all prior-period earnings per share data presented to be adjusted
      retrospectively. We do not expect FSP EITF 03-6-1 to have a material impact
      on
      our calculation of earnings per share.





In
      December 2007, the FASB issued Statement of Financial Accounting Standard
      No. 160 (“FAS 160”), *Noncontrolling
      Interest in Consolidated Financial Statements - an amendment of ARB
      No. 51* .
      FAS 160
      changes reporting standards for noncontrolling interests in a subsidiary. The
      standard is effective for fiscal years beginning on or after December 15,
      2008. We do not expect the adoption of FAS No. 160 to have a material impact
      on our
      results of operations, financial condition, or cash flows.





In
      February 2007, the FASB issued Statement of Financial Accounting Standard No.
      159, *The
      Fair Value Option for Financial Assets and Liabilities* (“FAS
      159”). FAS 159 provides entities with the option to report selected financial
      assets and liabilities at fair value. Business entities adopting FAS 159 will
      report unrealized gains and losses in earnings at each subsequent reporting
      date
      on items for which the fair value option has been elected. We have not elected
      the fair value option for any of our assets or liabilities.





19





**Off-Balance
      Sheet Arrangements**





We
      have
      no off-balance sheet arrangements.




**Item
      3.**  **Quantitative
      and Qualitative Disclosures About Market Risk.**





Our
      market risk has not changed significantly from the disclosure in Item 7A of
      our
      Annual Report on Form 10-K for the fiscal year ended December 31, 2007, except
      for market risks associated with our Auction Rate Securities. Because of changes
      in the market conditions for these securities as discussed in Item 2 –
“Management’s Discussion and Analysis of Financial Condition and Results of
      Operations”, we have reclassified those investments from current to long-term on
      the accompanying consolidated balance sheet, and determined that cost is no
      longer an accurate approximation of fair value.




20





**Item
      4T.**  **Controls
      and Procedures.**




**Disclosure
      Controls and Procedures**





The
      Company maintains disclosure controls and procedures (as defined in Rule
      13a-15(e) under the Exchange Act), which are designed to ensure that information
      required to be disclosed by the Company in the reports it files or submits
      under
      the Exchange Act is recorded, processed, summarized and reported within the
      time
      periods specified in the Securities and Exchange Commission’s rules and forms,
      and that such information is accumulated and communicated to the Company’s
      management, including its Chief Executive Officer and Chief Financial Officer,
      as appropriate to allow timely decisions regarding required disclosure.





As
      of
      June 30, 2008, an evaluation of the effectiveness of the Company’s disclosure
      controls and procedures was conducted under the supervision of, and reviewed
      by,
      the Company’s Chief Executive Officer and Chief Financial Officer. Based on that
      evaluation, the Company’s Chief Executive Officer and Chief Financial Officer
      have concluded that the Company’s disclosure controls and procedures were
      effective as of June 30, 2008, in all material respects, to enable the Company
      to record, process, summarize and report in a timely manner the information
      that
      the Company is required to disclose in its Exchange Act reports, and that such
      information is accumulated and communicated to the Company’s management,
      including its Chief Executive Officer and Chief Financial Officer, as
      appropriate, to allow timely decisions regarding required disclosure.





**Changes
      in Internal Control Over Financial Reporting**





The
      following systems-related significant deficiencies were previously identified
      and remain unremediated as of June 30, 2008:





·
            The
                systems used in tracking and valuing inventory and PokerPro systems
                did
                not provide effective automated controls and were not integrated
                with each
                other or with the general ledger.  The lack of integration required
                manual reconciliations between the applications that were not always
                performed or reviewed on a timely basis, which previously resulted
                in an
                adjustment to the consolidated financial statements.


·
            The
                Company utilized a software package for its general ledger that did
                not
                provide certain automated general controls, such as the presence
                of edit
                reports and workflow approvals.





These
      significant deficiencies were previously reported to the Company’s Audit
      Committee by our management and to our independent registered public accounting
      firm.  Our management continues to believe that these significant
      deficiencies are not indicative of a material weakness in the Company’s internal
      control over financial reporting.





With
      regard to these systems-related significant deficiencies that had not been
      fully
      remediated as of June 30, 2008, we purchased an integrated enterprise resource
      planning software package during the second quarter which we believe will aid
      in
      strengthening our internal controls. This new software has not yet been
      implemented, however and we can provide no assurance that implementation of
      a
      new system will fully resolve all significant deficiencies.





As
      reported in our Annual Report on Form 10-K, we also implemented a number of
      compensating controls as of December 31, 2007, including more timely
      reconciliations, enhanced review and approval procedures, and more robust
      physical inventory counting  and valuation procedures. These compensating
      controls continued to operate as of June 30, 2008.  Although we are in the
      process of remediating the significant deficiencies identified above, there
      were
      no changes in our internal control over financial reporting during the quarter
      ended June 30, 2008 that materially affected, or are reasonably likely to
      materially affect, our internal control over financial reporting.




