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**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 |
|---|--------------------------------------------------------------------------------------------------------------------------------------|

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

| **PokerTek,                Inc.** |
|-----------------------------------|

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

| **1020                Crews Road, Suite J, Matthews, North Carolina                28106** |
|--------------------------------------------------------------------------------------------|
| (Address                of principal executive offices)                                    |
|                                                                                       |
|                                                                                       |

**(704)      849-0860 **

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| (Registrant’s                telephone number, including area                code) |
|------------------------------------------------------------------------------------------|

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**POKERTEK,      INC.**

**QUARTERLY      REPORT ON FORM 10-Q **

**Table      of Contents**

|                   | **PART                I - FINANCIAL INFORMATION**                                                                         | **Page** |
|------------------------|---------------------------------------------------------------------------------------------------------------------------|----------|
| Item                1. | Financial                Statements                                                                                       | 1        |
| Item                2. | Management’s                Discussion and Analysis of Financial Condition and                Results of Operations | 10       |
| Item                3. | Quantitative                and Qualitative Disclosures about Market                Risk                                  | 14       |
| Item                4. | Controls                and Procedures                                                                                    | 14       |
|                   |                                                                                                                      |     |
|                   | **PART                II - OTHER INFORMATION**                                                                            |     |
| Item                1. | Legal                Proceedings                                                                                          | 14       |
| Item                2. | Unregistered                Sales of Equity Securities and Use of                Proceeds                                 | 14       |
| Item                4. | Submission                of Matters to a Vote of Security                Holders                                         | 15       |
| Item                6. | Exhibits                                                                                                                  | 16       |
|                   |                                                                                                                      |
| SIGNATURES             | 17                                                                                                                        |

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**PART      I. - FINANCIAL INFORMATION**

**Item      1. Financial Statements **

**PokerTek,      Inc.**

**(A      Development Stage Company)**

**Balance      Sheets**

|                                                                               |   | June                30,2006 |       | December                31, 2005 |   |
|------------------------------------------------------------------------------------|--------|-----------------------------|------------|----------------------------------|--------|
| **Assets**                                                                         |   | (unaudited)                 |       |                             |   |
| Current                Assets                                                      |   |                        |       |                             |   |
| Cash                and cash equivalents                                           |   | $                           | 16,239,915 |                             | $      | 20,373,900 |   |
| Trade                receivables                                                   |   |                        | 144,285    |                             |   | 151,200 |   |
| Prepaid                expenses and other assets                                   |   |                        | 266,447    |                             |   | 315,550 |   |
| Inventory                (Note 3)                                                  |   |                        | 959,472    |                             |   | 600,675 |   |
| **Total                current assets**                                            |   |                        | 17,610,119 |                             |   | 21,441,325 |   |
|                                                                               |   |                        |       |                             |   |   |   |
| Other                Assets                                                        |   |                        |       |                             |   |   |   |
| Security                deposit                                                    |   |                        | 2,800      |                             |   | 2,800 |   |
| Property                and equipment, net of accumulated depreciation (Note 2)    |   |                        | 1,639,479  |                             |   | 1,259,025 |   |
| **Total                assets**                                                    |   | $                           | 19,252,398 |                             | $      | 22,703,150 |   |
|                                                                               |   |                        |       |                             |   |   |   |
| **Liabilities                and Shareholder's Equity**                            |   |                        |       |                             |   |   |   |
| Current                Liabilities                                                 |   |                        |       |                             |   |   |   |
| Accounts                payable and accrued expenses                               |   | $                           | 258,731    |                             | $      | 214,465 |   |
|                                                                               |   |                        |       |                             |   |   |   |
| Commitments                (Notes 4 and 5)                                         |   |                        |       |                             |   |   |   |
|                                                                               |   |                        |       |                             |   |   |   |
| Shareholder's                Equity (Note 6)                                       |   |                        |       |                             |   |   |   |
| 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 9,472,020 and 9,468,020 at           |   |                        |       |                             |   |   |   |
| June                30, 2006 and December 31, 2005, respectively                   |   |                        | —    |                             |   | — |   |
| Capital                                                                            |   |                        | 27,507,743 |                             |   | 27,180,041 |   |
| Accumulated                deficit during the development stage                    |   |                        | (8,514,076 | )                                |   | (4,691,356 | ) |
| **Total                shareholder's equity**                                      |   |                        | 18,993,667 |                             |   | 22,488,685 |   |
| **Total                liabilities and shareholder's equity**                      |   | $                           | 19,252,398 |                             | $      | 22,703,150 |   |
|                                                                                    |   |                        |       |                             |   |   |   |

