UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549










FORM
10-Q







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





For
the Quarterly Period Ended June 30, 2009





OR




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


For
the transition period from
_____________________to______________________





Commission
File Number: 000-51572














PokerTek,
      Inc.


(Exact
name of registrant as specified in its charter)




North
      Carolina
                
                61-1455265(State
      or other jurisdiction of incorporation or organization)
                
                (I.R.S.
      Employer Identification No.)1150
      Crews Road, Suite F, Matthews, North Carolina 28105(Address
      of principal executive offices) (Zip Code)


(704)
      849-0860(Registrant’s
      telephone number, including area
code)





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


Yes xNo
o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).


Yes o No o





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




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





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





As of
August 7, 2009, there were 11,021,429 shares outstanding of the registrant’s
common stock.










POKERTEK,
INC.




TABLE
OF CONTENTS







PagePART
      I – FINANCIAL INFORMATIONItem 1.
                    
                    Financial
      Statements
                    
                    1Item
      2.
                    
                    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    
                    12Item
      3.
                    
                    Quantitative
      and Qualitative Disclosures about Market Risk
                    
                    20Item
      4T.
                    
                    Controls
      and
      Procedures
                    
                    20PART
      II – OTHER INFORMATIONItem
      1.
                    
                    Risk
      Factors
                    
                    21Item
      6.
                    
                    Exhibits
                    
                    22Signatures
                    
                    22Exhibit
      Index
                    
                    23










POKERTEK,
      INC.CONSOLIDATED
      STATEMENTS OF OPERATIONS(unaudited)
  Three
      Months Ended June 30,
                    
                    
                    Six
      Months Ended June 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Revenue:License
      and service fees
                    
                    
                    1,205,253
                    
                    
                    $
                    1,420,263
                    
                    
                    $
                    2,593,154
                    
                    
                    $
                    2,941,939Product
      sales
                    
                    
                    313,779
                    
                    
                    
                    2,419,827
                    
                    
                    
                    1,061,746
                    
                    
                    
                    4,099,647Total
      revenue
                    
                    
                    1,519,032
                    
                    
                    
                    3,840,090
                    
                    
                    
                    3,654,900
                    
                    
                    
                    7,041,586Direct
      cost of revenue:Depreciation
      of Pokerpro assets
                    
                    
                    672,168
                    
                    
                    
                    658,583
                    
                    
                    
                    1,338,408
                    
                    
                    
                    1,226,578Cost
      of product sales
                    
                    
                    265,140
                    
                    
                    
                    1,724,940
                    
                    
                    
                    878,438
                    
                    
                    
                    2,953,873Total
      direct cost of revenue
                    
                    
                    937,308
                    
                    
                    
                    2,383,523
                    
                    
                    
                    2,216,846
                    
                    
                    
                    4,180,451Operating
      Expenses:Selling,
      general and administrative
                    
                    
                    1,631,256
                    
                    
                    
                    2,303,225
                    
                    
                    
                    3,488,513
                    
                    
                    
                    4,698,341Research
      and development
                    
                    
                    295,495
                    
                    
                    
                    666,228
                    
                    
                    
                    655,321
                    
                    
                    
                    1,532,568Share-based
      compensation expense
                    
                    
                    111,131
                    
                    
                    
                    227,804
                    
                    
                    
                    369,377
                    
                    
                    
                    523,632Depreciation
                    
                    
                    66,290
                    
                    
                    
                    50,522
                    
                    
                    
                    130,548
                    
                    
                    
                    99,985Total
      operating expenses
                    
                    
                    2,104,172
                    
                    
                    
                    3,247,779
                    
                    
                    
                    4,643,759
                    
                    
                    
                    6,854,526Operating
      loss
                    
                    
                    (1,522,448
                    )
                    
                    
                    (1,791,212
                    )
                    
                    
                    (3,205,705
                    )
                    
                    
                    (3,993,391
                    )Interest
      income (expense), net
                    
                    
                    (96,564
                    )
                    
                    
                    (39,357
                    )
                    
                    
                    (181,271
                    )
                    
                    
                    26,498Net
      loss before income taxes
                    
                    
                    (1,619,012
                    )
                    
                    
                    (1,830,569
                    )
                    
                    
                    (3,386,976
                    )
                    
                    
                    (3,966,893
                    )Income
      tax provision
                    
                    
                    (21,421
                    )
                    
                    
                    (123,473
                    )
                    
                    
                    (63,970
                    )
                    
                    
                    (123,473
                    )Net
      loss
                    
                    $
                    (1,640,433
                    )
                    
                    $
                    (1,954,042
                    )
                    