21





**PART
      II - OTHER INFORMATION**





**Item
      4.** **Submission
      of Matters to a Vote of Security Holders.**




Our
      Annual Shareholders’ Meeting was held on June 25, 2008. At the meeting, our
      shareholders (i) elected five directors for
      one-year terms and until their successors are duly elected and qualified or
      until their prior death, resignation, removal or disqualification or until
      there
      is a decrease in the number of directors; (ii)
      ratified the appointment of McGladrey & Pullen, LLP as our independent
      registered public accounting firm for the fiscal year ending December 31, 2008;
      and (iii) approved the issuance of additional shares of our common stock to
      allow for the full exercise of certain of our outstanding warrants.




The
      following matters were voted upon and approved by the margins
      indicated:


Number
                  of SharesVoted
                  For
              
              Withheld1.
                  Election of DirectorsGehrig
                  H. "Lou" White
              
              
              8,633,660
              
              
              542,818Lyle
                  Berman
              
              
              8,968,806
              
              
              207,672James
                  T. Crawford, III
              
              
              8,645,520
              
              
              530,958Joseph
                  J. Lahti
              
              
              8,968,806
              
              
              207,672Arthur
                  Lee Lomax
              
              
              8,643,309
              
              
              533,169




Number
                of SharesVoted
            
            
            
            Broker
                Non-Voted
                For
            
            Against
            
            Abstain
            
            Votes2.
                Ratification of the selection of McGladrey & Pullen, LLP as our
                independent registered public accounting firm for the fiscal year
                ending
                December 31, 2008
            
            
            9,156,893
            
            
            17,584
            
            
            2,000
            
            
            4,751




Number
                  of SharesVoted
              
              
              
              Broker
                  Non-Voted
                  For
              
              Against
              
              Abstain
              
              Votes3.
                  Approval of the issuance of additional shares of our common stock
                  sufficient to allow for the full exercise of certain of our outstanding
                  warrants
              
              
              7,601,734
              
              
              132,159
              
              
              31,800
              
              
              1,415,535





22





**Item
      6.**  **Exhibits.**





Exhibit
              No.
            
            Description10.1
            
            Loan
                and Security Agreement, effective July 25, 2008, between PokerTek,
                Inc.
                and Silicon Valley Bank.10.2
            
            Export-Import
                Bank Loan and Security Agreement, dated July 25, 2008, between PokerTek,
                Inc. and Silicon Valley Bank.10.3
            
            Borrower
                Agreement, dated July 25, 2008, made and entered into by PokerTek,
                Inc. in
                favor of the Export-Import Bank of the United States and Silicon
                Valley
                Bank.31.1
            
            Certification
                of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a)
                of the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.31.2
            
            Certification
                of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a)
                of the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.32.2
            
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.




**SIGNATURES**
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
 POKERTEK,
                  INC.Date:
                August 14, 2008
              By:
              /s/ Christopher
                J.C. HalliganChristopher
                  J.C. HalliganChief
                  Executive Officer
                (Principal
                  Executive Officer)
 Date:
                August 14, 2008
              
              /s/ Mark
                D. RobersonMark
                  D. RobersonChief
                  Financial Officer
                (Principal
                  Financial Officer and
                Principal
                  Accounting Officer)
  23
  **POKERTEK,
        INC.**
 **EXHIBIT
        INDEX**
 Exhibit
                    No.
                
                Description10.1
                
                Loan
                    and Security Agreement, effective July 25, 2008, between PokerTek,
                    Inc.
                    and Silicon Valley Bank.10.2
                
                Export-Import
                    Bank Loan and Security Agreement, dated July 25, 2008, between
                    PokerTek,
                    Inc. and Silicon Valley Bank.10.3
                
                Borrower
                    Agreement, dated July 25, 2008, made and entered into by PokerTek,
                    Inc. in
                    favor of the Export-Import Bank of the United States and Silicon
                    Valley
                    Bank.31.1
                
                Certification
                    of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a)
                    of the
                    Securities Exchange Act of 1934, as adopted pursuant to Section
                    302 of the
                    Sarbanes-Oxley Act of 2002.31.2
                
                Certification
                    of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a)
                    of the
                    Securities Exchange Act of 1934, as adopted pursuant to Section
                    302 of the
                    Sarbanes-Oxley Act of 2002.32.1
                
                Certification
                    of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                    as adopted
                    pursuant to Section 906 of the Sarbanes-Oxley Act of
                    2002.32.2
                
                Certification
                    of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
                    as adopted
                    pursuant to Section 906 of the Sarbanes-Oxley Act of
                    2002.




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