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**PokerTek,      Inc.**

**(A      Development Stage Company)**

**Statements      of Operations**

**(Unaudited)**

|                                                                           |   | Three                Months Ended June 30, |       |
|--------------------------------------------------------------------------------|--------|--------------------------------------------|------------|
|                                                                           |   | 2006                                       |       | 2005 |   |
|                                                                                |   |                                       |       |   |   |
| Revenues:                                                                      |   |                                       |       |   |   |
| License                fees                                                    |   | $                                          | 133,178    |   | $ | — |   |
| Product                sales                                                   |   |                                       | 181,086    |   |   | — |   |
| **Total                revenues**                                              |   |                                       | 314,264    |   |   | — |   |
|                                                                           |   |                                       |       |   |   |   |   |
| Costs                and operating expenses:                                   |   |                                       |       |   |   |   |   |
| Cost                of product sales                                           |   |                                       | 172,613    |   |   | — |   |
| Selling,                general and administrative                             |   |                                       | 1,517,816  |   |   | 354,855 |   |
| Research                and development                                        |   |                                       | 910,662    |   |   | 511,929 |   |
| Depreciation                                                                   |   |                                       | 152,007    |   |   | 3,313 |   |
| **Total                costs and operating expenses**                          |   |                                       | 2,753,098  |   |   | 870,097 |   |
|                                                                           |   |                                       |       |   |   |   |   |
| **Operating                loss**                                              |   |                                       | (2,438,834 | ) |   | (870,097 | ) |
|                                                                           |   |                                       |       |   |   |   |   |
| Non-operating                income:                                           |   |                                       |       |   |   |   |   |
| Interest                income                                                 |   |                                       | 206,849    |   |   | 14,557 |   |
|                                                                           |   |                                       |       |   |   |   |   |
| **Net                loss**                                                    |   | $                                          | (2,231,985 | ) | $ | (855,540 | ) |
|                                                                           |   |                                       |       |   |   |   |   |
| Net                loss per common share - basic and diluted:                  |   | $                                          | (0.24      | ) | $ | (0.12 | ) |
|                                                                           |   |                                       |       |   |   |   |   |
| Weighted                average common shares outstanding - basic and diluted: |   |                                       | 9,472,020  |   |   | 7,080,357 |   |
|                                                                                |   |                                       |       |   |   |   |   |