                    $
                    (3,450,946
                    )
                    
                    $
                    (4,090,366
                    )Net
      loss per common share - basic and diluted
                    
                    $
                    (0.15
                    )
                    
                    $
                    (0.18
                    )
                    
                    $
                    (0.31
                    )
                    
                    $
                    (0.37
                    )Weighted
      average common shares outstanding - basic and diluted
                    
                    
                    11,021,429
                    
                    
                    
                    10,934,464
                    
                    
                    
                    11,021,429
                    
                    
                    
                    10,934,464






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





1


POKERTEK,
      INC.CONSOLIDATED
      BALANCE SHEETS
  June
      30, 2009Assets
                          
                          (unaudited)
                          
                          
                          December
      31, 2008Current
      assets:Cash
      and cash equivalents
                          
                          $
                          1,131,204
                          
                          
                          $
                          1,481,530Investments
                          
                          
                          -
                          
                          
                          
                          3,900,000Accounts
      receivable, net
                          
                          
                          844,041
                          
                          
                          
                          1,600,464Inventory
                          
                          
                          2,957,221
                          
                          
                          
                          3,547,099Prepaid
      expenses and other assets
                          
                          
                          146,193
                          
                          
                          
                          213,222Total
      current assets
                          
                          
                          5,078,659
                          
                          
                          
                          10,742,315Other
      assets:PokerPro
      systems, net
                          
                          
                          2,790,721
                          
                          
                          
                          3,821,376Property
      and equipment, net
                          
                          
                          518,673
                          
                          
                          
                          599,772Other
      assets
                          
                          
                          480,349
                          
                          
                          
                          542,214Total
      assets
                          
                          $
                          8,868,402
                          
                          
                          $
                          15,705,677Liabilities
      and Shareholders' EquityCurrent
      liabilities:Accounts
      payable
                          
                          $
                          935,955
                          
                          
                          $
                          1,590,681Accrued
      liabilities
                          
                          
                          829,280
                          
                          
                          
                          1,053,230Long-term
      debt, current portion
                          
                          
                          2,025,044
                          
                          
                          
                          2,889,261Total
      current liabilities
                          
                          
                          3,790,279
                          
                          
                          
                          5,533,172Long-term
      debt
                          
                          
                          25,821
                          
                          
                          
                          2,038,635Total
      liabilities
                          
                          
                          3,816,100
                          
                          
                          
                          7,571,807Commitments
      and contingenciesShareholders'
      equity:Preferred
      stock, no par value per share; authorized 5,000,000,
                            none
      issued and outstanding
                          
                          
                          -
                          
                          
                          
                          -Common
      stock, no par value per share; authorized 100,000,000
                            shares,
      issued and outstanding 11,021,429  shares at June 30,
                            2009
      and December 31, 2008
                          
                          
                          -
                          
                          
                          
                          -Additional
      paid-in capital
                          
                          
                          42,828,711
                          
                          
                          
                          42,459,333Accumulated
      deficit
                          
                          
                          (37,776,409
                          )
                          
                          
                          (34,325,463
                          )Total
      shareholders' equity
                          
                          
                          5,052,302
                          
                          
                          
                          8,133,870Total
      liabilities and shareholders' equity
                          
                          $
                          8,868,402
                          
                          
                          $
                          15,705,677








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




2





POKERTEK,
      INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWS(UNAUDITED)
  Six
      months ended June 30,2009
                    
                    
                    2008Cash
      flows from operating activities:Net
      loss
                    
                    $
                    (3,450,946
                    )
                    
                    $
                    (4,090,366
                    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
                    
                    
                    1,468,956
                    
                    
                    
                    1,326,563Share-based
      compensation expense
                    
                    
                    369,377
                    
                    
                    
                    523,632Provision
      for accounts and other receivables
                    
                    
                    26,705
                    
                    
                    
                    -Changes
      in assets and liabilities:Accounts
      and other receivables
                    
                    
                    729,718
                    
                    
                    
                    (1,053,519
                    )Prepaid
      expenses and other assets
                    
                    
                    128,895
                    
                    
                    
                    36,790Inventory
                    
                    
                    589,878
                    
                    
                    
                    (187,976
                    )PokerPro
      systems
                    
                    
                    (307,753
                    )
                    
                    
                    (549,493
                    )Accounts
      payable and accrued expenses
                    
                    
                    (878,676
                    )
                    
                    
                    948,597Net
      cash used in operating activities
                    
                    
                    (1,323,846
                    )
                    
                    
                    (3,045,772
                    )Cash
      flows from investing activities:Purchases
      of property and equipment
                    
