**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 March 31, 2007


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.)**1020
                Crews Road, Suite J, Matthews, North Carolina
                28106**(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, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):




Large
      accelerated filero Accelerated
      filero Non-accelerated
      filer x





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
      April 30, 2007, there were 10,916,464 shares outstanding of the registrant’s
      common stock.








**POKERTEK,
      INC.**


**QUARTERLY
      REPORT ON FORM 10-Q**




**Table
      of Contents**







**PART
                I - FINANCIAL INFORMATION**
            **Page**Item
                1.
            Financial
                Statements
            1Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            11Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            15Item
                4.
            Controls
                and Procedures
            15**PART
                II - OTHER INFORMATION**Item
                1.
            Legal
                Proceedings
            16Item
                1A.
            Risk
                Factors
            16Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            17Item
                6.
            Exhibits
            18SIGNATURES
            19EXHIBIT
                INDEX
            20










**PART
      I. - FINANCIAL INFORMATION**




**Item
      1. Financial Statements**




**PokerTek,
      Inc.**


**Balance
      Sheets**





March
                31,
              2007
            
            December
                31,
              2006**Assets**
            
            (unaudited)Current
                AssetsCash
                and cash equivalents
            
            $
            5,543,803
            
            $
            9,353,501Trade
                receivables, net of allowance
            
            
            362,616
            
            
            272,389Prepaid
                expenses and other assets (Note 4)
            
            
            163,970
            
            
            204,217Inventory
                (Note 3)
            
            
            2,365,843
            
            
            1,900,996**Total
                current assets**
            
            
            8,436,232
            
            
            11,731,103Other
                AssetsOther
                assets (Note 4)
            
            
            360,030
            
            
            345,638Property
                and equipment, net of accumulated depreciation (Note 2)
            
            
            3,688,287
            
            
            3,046,056**Total
                assets**
            
            $
            12,484,549
            
            $
            15,122,797**Liabilities
                and Shareholder's Equity**Current
                LiabilitiesAccounts
                payable and accrued expenses
            
            $
            789,417
            
            $
            1,003,186Commitments
                (Notes 5 and 6)
            
            
            -
            
            
            -Shareholder's
                Equity (Note 7)Preferred
                stock, no par value per share; authorized 5,000,000, noneissued
                and outstanding
            
            
            -
            
            
            -Common
                stock, no par value per share; authorized 100,000,000shares,
                issued and outstanding 9,472,020 at March 31, 2007and
                December 31, 2006, respectively
            
            
            -
            
            
            -Capital
            
            
            28,159,184
            
            
            27,956,685Accumulated
                deficit
            
            
            (16,464,052
            )
            
            (13,837,074
            )**Total
                shareholder's equity**
            
            
            11,695,132
            
            
            14,119,611**Total
                liabilities and shareholder's equity**
            
            $
            12,484,549
            
            $
            15,122,797





See
      Notes
      to Interim Financial Statements.


1


**PokerTek,
      Inc.**


**Statements
      of Operations**


**(Unaudited)**





Three
                Months Ended March 31,2007
            
            2006Revenues:License
                Fees
            
            $
            508,111
            
            $
            360,000Product
                Sales
            
            
            83,465
            
            
            112,516**Total
                revenues**
            
            $
            591,576
            
            $
            472,516Costs
                and operating expenses:Cost
                of product sales
            
            $
            73,587
            
            $
            109,688Selling,
                general and administrative
            
            
            1,862,703
            
            
            992,576Research
                and development
            
            
            1,007,288
            
            
            1,040,759Depreciation
            
            
            365,808
            
            
            115,9233,309,386
            
            
            2,258,946**Operating
                loss**
            
            
            (2,717,810
            )
            
            (1,786,430
            )Non-operating
                income:Interest
                income, net
            
            
            90,832
            
            
            195,695**Net
                loss**
            
            $
            (2,626,978
            )
            $
            (1,590,735
            )Net
                loss per common share - basic and diluted:
            
            $
            (0.28
            )
            $
            (0.17
            )Weighted
                average common shares outstanding - basic and diluted:
            
            
            9,472,020
            
            
            9,469,598





See
      Notes to Interim Financial Statements.


2


**PokerTek,
      Inc.**


**Statements
      of Cash Flows**


**(Unaudited)**





Three
                Months Ended March 31,2007
            
            2006Cash
                Flows from Operating ActivitiesNet
                loss
            
            $
            (2,626,978
            )
            $
            (1,590,735
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
            
            
            365,808
            
            
            115,923Stock-based
                compensation expense
            
            
            202,499
            
            
            120,786Changes
                in assets and liabilities:Increase
                in trade and other receivables
            
            
            (90,227
            )
            
            (76,849
            )Decrease
                (increase) in prepaid expenses and other assets
            
            
            25,855
            
            
            (54,536
            )Increase
                in inventory
            
            
            (464,847
            )
            
            (431,115
            )Increase
                (decrease) in accounts payable and accruedexpenses
            
            
            (213,769
            )
            
            150,743**Net
                cash used in operating activities**
            
            
            (2,801,659
            )
            
            (1,765,783
            )Cash
                flows from investing activitiesPurchases
                of property and equipment
            
            
            (1,008,039
            )
            
            (280,506
            )**Net
                cash used in investing activities**
            
            
            (1,008,039
            )
            
            (280,506
            )Cash
                flows from financing activitiesProceeds
                (expenses) from issuance of common stock,
              private
                placement of common stock and common
              stock
                options exercised, net of expenses
            
            
            -
            
            
            (36,671
            )**Net
                cash provided by (used in) financing activities**
            
            
            -
            
            
            (36,671
            )**Net
                decrease in cash and cash****equivalents**
            
            
            (3,809,698
            )
            
            (2,082,960
            )Cash
                and cash equivalents:Beginning
            
            
            9,353,501
            
            
            20,373,900Ending
            
            $
            5,543,803
            
            $
            18,290,940





See
      Notes
      to Interim Financial Statements.