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**PokerTek,      Inc.**

**(A      Development Stage Company)**

**Statements      of Operations**

**(Unaudited)**

|                                                                          |   | Six                Months Ended June 30, |       | Period                from August 22, 2003 (date of inception) to June                30, |   |
|-------------------------------------------------------------------------------|--------|------------------------------------------|------------|-------------------------------------------------------------------------------------------|--------|
|                                                                          |   | 2006                                     |       | 2005                                                                                      |   | 2006 |   |
|                                                                               |   |                                     |       |                                                                                      |   |   |   |
| Revenues:                                                                     |   |                                     |       |                                                                                      |   |   |   |
| License                fees                                                   |   | $                                        | 493,178    |                                                                                      | $      | — |   | $ | 763,578 |   |
| Product                sales                                                  |   |                                     | 293,602    |                                                                                      |   | — |   |   | 337,550 |   |
| **Total                revenues**                                             |   |                                     | 786,780    |                                                                                      |   | — |   |   | 1,101,128 |   |
|                                                                          |   |                                     |       |                                                                                      |   |   |   |   |   |   |
| Costs                and operating expenses:                                  |   |                                     |       |                                                                                      |   |   |   |   |   |   |
| Cost                of product sales                                          |   |                                     | 282,301    |                                                                                      |   | — |   |   | 320,807 |   |
| Selling,                general and administrative                            |   |                                     | 2,510,392  |                                                                                      |   | 614,634 |   |   | 4,724,498 |   |
| Research                and development                                       |   |                                     | 1,951,421  |                                                                                      |   | 976,917 |   |   | 4,780,774 |   |
| Depreciation                                                                  |   |                                     | 267,930    |                                                                                      |   | 6,627 |   |   | 388,019 |   |
| **Total                costs and operating expenses**                         |   |                                     | 5,012,044  |                                                                                      |   | 1,598,178 |   |   | 10,214,098 |   |
|                                                                          |   |                                     |       |                                                                                      |   |   |   |   |   |   |
| **Operating                loss**                                             |   |                                     | (4,225,264 | )                                                                                         |   | (1,598,178 | ) |   | (9,112,970 | ) |
|                                                                          |   |                                     |       |                                                                                      |   |   |   |   |   |   |
| Non-operating                income:                                          |   |                                     |       |                                                                                      |   |   |   |   |   |   |
| Interest                income                                                |   |                                     | 402,544    |                                                                                      |   | 17,639 |   |   | 598,894 |   |
|                                                                          |   |                                     |       |                                                                                      |   |   |   |   |   |   |
| **Net                loss**                                                   |   | $                                        | (3,822,720 | )                                                                                         | $      | (1,580,539 | ) | $ | (8,514,076 | ) |
|                                                                          |   |                                     |       |                                                                                      |   |   |   |   |   |   |
| Net                loss per common share - basic and diluted:                 |   | $                                        | (0.40      | )                                                                                         | $      | (0.23 | ) |   |  |   |
|                                                                          |   |                                     |       |                                                                                      |   |   |   |   |   |   |
| Weighted                average common shares outstanding - basic and diluted |   |                                     | 9,470,816  |                                                                                      |   | 6,890,104 |   |   |   |   |
|                                                                               |   |                                     |       |                                                                                      |   |   |   |   |   |   |

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**PokerTek,      Inc.**

**(A      Development Stage Company)**

**Statements      of Cash Flows**

**(Unaudited)**

|                                                                                                                                                                                              |   | Six                Months Ended June 30, |       | Period                fromAugust                22, 2003(date                of inception)to                June 30, |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                   |   | 2006                                     |       | 2005                                                                                                                 |   | 2006 |   |
| **Cash                Flows from Operating Activities**                                                                                                                                           |   |                                     |       |                                                                                                                 |   |   |   |
| Net                loss                                                                                                                                                                           |   | $                                        | (3,822,720 | )                                                                                                                    | $      | (1,580,539 | ) | $ | (8,514,076 | ) |
| Adjustments                to reconcile net loss to net cash used in operating                activities:                                                                                         |   |                                     |       |                                                                                                                 |   |   |   |   |   |   |
| Depreciation                                                                                                                                                                                      |   |                                     | 267,930    |                                                                                                                 |   | 6,627 |   |   | 388,019 |   |
| Stock-based                compensation expense                                                                                                                                                   |   |                                     | 364,373    |                                                                                                                 |   | 6,343 |   |   | 655,856 |   |
| Provision                for other receivables                                                                                                                                                    |   |                                     | —    |                                                                                                                 |   | — |   |   | 8,000 |   |
| Changes                in assets and liabilities:                                                                                                                                                 |   |                                     |       |                                                                                                                 |   |   |   |   |   |   |
| Increase                in security deposit                                                                                                                                                       |   |                                     | —    |                                                                                                                 |   | — |   |   | (2,800 | ) |
| Decrease                (increase) in trade and other receivables                                                                                                                                 |   |                                     | 6,915      |                                                                                                                 |   | — |   |   | (152,285 | ) |
| Decrease                (increase) in prepaid expenses and other assets                                                                                                                           |   |                                     | 49,103     |                                                                                                                 |   | (114,000 | ) |   | (266,447 | ) |
| Increase                in inventory                                                                                                                                                              |   |                                     | (358,797   | )                                                                                                                    |   | (243,555 | ) |   | (959,472 | ) |
| Increase                in accounts payable and accrued                                                                                                                                           |   |                                     |       |                                                                                                                 |   |   |   |   |   |   |
| expenses                                                                                                                                                                                          |   |                                     | 44,266     |                                                                                                                 |   | 127,829 |   |   | 258,731 |   |
| Net                cash used in operating activities                                                                                                                                              |   |                                     | (3,448,930 | )                                                                                                                    |   | (1,797,295 | ) |   | (8,584,474 | ) |
| **Cash                Flows from Investing Activities**                                                                                                                                           |   |                                     |       |                                                                                                                 |   |   |   |   |   |   |
| Purchases                of property and equipment                                                                                                                                                |   |                                     | (648,384   | )                                                                                                                    |   | — |   |   | (2,027,498 | ) |
| Net                cash used in investing activities                                                                                                                                              |   |                                     | (648,384   | )                                                                                                                    |   | — |   |   | (2,027,498 | ) |
| **Cash                Flows from Financing Activities**                                                                                                                                           |   |                                     |       |                                                                                                                 |   |   |   |   |   |   |
| Proceeds                (expenses) from issuance of common stock,  private                placement of common stock and common  stock                options exercised, net of expenses |   |                                     | (36,671    | )                                                                                                                    |   | 3,005,913 |   |   | 26,851,887 |   |
| Net                cash provided by (used in) financing activities                                                                                                                                |   |                                     | (36,671    | )                                                                                                                    |   | 3,005,913 |   |   | 26,851,887 |   |
| Net                increase (decrease) in cash and cash equivalents                                                                                                                               |   |                                     | (4,133,985 | )                                                                                                                    |   | 1,208,618 |   |   | 16,239,915 |   |
| Cash                and cash equivalents:                                                                                                                                                         |   |                                     |       |                                                                                                                 |   |   |   |   |   |   |
| Beginning                                                                                                                                                                                         |   |                                     | 20,373,900 |                                                                                                                 |   | 1,322,871 |   |   | — |   |
| Ending                                                                                                                                                                                            |   | $                                        | 16,239,915 |                                                                                                                 | $      | 2,531,489 |   | $ | 16,239,915 |   |
|                                                                                                                                                                                              |   |                                     |       |                                                                                                                 |   |   |   |   |   |   |

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**POKERTEK,      INC.**

**NOTES      TO UNAUDITED FINANCIAL STATEMENTS **

**June      30, 2006**

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

***Basis      of Presentation.***
*** ***

***Description      of Business.***

*Recent      accounting pronouncements:*

*“Accounting      for Servicing of Financial Assets,” *
*“Accounting      for Transfers and Servicing of Financial Assets and Extinguishments of      Liabilities”. *

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**Note      2. Property and Equipment**

|                                                                       |   | Useful                life |   | June                30, |   | December                31, |   |
|----------------------------------------------------------------------------|--------|----------------------------|--------|-------------------------|--------|-----------------------------|--------|
|                                                                            |   | (years)                    |   | 2006                    |   | 2005                        |   |
| PokerProTM                systems                                     |   |                       | 3      |                    | $      | 1,090,470                   |   | $ | 1,074,423 |   |
| Temporarily                idle PokerProTM                systems (a) |   |                       | 3      |                    |   | 512,457                     |   |   | — |   |
| Equipment                                                                  |   |                       | 5      |                    |   | 368,010                     |   |   | 273,628 |   |
| Leasehold                improvements                                      |   |                       | 4      |                    |   | 56,561                      |   |   | 31,063 |   |
|                                                                       |   |                       |   |                    |   | 2,027,498                   |   |   | 1,379,114 |   |
| Less:                accumulated depreciation                              |   |                       |   |                    |   | (388,019                    | )      |   | (120,089 | ) |
| Property                and equipment, net                                 |   |                       |   |                    | $      | 1,639,479                   |   | $ | 1,259,025 |   |

| (a) | The                systems are ready for customer and regulatory use and will be installed                as                agreements are signed and scheduling                allows. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Note      3. Inventory**

|                            |   | June                30, |    | December                31, |   |
|---------------------------------|--------|-------------------------|---------|-----------------------------|--------|
|                            |   | 2006                    |    | 2005                        |   |
|                                 |   |                    |    |                        |   |
| Product                hardware |   | $                       | 959,472 |                        | $      | 600,675 |   |