3


**POKERTEK,
      INC.**




**NOTES
      TO UNAUDITED FINANCIAL STATEMENTS**


**March
      31, 2007**





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





***Basis
      of Presentation.*** ******  These
      interim financial statements have been prepared in accordance with instructions
      to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
      not include all of the information and notes required by accounting principles
      generally accepted in the United States of America for complete audited
      financial statements, as permitted by such rules and regulations. These
      statements should be read in conjunction with the audited financial statements
      and notes thereto included in the Company’s Annual Report on Form 10-K for the
      year ended December 31, 2006. In the opinion of the Company, the accompanying
      interim financial statements contain all adjustments (consisting of normal
      accruals and charges) necessary to present fairly the financial position of
      the
      Company at March 31, 2007, and the results of its operations for the three
      months ended March 31, 2007 and 2006, and cash flows for the three months ended
      March 31, 2007 and 2006. The results of operations for the three months ended
      March 31, 2007 are not necessarily indicative of the results to be expected
      for
      the entire year.





***Description
      of Business.*** We
      were
      formed to develop and market the PokerPro® system, an electronic poker table
      that provides a fully-automated poker-room environment, to tribal casinos,
      commercial casinos, cruise ships and card clubs. Our first product was a
      10-seated table developed in 2003, and in November 2006 we introduced PokerPro®
Heads-UpTM, our 2-seated product. Poker is one of several card games in which two
      or more players strategically bet against each other. Many casinos and “card
      clubs” operate poker rooms that typically consist of tables at which up to 10
      players play any of several types of poker against the other players at the
      table. A dealer employed by the casino or card club is responsible for dealing
      cards, calculating bets, collecting the “rake”, which is the amount the casino
      or card club charges for each hand of poker, and distributing payouts. Unlike
      most other games played at a casino, where the casino may win the full amount
      of
      a player’s bet, the casino or card club’s revenue from the poker room is limited
      to the rake.





There
      were no material changes during the most recent fiscal quarter in the
      Company’s significant accounting policies described
      in the Company’s Annual Report on Form 10-K for the year ended December 31,
      2006.





*Recent
      accounting pronouncements:*





In
      March 2006, the FASB issued SFAS No. 156, *“Accounting
      for Servicing of Financial Assets,”* which
      amends FASB Statement No. 140, *“Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities”.* SFAS
      No.
      156 is effective in fiscal years beginning after September 15, 2006. The
      impact of the Company’s adoption of SFAS No. 156 for fiscal year 2007 did not
      have a material impact on the results of operations, financial condition or
      liquidity.





In
      July
      2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), *“Accounting
      for Uncertainty in Income Taxes—an interpretation of FASB Statement
      No. 109”.* FIN
      48
      clarifies the accounting for uncertainty in income taxes recognized in an
      enterprise’s financial statements in accordance with SFAS No. 109, *Accounting
      for Income Taxes.* FIN 48
      prescribes a recognition threshold and measurement attribute for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. FIN 48 also provides guidance on derecognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition. FIN 48 is effective for fiscal years beginning after
      December 15, 2006, and applies to all tax positions accounted for in
      accordance with SFAS No. 109. Based on the Company’s recording of a
      valuation allowance against its deferred tax assets, our adjustment under FIN
      48
      resulted in a reduction of gross deferred tax assets with a corresponding
      decrease in the required valuation allowance. The adoption of this standard
      did
      not have a material impact on the opening balance of retained earnings for
      2007
      and had no impact to our cash flows.





4


In
      September 2006, the FASB issued SFAS No. 157, “ *Fair
      Value Measurements* ” .
      SFAS
      No. 157 defines fair value, establishes a framework for measuring fair value,
      and expands disclosure requirements regarding fair value measurement. Where
      applicable, SFAS No. 157 simplifies and codifies previously issued guidance
      within GAAP related to fair value. Although SFAS No. 157 does not require any
      new fair value measurements, its application may, in certain instances, change
      current practice. SFAS 157 is effective for fiscal years beginning after
      November 15, 2007. The Company is currently reviewing SFAS No. 157 to determine
      its impact on our financial statements upon adoption.





In
      September 2006, the staff of the Securities and Exchange Commission (the
“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 108, which provides
      interpretive guidance regarding the process for quantifying financial statement
      misstatements. SAB No. 108 is
      effective for fiscal years ending after November 15, 2006. The impact of
      the Company’s adoption of SAB 108 did not have a material impact on our
      financial position, results of operations or cash flows.





In
      February 2007, the Financial Accounting Standards Board (“ FASB”)
      issued SFAS No. 159, *“The
      Fair Value Option for Financial Assets and Financial Liabilities—Including an
      Amendment of FASB Statement No. 115”* (“SFAS
      159”), which permits entities to choose to measure many financial instruments
      and certain other items at fair value. SFAS 159 permits entities to choose
      to measure certain financial assets and liabilities and other eligible items
      at
      fair value, which are not otherwise currently required to be measured at fair
      value. Under SFAS 159, the decision to measure items at fair value is made
      at specified election dates on an irrevocable instrument-by-instrument basis.
      Entities electing the fair value option would be required to recognize changes
      in fair value in earnings and to expense upfront costs and fees associated
      with
      the item for which the fair value option is elected. Entities electing the
      fair
      value option are required to distinguish on the face of the statement of
      financial position, the fair value of assets and liabilities for which the
      fair
      value option has been elected and similar assets and liabilities measured using
      another measurement attribute. SFAS 159 is effective as of the beginning of
      the first fiscal year that begins after November 15, 2007, with earlier
      adoption permitted provided that the entity also early adopts all of the
      requirements of SFAS 159. The Company is currently evaluating whether to
      elect the option provided for in this standard.





**Note
      2. Property and Equipment**





Property
      and equipment consists of the following at March 31, 2007 and December 31,
      2006:




Useful
                life (years)
            
            March
                31, 2007
            
            December
                31,
              2006PokerPro
                systems
            
            
            3
            
            $
            3,868,332
            
            $
            2,933,901Temporarily
                idle PokerPro systems (a)
            
            
            3
            
            
            469,361
            
            
            431,805Equipment
            
            
            5
            
            
            445,941
            
            
            407,873Leasehold
                improvements
            
            
            4
            
            
            97,576
            
            
            100,8754,881,210
            
            
            3,874,454Less:
                accumulated depreciation (a)
            
            
            
            
            
            (1,192,923
            )
            
            (828,398
            )Property
                and equipment, net
            
            
            
            
            $
            3,688,287
            
            $
            3,046,056




5




(a)
            The
                systems are ready for customer and regulatory use and will be installed
                as
                agreements are signed and scheduling allows. Included in the $1,192,923
                and $828,398 accumulated depreciation above is $219,852 and $170,558,
                respectively, related to the temporarily idle PokerPro
                systems.