**Note      4. Commitments**

| Year                Ending |   |   |    |
|----------------------------|--------|--------|---------|
| June                30,    |   | Amount |    |
| 2007                       |   | $      | 135,920 |   |
| 2008                       |   |   | 134,880 |   |
| 2009                       |   |   | 132,800 |   |
| 2010                       |   |   | 98,900  |   |
|                       |   | $      | 502,500 |   |

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**Note      5. Employee Benefit Plan**

**Note      6. Shareholder’s Equity**

*Stock      Incentive Plan*

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|                                                  |   | Three                Months Ended June 30, |    | Six                Months Ended June 30, |   |
|-------------------------------------------------------|--------|--------------------------------------------|---------|------------------------------------------|--------|
|                                                  |   | 2006                                       |    | 2005                                     |   | 2006 |   | 2005 |   |
| Selling,                general, and administrative   |   | $                                          | 115,712 |                                     | $      | 5,221 |   | $ | 182,900 |   | $ | 6,343 |   |
| Research                and development               |   |                                       | 127,875 |                                     |   | — |   |   | 181,473 |   |   | — |   |
| Total                stock-based compensation expense |   | $                                          | 243,587 |                                     | $      | 5,221 |   | $ | 364,373 |   | $ | 6,343 |   |

|                                   |   | Three                Months Ended June 30, |   | Six                Months Ended June 30, |   |
|----------------------------------------|--------|--------------------------------------------|--------|------------------------------------------|--------|
|                                        |   | 2006                                       |   | 2005                                     |   | 2006 |   | 2005 |   |
| Risk-free                interest rate |   |                                       | 5.10   | %                                        |   | 4.18 | % |   | 4.88 | % |   | 3.70 | % |
| Expected                volatility     |   |                                       | 30     | %                                        |   | 0 | % |   | 30 | % |   | 0 | % |
| Expected                dividend yield |   |                                       | 0      | %                                        |   | 0 | % |   | 0 | % |   | 0 | % |
| Expected                life (years)   |   |                                       | 5.0    |                                     |   | 5.0 |   |   | 5.0 |   |   | 5.0 |   |

|                                            |   |   |      | Weighted                             |   | Weighted                Average        |   |                                           |   |
|-------------------------------------------------|--------|--------|-----------|--------------------------------------|--------|----------------------------------------|--------|-------------------------------------------|--------|
|                                                 |   | Shares |      | AverageExercise                Price |   | ContractualTerm                (Years) |   | AggregateIntrinsic                  Value |   |
| Outstanding                at December 31, 2005 |   |   | 1,053,650 |                                 | $      | 4.81                                   |   |                                      |   |   |   |   |   |
| Granted                                         |   |   | 281,500   |                                 |   | 11.96                                  |   |                                      |   |   |   |   |   |
| Exercised                                       |   |   | (4,000    | )                                    |   | 0.01                                   |   |                                      |   |   |   |   |   |
| Forfeited                                       |   |   | (3,000    | )                                    |   | 9.84                                   |   |                                      |   |   |   |   |   |
| Outstanding                at March 31, 2006    |   |   | 1,328,150 |                                 |   | 6.33                                   |   |                                      |   |   |   |   |   |
| Granted                                         |   |   | 79,000    |                                 |   | 10.14                                  |   |                                      |   |   |   |   |   |
| Outstanding                at June 30, 2006     |   |   | 1,407,150 |                                 |   | 6.54                                   |   |                                      | 9.6    |   | $ | 5,065,740 |   |
| Exercisable                at June 30, 2006     |   |   | 396,690   |                                 | $      | 3.72                                   |   |                                      | 8.4    |   | $ | 2,546,750 |   |
| Available                for grant              |   |   | 205,100   |                                 |   |                                   |   |                                      |   |   |   |   |   |