**Note
      3. Inventory**




Inventory
      consists of the following at March 31, 2007 and December 31, 2006:




March
                31,
              2007
            
            December
                31,
              2006Raw
                Materials
            
            $
            1,338,085
            
            $
            859,945Tables
                in process
            
            
            1,027,758
            
            
            1,041,051Total
                Inventory
            
            $
            2,365,843
            
            $
            1,900,996





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





Prepaid
      expenses and other assets consist of the following at March 31, 2007 and
      December 31, 2006:





Prepaid
                expenses and other assets, current:
            
            March
                31,
              2007
            
            December
                31,
              2006Prepaid
                expenses
            
            $
            156,660
            
            $
            188,590Interest
                income receivable
            
            
            7,310
            
            
            15,627Total
                prepaid expenses and other assets, current
            
            $
            163,970
            
            $
            204,217Other
                assets, non-current:Intangible
                assets, net
            
            $
            347,230
            
            $
            342,838Security
                deposits
            
            
            12,800
            
            
            2,800Total
                other assets, non-current
            
            $
            360,030
            
            $
            345,638





Intangible
      assets, net consists of license fees paid in advance to various regulatory
      agencies. When the Company receives approval in a jurisdiction, the Company
      will
      expense the fee paid over the term of the license. If the Company is rejected
      for approval, all unreturned fees will be expensed in that period.




**Note
      5. Commitments**




The
      Company leases corporate offices under lease agreements with terms up to 5
      years
      and which require the Company to pay property taxes, insurance and maintenance.
      The Company also leases certain office equipment under lease agreements with
      terms up to 3 years. The following is a schedule by year of the future minimum
      lease payments due under agreements with terms extending beyond one
      year:




Year
                EndingMarch
                31,
            
            Amount2008
            
            $
            171,2922009
            
            
            168,8002010
            
            
            168,8002011
            
            
            47,300Thereafter
            
            
            15,000$
            571,192




6




Rent
      expense for the three months ended March 31, 2007 and March 31, 2006 was $35,328
      and $34,729, respectively.




The
      Company has entered into employment agreements with certain officers that
      include base salaries and certain benefits. These agreements have terms ranging
      from two to four years.





**Note
      6. Employee Benefit Plan**




The
      Company has established a salary deferral plan under Section 401(k) of the
      Internal Revenue Code. The plan allows eligible employees to defer a portion
      of
      their compensation ranging from 3% to 5%. Such deferrals accumulate on a tax
      deferred basis until the employee withdraws the funds. The Company makes a
      matching contribution equal to 100% on the first 3% of the participants’
elective deferral and 50% on deferral from 3% to 5%. Total expense recorded
      for the Company’s match for the three months ended March 31, 2007 and March 31,
      2006 was $28,113 and $9,527, respectively.





**Note
      7. Shareholder’s Equity**





*Stock
      Incentive Plan* :  Effective
      January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), "Share-Based
      Payment" (SFAS No. 123R), which replaces SFAS No. 123 and supersedes APB Opinion
      No. 25. SFAS No. 123R requires all share-based payments to employees, including
      grants of employee stock options, to be recognized in the financial statements
      based on their fair values.  Prior
      to
      this adoption, the Company accounted for its stock-based employee compensation
      awards in accordance with SFAS No. 123, Accounting for Stock-Based
      Compensation.  The
      Company adopted SFAS No. 123R using the modified-prospective transition method,
      which requires the Company, beginning January 1, 2006 and thereafter, to expense
      the grant date fair value of all share-based awards over their remaining vesting
      periods to the extent the awards were not fully vested as of the date of
      adoption and to expense the fair value of all share-based awards granted
      subsequent to December 31, 2005 over their requisite service periods.
      Stock-based compensation expense for all share-based payment awards granted
      after January 1, 2006 is based on the grant-date fair value estimated in
      accordance with the provisions of SFAS No. 123R. The Company recognizes
      compensation cost net of a forfeiture rate and recognizes the compensation
      cost
      for only those awards expected to vest on a straight-line basis over the
      requisite service period of the award, which is generally the vesting term.
      The
      Company estimated the forfeiture rate based on its historical experience and
      its
      expectations about future forfeitures. As required under the
      modified-prospective transition method, prior periods have not been restated.
      In
      March 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting
      Bulletin No. 107 (SAB 107) regarding the SEC's interpretation of SFAS No. 123R
      and the valuation of share-based payments for public companies. The Company
      has
      applied the provisions of SAB 107 in its adoption of SFAS No. 123R. The Company
      allocates share-based payment expense between selling, general and
      administrative (“SG&A”) and research and development (“R&D”) expenses
      based on the same factors as cash compensation.





For
      stock
      options issued both before and after adoption of SFAS No. 123R, the fair value
      is estimated at the date of grant using a Black-Scholes option pricing model.
      As
      part of its adoption of SFAS No. 123R, for stock options issued after December
      31, 2005, the Company reevaluated its assumptions in estimating the fair value
      of stock options granted. Principal assumptions used are as follows: (a)
      expected volatility for the Company's stock price is based on historical
      volatility and implied market volatility, (b) historical exercise data is used
      to estimate the options' expected term, which represents the period of time
      that
      the options granted are expected to be outstanding, and (c) the risk-free
      interest rate is the rate on zero-coupon U.S. government issues with a remaining
      term equal to the expected life of the options. The Company recognizes
      compensation expense for the fair value of stock options, which have graded
      vesting, on the straight-line basis over the requisite service period of the
      awards.




7


At
      March
      31, 2007 and December 31, 2006, options to purchase 1,602,650 and 1,600,650
      shares of common stock, respectively, had been granted to certain directors,
      officers, employees and independent contractors of the Company. Options granted
      under the 2005 Plan generally vest over periods ranging from two to four years
      and expire in ten years. The value of the options granted is being charged
      to
      expense over the service period or vesting period, as appropriate. The amount
      of
      related expense calculated using the Black-Scholes option pricing model and
      recognized in the three months ended March 31, 2007 and March 31, 2006 was
      $202,499 ($112,499 allocated to SG&A, $90,000 to R&D) and $120,786
      ($67,188 allocated to SG&A, $53,598 to R&D), respectively.





On
      the
      date of grant using the Black-Scholes option-pricing model, the following
      weighted average assumptions were used to estimate the grant-date fair value
      of
      the options in the periods indicated:





March
                31,2007
            
            2006Risk-free
                interest rate
            
            
            4.54
            %
            
            4.82
            %Expected
                volatility
            
            
            45
            %
            
            30
            %Expected
                dividend yield
            
            
            0
            %
            
            0
            %Expected
                life (years)
            
            
            5.0
            
            
            5.0





A
      summary
      of the stock option activity and weighted average exercise price for the three
      months ended March 31, 2007 is as follows:




Shares
            
            
            Weighted
                Average
              Exercise
                Price
            
            
            Weighted
                  Average
                Contractual
                  Term
                (Years)
            
            
            Aggregate
              Intrinsic
                ValueOutstanding
                at December 31, 2006
            
            
            1,600,650
            
            $
            7.25Granted
            
            
            2,000
            
            
            9.92Outstanding
                at March 31, 2007
            
            
            1,602,650
            
            
            7.25
            
            
            8.3
            
            $
            4,279,076Exercisable
                at March 31, 2007
            
            
            672,200
            
            $
            5.33
            
            
            7.9
            
            $
            3,085,398Available
                for grant
            
            
            9,600




The
      weighted-average grant-date fair value of options granted during the three
      months ended March 31, 2007 and March 31, 2006 was $4.52 and $4.26,
      respectively. The total intrinsic value of options exercised during the three
      months ended March 31, 2007 and March 31, 2006 was $0 and $46,920, respectively.
      The total fair value of options granted during the three months ended March
      31,
      2007 and March 31, 2006 was $9,040 and $978,029 respectively.





A
      summary
      of the status of nonvested shares as of March 31, 2007, and changes during
      the
      three months ended March 31, 2007 is presented below:





Weighted
                AverageNonvested
                Shares:
            
            Shares
            
            Grant-Date
              Fair
                ValueBalance
                at December 31, 2006
            
            
            1,049,496
            
            $
            2.61Granted
            
            
            2,000
            
            
            4.52Vested
            
            
            (121,046
            )
            
            2.40Balance
                at March 31, 2007
            
            
            930,450
            
            $
            2.64





8


As
      of
      March 31, 2007, there was $1,363,791 of total unrecognized compensation cost
      related to nonvested stock options, of which $443,043 will be recognized during
      the remainder of fiscal 2007 and the remainder through the first quarter of
      fiscal year 2012.





**Note
      8. Legal Proceedings**





On
      February 5, 2007, Tellis Software, Inc. (“Tellis”) filed a Complaint against
      PokerTek and Lou White, the Company’s Chief Executive Officer, in the United
      States District Court for the Southern District of Texas. The Complaint alleges
      that PokerTek breached a Software Development Agreement (the “Agreement”), that
      PokerTek and Mr. White committed fraud in connection with the
      Agreement, and that PokerTek has been unjustly enriched and/or that Tellis
      is
      entitled to a *quantum
      meruit* recovery. As to all counts, Tellis seeks damages that it alleges are equivalent
      to a 2% equity interest in PokerTek and bonuses that could eventually total
      $730,000, plus attorneys’ fees, costs, and interest. For the fraud count, Tellis
      also seeks unspecified exemplary damages. On March 27, 2007, PokerTek and Mr.
      White filed a motion to dismiss the entire case for lack of personal
      jurisdiction or, alternatively, a transfer of venue to the United States
      District Court for the Western District of North Carolina.





On
      April
      1, 2007, Tellis filed its First Amended Complaint, adding the Company’s
      President, James Crawford, as an individual defendant, alleging that a Tellis
      employee was the rightful inventor of one of PokerTek’s pending patent
      applications, that Mr. Crawford committed fraud in connection with the filing
      of
      that patent application, and that Mr. Crawford and Mr. White converted software
      developed by Tellis that forms the basis of the patent application. All parties
      have subsequently filed additional motions relating to PokerTek’s March 2007
      motion to dismiss.





PokerTek,
      Mr. Crawford and Mr. White believe they have meritorious defenses to all claims
      that have been asserted by Tellis.




**Note
      9. Related Party Transactions**





In January
      2006, the Company entered into an international distribution rights agreement
      with Aristocrat International Pty. Limited and its affiliates. Aristocrat
      International Pty. Limited is a wholly owned subsidiary and affiliate of
      Aristocrat Leisure Limited, a leading
      global provider of gaming solutions that focuses primarily on video slot
      machines, progressive systems and casino management systems. The distribution
      agreement provides Aristocrat with the sole and exclusive right to globally
      ( excluding
      the United States and Canada) distribute, market, enter into license agreements and, under certain
      circumstances, manufacture our PokerPro
      system, in return for Aristocrat’s payment to us of a portion of the license
      fees received by Aristocrat from each customer in connection with Aristocrat’s
      licensing of the PokerPro system. Aristocrat also purchased our common stock
      during 2006, and as of March 31, 2007 owns approximately 19% of our common
      stock. For the three months ended March 31, 2007 and 2006, we recorded $81,276
      and $0 of license fees, respectively, and $71,383 and $111,489 of equipment
      sales, respectively. At March 31, 2007, Aristocrat owed the Company
      $126,188.





In
      September 2006, an entity owned and controlled by the Company’s Chief Executive
      Officer and President purchased one of the buildings in which the Company leases
      one of its two spaces. During February 2007, the entity purchased the other
      building in which the Company leases space. The initial terms were negotiated
      at
      arms’ length and the terms of the Company’s existing leases were not modified
      upon this change in building ownership. Rent expense recorded for the leased
      space for the three months ended March 31, 2007 was $34,389, of which $37,300
      was paid to the related party. The amount paid is slightly higher than the
      expense because a portion of our rent expense is allocated to
      inventory.