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|                                        |   |   |      | Weighted                Average      |   |
|---------------------------------------------|--------|--------|-----------|--------------------------------------|--------|
| Nonvested                Shares:            |   | Shares |      | Grant-Date                Fair Value |   |
| Balance                at December 31, 2005 |   |   | 790,675   |                                 | $      | 1.05 |   |
| Granted                                     |   |   | 273,167   |                                 |   | 4.26 |   |
| Forfeited                                   |   |   | (3,000    | )                                    |   | 3.41 |   |
| Vested                                      |   |   | (81,775   | )                                    |   | 0.74 |   |
| Balance                at March 31, 2006    |   |   | 979,067   |                                 |   | 1.96 |   |
| Granted                                     |   |   | 79,000    |                                 |   | 3.67 |   |
| Vested                                      |   |   | (47,607   | )                                    |   | 1.18 |   |
| Balance                at June 30, 2006     |   |   | 1,010,460 |                                 | $      | 1.94 |   |

*Common      Stock*

**Note      7. Capitalized Software**

*      Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise      Marketed*

**Note      8. Subsequent Events**

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**Note      9. Segment Information **

**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 (the“Securities Act”), and Section 21E of the Securities Exchange Act of 1934,      as amended (the “Exchange Act”). Forward-looking statements sometimes include      the words “may,” “will,” “estimate,” “intend,” “continue,” “expect,” or“anticipate,” and other similar words. Statements expressing expectations      regarding ours future (including pending gaming and patent approvals) and      projections relating to products, sales, revenues and earnings are typical      of      such statements.*

*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, 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 privileged operating licenses by governmental authorities, competitive      pressures and general economic conditions, and our financial      condition.*

*Forward-looking      statements speak only as of the date they are made. We undertake no obligation      to update or revise such statements to reflect new circumstances or      unanticipated events as they occur, and you are urged to review and consider      disclosures that we make in this and other reports that discuss factors germane      to ours business.*

**Overview**

**Executive      Summary - Significant events for the quarter ended June 30,      2006**

| ·   | In                April 2006, we received                regulatory approval from the California Division of Gaming, which                allows                us to distribute PokerProTM tables to California card clubs and to some                Native American casinos. Other Native American casinos in California                require Gaming Laboratories International (“GLI”) certification prior to                adopting use of new gaming devices. The PokerProTM system is currently                undergoing GLI testing, so the license of the system to these Native                American casinos will not be permitted until the GLI certification                process                is successfully completed. In addition, in April 2006 we also received                regulatory approval from the British Gaming Commission, which allows                us                (through Aristocrat International Pty. Limited, our international                distributor) to distribute PokerProTM tables to card clubs and casinos in                the United Kingdom. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | In                April 2006, we launched the PokerProTM systems with four major cruise                lines, each for a paid trial period of 60 days. The trials resulted                in a                three-year contract to provide our PokerProTM tables to Carnival                Corporation & plc cruise ships, as announced in July, and negotiations                of agreements with two of the other cruise                lines. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | In                April 2006, 12 PokerProTM tables were removed from the Chickasaw Nation’s                rural properties in Oklahoma. In May 2006, one of the PokerProTM tables                which was deployed on a test basis on a cruise line was removed.                All 13 of                these PokerProTM tables have been earmarked to customers and will be                redeployed, with only slight modifications, by the beginning of the                fourth                quarter of 2006. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | In                June 2006, we announced that Hollywood Park Casino, one of the three                largest card clubs in California, has agreed to install an initial                six                PokerProTM tables for a 90 day trial period. The                Company expects to install these tables during September                2006. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Results      of Operations for the Three Months Ended June 30, 2006 Compared to the Three      Months Ended June 30, 2005**