9


**Note
      10. Subsequent Events**





On
      April
      19, 2007, the Company announced the signing of a multi-year
      agreement with Harrah’s Operating Company, Inc, a subsidiary of Harrah’s
      Entertainment, Inc. (NYSE: HET), which made PokerTek its exclusive provider
      for
      live, player-banked, automated poker tables. Under the agreement, Harrah’s,
      which operates 50 casinos in 13 states and six countries and runs the annual
      World Series of Poker®, may install PokerPro tables concurrently with
      appropriate regulatory approvals. With more than 450 manual poker tables,
      Harrah’s is one of the largest operators of poker in the world.





On
      April
      23, 2007, the Company entered into a Securities Purchase Agreement by and among
      the Company, Magnetar Capital Master Fund, Ltd., Janus Venture Fund (a series
      of
      Janus Investment Fund), Janus US Venture Fund (a series of Janus Capital Funds
      Plc), Small Cap Growth Portfolio (a series of Ohio National Fund Inc.), SRB
      Greenway Capital (QP), L.P., SRB Greenway Capital, L.P., and SRB Greenway
      Offshore Operating Fund, L.P. (together, the “Investors”) (the “Agreement”).
      Pursuant to the Agreement, the Company issued and sold an aggregate of 1,444,444
      shares of its common stock, no par value per share (the “Common Stock”) in a
      private placement to the Investors for a purchase price of $9.00 (the “Private
      Placement”). As part of the Private Placement, the Company also issued each
      Investor a warrant (together, the “Warrants”) to acquire additional shares of
      Common Stock (the “Warrant Shares”). The Warrants, which expire on April 26,
      2012, are convertible into an aggregate of 439,541 Warrant Shares at an exercise
      price of $10.80 per Warrant Share.





The
      Private Placement, which was completed on April 26, 2007, resulted in gross
      proceeds to the Company of approximately $13 million and net proceeds of
      approximately $12.5 million to the Company after fees and expenses associated
      with the Private Placement, including a cash placement agent fee. The $9.00
      purchase price was negotiated as a 8.5% discount from the average closing price
      of the Common Stock for the 30 consecutive trading day period prior to the
      Company’s execution of a letter of intent with respect to the Private Placement
      with one of the investors. Pursuant to the Agreement, the exercise price for
      the
      Warrant Shares was negotiated to be 120% of the $9.00 purchase price for the
      Common Stock.





Concurrently
      with the execution of the Agreement, the Company entered into a Registration
      Rights Agreement, between the Company and the Investors (the “Rights
      Agreement”). Pursuant to the Rights Agreement, the Company is required to file a
      registration statement under the Securities Act of 1933, as amended, covering
      the resale of the Common Stock and the Warrant Shares (the “Registration
      Statement”). The Company will pay all expenses incurred in connection with the
      filing of the Registration Statement.





**Note
      11. Segment Information**




The
      Company has identified one business segment for reporting purposes:
      Manufacturing and Distributing PokerPro Syste m **.**


10


**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. You should be aware that although the forward-looking
      statements included herein represent management's current judgment and
      expectations, 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 permits
      or licenses by governmental authorities, 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 filed with the Securities and Exchange Commission.* *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 except as required by the federal securities
      laws, and you are urged to review and consider disclosures that we make in
      the
      reports that we file with the Securities and Exchange Commission that discuss
      other factors germane to our business.*





**Overview**





We
      were
      formed to develop and market the PokerPro® system, an electronic poker table
      that provides a fully-automated poker-room environment, to tribal casinos,
      commercial casinos, cruise ships and card clubs. Our first product was a
      10-seated table developed in 2003, and in November 2006 we introduced PokerPro®
Heads-UpTM, our 2-seated product. Poker is one of several card games in which two
      or more players strategically bet against each other. Many casinos and “card
      clubs” operate poker rooms that typically consist of tables at which up to 10
      players play any of several types of poker against the other players at the
      table. A dealer employed by the casino or card club is responsible for dealing
      cards, calculating bets, collecting the “rake”, which is the amount the casino
      or card club charges for each hand of poker, and distributing payouts. Unlike
      most other games played at a casino, where the casino may win the full amount
      of
      a player’s bet, the casino or card club’s revenue from the poker room is limited
      to the rake.





**Executive
      Summary - Significant events for the three months ended March 31,
      2007**





On
      January 24, 2007, we announced five new customer installations. The latest
      installations were:




o
            Crown
                Casino, Melbourne, Australia;


o
            Carnival
                City, Johannesburg, South Africa;




11




o
            Greektown
                Casino, Detroit, Michigan;


o
            MotorCity
                Casino, Detroit, Michigan; and


o
            FLB
                Sports Bar & Casino, Folsom,
                California.





On
      February 16, 2007, we announced that after a successful trial period, Princess
      Cruises has agreed to have 22 PokerPro tables installed by the end of fiscal
      2007.





**Recent
      Events**





On
      April
      19, 2007, we announced the signing of a multi-year
      agreement with Harrah’s Operating Company, Inc, a subsidiary of Harrah’s
      Entertainment, Inc. (NYSE: HET), which made PokerTek its exclusive provider
      for
      live, player-banked, automated poker tables. Under the agreement, Harrah’s,
      which operates 50 casinos in 13 states and six countries and runs the annual
      World Series of Poker®, may install PokerPro tables concurrently with
      appropriate regulatory approvals. With more than 450 manual poker tables,
      Harrah’s is one of the largest operators of poker in the world.





On
      April
      23, 2007, we entered into a Securities Purchase Agreement by and among PokerTek,
      Magnetar Capital Master Fund, Ltd., Janus Venture Fund (a series of Janus
      Investment Fund), Janus US Venture Fund (a series of Janus Capital Funds Plc),
      Small Cap Growth Portfolio (a series of Ohio National Fund Inc.), SRB Greenway
      Capital (QP), L.P., SRB Greenway Capital, L.P., and SRB Greenway Offshore
      Operating Fund, L.P. (together, the “Investors”) (the “Agreement”). Pursuant to
      the Agreement, we issued and sold an aggregate of 1,444,444 shares of its common
      stock, no par value per share (the “Common Stock”) in a private placement to the
      Investors for a purchase price of $9.00 (the “Private Placement”). As part of
      the Private Placement, the Company also issued each Investor a warrant
      (together, the “Warrants”) to acquire additional shares of Common Stock (the
“Warrant Shares”). The Warrants, which expire on April 26, 2012, are convertible
      into an aggregate of 439,541 Warrant Shares at an exercise price of $10.80
      per
      Warrant Share.





The
      Private Placement, which was completed on April 26, 2007 (the “Closing Date”),
      resulted in gross proceeds us of approximately $13 million and net proceeds
      of
      approximately $12.5 million us after fees and expenses associated with the
      Private Placement, including a cash placement agent fee. The $9.00 purchase
      price was negotiated as a 8.5% discount from the average closing price of the
      Common Stock for the 30 consecutive trading day period prior to our execution
      of
      a letter of intent with respect to the Private Placement with one of the
      Investors. Pursuant to the Agreement, the exercise price for the Warrant Shares
      was negotiated to be 120% of the $9.00 purchase price for the Common Stock.





Concurrently
      with the execution of the Agreement, we entered into a Registration Rights
      Agreement, between PokerTek and the Investors (the “Rights Agreement”). Pursuant
      to the Rights Agreement, PokerTek is required to file a registration statement
      under the Securities Act of 1933, as amended, covering the resale of the Common
      Stock and the Warrant Shares (the “Registration Statement”). We will pay all
      expenses incurred in connection with the filing of the Registration
      Statement.





**Results
      of Operations for the Three Months Ended March 31, 2007 Compared to the Three
      Months Ended March 31, 2006**





*Revenues.* Revenues
      increased from $472,516 during the three months ended March 31, 2006 to $591,576
      for the three months ended March 31, 2007. This increase related primarily
      to
      licensing fees with additional customers, including cruise lines and
      international casinos.




12


*Selling,
      General and Administrative Expenses.* Selling,
      general and administrative expenses (“SG&A”) increased from $992,576 during
      the three months ended March 31, 2006 to $1,862,703 for the three months ended
      March 31, 2007. This increase was primarily the result of an increase of
      $458,466 related to the addition of personnel and infrastructure to support
      our
      growth strategy; an increase of $190,036 related to expenses for sales efforts
      and to regulatory bodies; an increase of $122,167 related to advertising and
      marketing the PokerPro system; an increase of $46,190 related to insurance;
      and
      an increase of $45,311 of non-cash stock option expense calculated using the
      Black-Scholes option pricing model.





*Research
      and Development Expenses.* Research
      and development expenses (“R&D”) decreased slightly from $1,040,759 for the
      three months ended March 31, 2006 to $1,007,288 for the three months ended
      March
      31, 2007. The slight decrease was the result of a decrease in expenditures
      related to external purchases of items used in our R&D process related to
      the PokerPro system offset by an increase of $36,402 of non-cash stock option
      expense calculated using the Black-Scholes option pricing model.





*Depreciation* .
      Depreciation increased from $115,923 for the three months ended March 31, 2006
      to $365,808 for the three months ended March 31, 2007. The depreciation
      primarily relates to the PokerPro systems we have installed during the period
      from our inception through March 31, 2007.





*Net
      Interest Income* .
      Net
      interest income decreased from $195,695 for the three months ended March 31,
      2006 to $90,832 for the three months ended March 31, 2007. The interest income
      relates to the interest earned from our cash and cash equivalents, which has
      been decreasing as we fund our operations.





**Liquidity
      and Capital Resources**





Since
      our
      inception, we have funded our startup costs, operating costs and capital
      expenditures through loans from our principals and from issuances of our common
      stock. As of October 12, 2005, we repaid all loans from our principals and
      have
      not entered into any additional loans with our principals.





On
      April
      23, 2007, we entered into a Securities Purchase Agreement, in which we issued
      and sold an aggregate of 1,444,444 shares of our common stock in a private
      placement to certain investors for a purchase price of $9.00. The Private
      Placement, which was completed on April 26, 2007, resulted in gross proceeds
      to
      the Company of approximately $13 million and net proceeds of approximately
      $12.5
      million to the Company after fees and expenses associated with the Private
      Placement, including a cash placement agent fee. For further details of this
      transaction, see the “Recent Events” section of this Item 2 and Note 10 to our
      financial statements contained in this quarterly report on Form
      10-Q.





For
      the
      three months ended March 31, 2007, we incurred a net loss of $2,626,978 and
      used
      $2,801,659 of cash in operating activities. At March 31, 2007, we had an
      accumulated deficit of $16,464,052. The generation of cash flow sufficient
      to
      meet our cash needs depends on the continued development of the PokerPro system
      and obtaining the regulatory approvals required to license it and successfully
      market it to tribal casinos, card clubs and commercial casinos.





We
      anticipate our cash requirements to be approximately $700,000 to $900,000 per
      month as a result of our expected growth and the need to manufacture PokerPro
      systems to meet anticipated demand through the end of fiscal year
      2007.





Based
      on
      our cash flow projections, we expect that the proceeds of our initial public
      offering in October 2005, the Private Placement in April 2007 and anticipated
      revenues will be sufficient to support our operations into fiscal year 2008.
      If
      sales of the PokerPro system do not meet our projections or our expenses exceed
      our expectations, then we may need to raise additional funds through additional
      public or private offerings of our securities, through a sale/leaseback
      arrangement or through a credit facility.





13


**Contractual
      Obligations**





Contractual
      obligations associated with our ongoing business and financing activities will
      result in cash payments in future periods. A table summarizing the amounts
      and
      estimated timing of these future cash payments was provided in our Annual Report
      on Form 10-K for the year ended December 31, 2006. During the first three months
      of fiscal 2007, there were no material changes outside the ordinary course
      of
      business in the company’s contractual obligations or the estimated timing of the
      future cash payments.