*Revenues.      *

*Selling,      General and Administrative Expenses. *

*Research      and Development Expenses.*

*Depreciation*

*Interest      Income*

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**Results      of Operations for the Six Months Ended June 30, 2006 Compared to the Six Months      Ended June 30, 2005**

*Revenues.      *

*Selling,      General and Administrative Expenses. *

*Research      and Development Expenses.*

*Depreciation*

*Interest      Income*

**Liquidity      and Capital Resources**

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**Contractual      Obligations**

**Critical      Accounting Policies**

**Recent      Accounting Pronouncements**

*“Accounting      for Servicing of Financial Assets,” *
*“Accounting      for Transfers and Servicing of Financial Assets and Extinguishments of      Liabilities”. *

**Off-Balance      Sheet Arrangements**

**Recent      Events**

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| **Item                3.** | **Quantitative                  and Qualitative Disclosures about Market                  Risk.** |
|----------------------------|---------------------------------------------------------------------------------------------------|

| **Item              4.** | **Controls                and Procedures.** |
|--------------------------|---------------------------------------------|

*Evaluation      of disclosure controls and procedures*

*Changes      in internal control over financial reporting*

**PART      II - OTHER INFORMATION**

| **Item                1.** | **Legal                Proceedings.** |
|----------------------------|---------------------------------------|

| **Item                2.** | **Unregistered                Sales of Equity Securities and Use of                Proceeds.** |
|----------------------------|------------------------------------------------------------------------------------------------|

*Unregistered      Sales of Equity Securities*

*.*

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*Use      of Proceeds*

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

|                                    |   | Number                of Shares |      |
|-----------------------------------------|--------|---------------------------------|-----------|
|                                         |   | Voted                For        |      | Withheld |   |
| 1.                Election of Directors |   |                            |      |   |   |   |   |
| Gehrig                H. "Lou" White    |   |                            | 7,517,958 |   |   | 136,835 |   |
| Lyle                Berman              |   |                            | 7,653,793 |   |   | 1,000 |   |
| James                T. Crawford        |   |                            | 7,517,958 |   |   | 136,835 |   |
| Joseph                J. Lahti          |   |                            | 7,653,348 |   |   | 1,445 |   |
| Arthur                Lee Lomax         |   |                            | 7,518,158 |   |   | 136,635 |   |
|                                    |   |                            |      |   |   |   |   |

|                                                                       |   | Number                of Shares |      |
|----------------------------------------------------------------------------|--------|---------------------------------|-----------|
|                                                                       |   | Voted                For        |      | Voted                Against |   | Abstain |   |
| 2.                Ratification of the selection of McGladrey & Pullen, |   |                            | 7,560,673 |   |   | 5,600 |   |   | 320 |   |
| LLP                as our independent registered public accounting firm    |   |                            |      |   |   |   |   |   |   |   |
| for                the fiscal year ending December 31, 2006                |   |                            |      |   |   |   |   |   |   |   |

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| **Item              6.** | **Exhibits.** |
|--------------------------|---------------|

|   | Exhibit              No. | Description |
|--------|--------------------------|-------------|
|   |   |   |
|--------|--------|--------|
|  | 31.1 | Certification                of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange                Act. |
|--|------|------------------------------------------------------------------------------------------------------------------------|

|  | 31.2 | Certification                of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act. |
|--|------|---------------------------------------------------------------------------------------------------------|

|  | 32.1 | Certification                of Chief Executive Officer and 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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**SIGNATURES**

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**Exhibit      Index **

| Exhibit                  No. |   | Description                                                                                                                                                                                                                                        |
|------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                         |   |                                                                                                                                                                                                                                               |
| 31.1                         |   | Certification                  of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange                  Act.                                                                                                                         |
|                         |   |                                                                                                                                                                                                                                               |
| 31.2                         |   | Certification                  of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange                  Act.                                                                                                                         |
|                         |   |                                                                                                                                                                                                                                               |
| 32.1                         |   | Certification                  of Chief Executive Officer and 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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