**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,
      2006.
      During the first three months of fiscal 2007, there were no material changes
      to
      the accounting policies and assumptions previously disclosed.





**Recent
      Accounting Pronouncements**





In
      March 2006, the FASB issued SFAS No. 156, *“Accounting
      for Servicing of Financial Assets,”* which
      amends FASB Statement No. 140, *“Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities”.* SFAS
      No.
      156 is effective in fiscal years beginning after September 15, 2006. The
      impact of the Company’s adoption of SFAS No. 156 for fiscal year 2007 did not
      have a material impact on the results of operations, financial condition or
      liquidity.





In
      July
      2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), *“Accounting
      for Uncertainty in Income Taxes—an interpretation of FASB Statement
      No. 109”.* FIN
      48
      clarifies the accounting for uncertainty in income taxes recognized in an
      enterprise’s financial statements in accordance with SFAS No. 109, *Accounting
      for Income Taxes.* FIN 48
      prescribes a recognition threshold and measurement attribute for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. FIN 48 also provides guidance on derecognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition. FIN 48 is effective for fiscal years beginning after
      December 15, 2006, and applies to all tax positions accounted for in
      accordance with SFAS No. 109. Based on the Company’s recording of a
      valuation allowance against its deferred tax assets, our adjustment under FIN
      48
      resulted in a reduction of gross deferred tax assets with a corresponding
      decrease in the required valuation allowance. The adoption of this standard
      did
      not have a material impact on the opening balance of retained earnings for
      2007
      and had no impact on our cash flows.





In
      September 2006, the FASB issued SFAS No. 157, “ *Fair
      Value Measurements.* ” SFAS No.
      157 defines fair value, establishes a framework for measuring fair value, and
      expands disclosure requirements regarding fair value measurement. Where
      applicable, SFAS No. 157 simplifies and codifies previously issued guidance
      within GAAP related to fair value. Although SFAS No. 157 does not require any
      new fair value measurements, its application may, in certain instances, change
      current practice. SFAS 157 is effective for fiscal years beginning after
      November 15, 2007. The Company is currently reviewing SFAS No. 157 to determine
      its impact on our financial statements upon adoption.





14




In
      September 2006, the staff of the Securities and Exchange Commission (the
“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 108, which provides
      interpretive guidance regarding the process for quantifying financial statement
      misstatements. SAB No. 108 is
      effective for fiscal years ending after November 15, 2006. The impact of
      the Company’s adoption of SAB 108 did not have a material impact on our
      financial position, results of operations or cash flows.





In
      February 2007, the Financial Accounting Standards Board (“ FASB”)
      issued SFAS No. 159, “The Fair Value Option for Financial Assets and
      Financial Liabilities—Including an amendment of FASB Statement No. 115”
(“SFAS 159”), which permits entities to choose to measure many financial
      instruments and certain other items at fair value. SFAS 159 permits
      entities to choose to measure certain financial assets and liabilities and
      other
      eligible items at fair value, which are not otherwise currently required to
      be
      measured at fair value. Under SFAS 159, the decision to measure items at
      fair value is made at specified election dates on an irrevocable
      instrument-by-instrument basis. Entities electing the fair value option would
      be
      required to recognize changes in fair value in earnings and to expense upfront
      cost and fees associated with the item for which the fair value option is
      elected. Entities electing the fair value option are required to distinguish
      on
      the face of the statement of financial position, the fair value of assets and
      liabilities for which the fair value option has been elected and similar assets
      and liabilities measured using another measurement attribute. If elected,
      SFAS 159 is effective as of the beginning of the first fiscal year that
      begins after November 15, 2007, with earlier adoption permitted provided
      that the entity also early adopts all of the requirements of SFAS 159. The
      Company is currently evaluating whether to elect the option provided for in
      this
      standard.





**Off-Balance
      Sheet Arrangements**





We
      have
      no off-balance sheet arrangements.





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





The
      Company’s interest rate risk has not changed significantly from the disclosure
      in Item 7A of the Company's Annual Report on Form 10-K for the fiscal year
      ended
      December 31, 2006.




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




*Evaluation
      of disclosure controls and procedures*




As
      of
      March 31, 2007, our management, with the participation of our Chief Executive
      Officer and Chief Financial Officer, evaluated the effectiveness of our
      disclosure controls and procedures in accordance with Rule 13a−15 under the
      Exchange Act. Based on their evaluation, our Chief Executive Officer and Chief
      Financial Officer concluded that our disclosure controls and procedures were
      effective, in all material respects, to enable us to record, process, summarize
      and report in a timely manner the information that we are required to disclose
      in our Exchange Act reports, and that such information is accumulated and
      communicated to our management, including our Chief Executive Officer and Chief
      Financial Officer, as appropriate, to allow timely decisions regarding required
      disclosure.




We
      are
      not currently required to comply with Section 404 (Management’s Annual Report on
      Internal Control Over Financial Reporting) of the Sarbanes-Oxley Act of 2002
      because we are not an “accelerated filer,” as defined by Rule 12b-2 under the
      Exchange Act. We are in the process of implementing internal control over
      financial reporting processes and procedures for our financial reporting so
      that
      our management can report on these processes and procedures when required to
      do
      so.


15


*Changes
      in internal control over financial reporting*




As
      a part
      of our normal operations, we regularly update and enhance our internal control
      over financial reporting processes and procedures as necessary to accommodate
      any modifications to our business processes or accounting procedures. There
      have
      not been any changes to our internal control over financial reporting processes
      and procedures that occurred during the fiscal quarter ended March 31, 2007
      that
      materially affected, or are reasonably likely to materially affect, our internal
      control over financial reporting.




**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings**





On
      February 5, 2007, Tellis Software, Inc. (“Tellis”) filed a Complaint against
      PokerTek and Lou White, the Company’s Chief Executive Officer, in the United
      States District Court for the Southern District of Texas. The Complaint alleges
      that PokerTek breached a Software Development Agreement (the “Agreement”), that
      PokerTek and Mr. White committed fraud in connection with the
      Agreement, and that PokerTek has been unjustly enriched and/or that Tellis
      is
      entitled to a *quantum
      meruit* recovery. As to all counts, Tellis seeks damages that it alleges are equivalent
      to a 2% equity interest in PokerTek and bonuses that could eventually total
      $730,000, plus attorneys’ fees, costs, and interest. For the fraud count, Tellis
      also seeks unspecified exemplary damages. On March 27, 2007, PokerTek and Mr.
      White filed a motion to dismiss the entire case for lack of personal
      jurisdiction or, alternatively, a transfer of venue to the United States
      District Court for the Western District of North Carolina.





On
      April
      1, 2007, Tellis filed its First Amended Complaint, adding the Company’s
      President, James Crawford, as an individual defendant, alleging that a Tellis
      employee was the rightful inventor of one of PokerTek’s pending patent
      applications, that Mr. Crawford committed fraud in connection with the filing
      of
      that patent application, and that Mr. Crawford and Mr. White converted software
      developed by Tellis that forms the basis of the patent application. All parties
      have subsequently filed additional motions relating to PokerTek’s March 2007
      motion to dismiss.





PokerTek,
      Mr. Crawford and Mr. White believe they have meritorious defenses to all claims
      that have been asserted by Tellis.





**Item
      1A.**  **Risk
      Factors.**





The
      Company is subject to a variety of risks, including component supply risk,
      reliance on supply chain, competition, political and economic risks, business
      risks, risks that operating results and net earnings may not meet expectations,
      regulatory risks, acquisition risks, protection of intellectual property,
      product liability and other litigation risks, marketing distributor
      relationships and natural disasters. These risk factors, among others, are
      discussed in more detail in the Company’s Annual Report on Form 10-K for the
      year ended December 31, 2006 following Item 1A under the heading “Risk
      Factors”. Additional
      risks and uncertainties not currently known to us or that we currently deem
      to
      be immaterial also may materially adversely affect our business, financial
      condition and results of operations.





Furthermore,
      on April 26, 2007, we completed the Private Placement. You should carefully
      consider the risks associated with the Private Placement, including those set
      forth below.





16


**The
      completion of the Private Placement, as well as any future financing
      transactions, had and will have a dilutive effect on our existing shareholders
      and may have other adverse effects on our results of
      operations.**





In
      April
      2007, we completed the Private Placement of 1,444,444 shares of our common
      stock
      to the Investors, as well as Warrants that are exercisable for an aggregate
      of
      439,541 shares of our common stock. This financing resulted in significant
      dilution of our current shareholders. In the future, we may issue additional
      equity, debt or convertible securities to raise capital. If we do so, the
      percentage ownership of PokerTek held by existing shareholders would be further
      reduced, and existing shareholders may experience significant further dilution.
      In addition, new investors in PokerTek may demand rights, preferences or
      privileges that differ from, or are senior to, those of our existing
      shareholders, such as the Warrants and other protections against future dilutive
      transactions that were obtained by the Investors in the Private Placement.
      The
      perceived risk associated with the sale of a large number of shares, including
      the recently completed Private Placement, could cause some of our shareholders
      to sell their stock, thus causing the price of our common stock to decline.
      Subsequent sales of our common stock in the open market could also have an
      adverse effect on the market price of our common stock. If our stock price
      declines, it may be more difficult or we may be unable to raise additional
      capital.





**Pursuant
      to the Registration Rights Agreement, we may be required to pay liquidated
      damages to some of the Investors who purchased shares under the Securities
      Purchase Agreement and the amount of such liquidated damages, if any, may
      adversely affect our results of operations.**





Under
      the
      Rights Agreement, if: (a) the registration statement to register both the shares
      of common stock and shares underlying the Warrants issued in the Private
      Placement is not filed with the SEC within 45 business days from the date of
      the
      closing of the Private Placement, (b) a final prospectus is not filed with
      the
      SEC one business day after the registration statement is declared effective
      by
      the SEC, (c) the registration statement is not declared effective within
      105 days of the date of the closing of the Private Placement (or
      135 days in the event that the registration statement is subject to review
      by the SEC), or (d) after it has been declared effective, the registration
      statement ceases to be effective for more than 15 consecutive days or an
      aggregate of 45 days in any 365-day period (in each of (a)-(d), an “Event”),
      then on the date of such Event and on its monthly anniversary, we are required
      to pay to
      each
      Investor who purchased our shares in the Private Placementcertain
      liquidated damages equal to 2% of the aggregate investment amount paid by each
      such Investor under the Securities Purchase Agreement. The total amount of
      liquidated damages payable by us pursuant to all Events is capped at an
      aggregate of $1 million. In addition, partial liquidated damages shall apply
      on
      a daily pro-rata basis for any portion of a month prior to the cure of an Event.
      If we are required to pay liquidated damages to any of the Investors, payment
      of
      such liquidated damages may adversely affect our results of operation,
      particularly our earnings results.




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





*Unregistered
      Sales of Equity Securities*





None *.*





*Use
      of Proceeds*





The
      SEC
      declared our registration statement filed on Form S−1 under the Securities Act
      (File No. 333−127181) effective on October 13, 2005, in connection with the
      initial public offering of our common stock, no par value per share.





During
      the quarter ended March 31, 2007, we spent approximately $1,008,000 on capital
      expenditures (approximately $4,635,000 since the IPO), which consisted almost
      entirely of the purchase of components for the PokerPro system and related
      tables, and approximately $2,802,000 on working capital (approximately
      $13,618,000 since the IPO). Other than as set forth herein, we have not spent
      any of the remaining net proceeds from the initial public offering. All such
      payments described herein were direct payments to others.




17


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





Exhibit
                No.
            Description31.1
            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.






18


**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:
                May 14, 2007
            By:
            /s/ Gehrig
              H.
              WhiteGehrig
                H. White,
              Chief
                Executive Officer
              (Principal
                Executive Officer)/s/
                Christopher DanielsChristopher
                  Daniels,
                Chief
                  Financial Officer
                (Principal
                  Financial Officer and
                Principal
                  Accounting Officer)





19


**Exhibit
      Index**





Exhibit
                No.
            Description31.1
            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.





Our
      SEC
      file number reference for documents filed with the SEC pursuant to the
      Securities Exchange Act of 1934, as amended, is 000-51572.





20