                    
                    (49,449
                    )
                    
                    
                    (63,481
                    )Sale
      of investments
                    
                    
                    3,900,000
                    
                    
                    
                    2,050,000Net
      cash provided by investing activities
                    
                    
                    3,850,551
                    
                    
                    
                    1,986,519Cash
      flows from financing activities:Proceeds
      from long-term debt
                    
                    
                    -
                    
                    
                    
                    2,000,000Proceeds
      from short-term debt
                    
                    
                    -
                    
                    
                    
                    1,000,000Repayments
      of short-term debt
                    
                    
                    (2,865,357
                    )
                    
                    
                    -Repayments
      of capital lease
                    
                    
                    (11,674
                    )
                    
                    
                    (1,548
                    )Net
      cash provided by (used in) financing activities
                    
                    
                    (2,877,031
                    )
                    
                    
                    2,998,452Net
      increase (decrease) in cash and cash equivalents
                    
                    
                    (350,326
                    )
                    
                    
                    1,939,199Cash
      and cash equivalents, beginning of year
                    
                    
                    1,481,530
                    
                    
                    
                    1,229,980Cash
      and cash equivalents, end of period
                    
                    $
                    1,131,204
                    
                    
                    $
                    3,169,179Supplemental
      Disclosure of Cash Flow InformationCash
      paid for:Interest
                    
                    $
                    130,660
                    
                    
                    $
                    51,776Income
      taxes
                    
                    $
                    45,086
                    
                    
                    $
                    77,255Non-cash
      transaction:Capital
      lease obligation
                    
                    $
                    -
                    
                    
                    $
                    52,034




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




3




POKERTEK,
INC.


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS








Note
1. Nature of Business and Basis of Presentation





Nature
of Business





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





The
Company currently has two product lines, PokerPro® gaming products and Heads-Up
ChallengeTM amusement products.





The
PokerPro system consists of electronic poker table(s) and related peripheral
equipment providing commercial casinos, tribal casinos, cruise ships and card
clubs with a fully-automated poker-room environment designed to improve the
profitability of poker by enhancing the operator’s revenue opportunities and
decreasing startup and operating costs.  Heads-Up ChallengeTM is an
innovative amusement platform that enables two players to compete head to head
against each other for entertainment purposes in non-gambling venues such as
bars and restaurants.





Basis
of Presentation and Significant Accounting Policies





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





These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and related footnotes included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2008.
Certain reclassifications have been made to prior periods’ financial information
to conform to the current period presentation. There were no material changes
during the most recent fiscal quarter in the Company’s significant accounting
policies as described in the Annual Report.





The
accompanying consolidated financial statements have been prepared without audit
and are presented in accordance with Article 8-03 of Regulation
S-X.  Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles in the United
States (“U.S. GAAP”) for annual financial statements. In the opinion of
management, these consolidated financial statementsinclude all adjustments,
which consist only of normal recurring adjustments, necessary for a fair
statement of the Company’s results of operations for the periods
presented.  The results of operations for the three and six months
ended June 30, 2009 are not necessarily indicative of the results to be expected
for the entire year.





Recent
Accounting Pronouncements





In June
2009, the FASB issued Statement of Financial Accounting Standard
No. 168 (“FAS 168”), The
FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles.FAS 168 establishes the FASB
Accounting Standards Codification as the single source of authoritative
non-governmental GAAP.  This statement is effective for interim and
annual reporting periods ending after September 15, 2009, and we do not expect
the adoption to have any effect on the Company's results of operations,
financial condition, or cash flows.





In May
2009, the FASB issued Statement of Financial Accounting Standard
No. 165 (“FAS 165”), Subsequent Events.FAS 165 requires disclosures regarding subsequent events for events
or transactions that occur after the balance sheet date but before the financial
statements are issued, for public companies, and requires disclosure of the date
through which an entity has evaluated subsequent events.  This
statement was effective for interim reporting periods ending after June 15,
2009.  Management has evaluated all significant events and
transactions occurring after June 30, 2009 through August 14, 2009, the date we
issued these financial statements.  During this period, we did not
have any recognizable subsequent events.  The adoption and application
of FAS 165 did not have any effect on the Company's results of operations,
financial condition, or cash flows.




4




In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments.  This FSB and APB require disclosures
about fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial statements, as well as
disclosures in summarized financial information at interim reporting periods.
This statement was effective for interim reporting periods ending after
June 15, 2009, and its adoption did not have a material effect on the
Company’s results of operations, financial condition or cash flows.





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





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





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





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





As of
December 31, 2008, the Company held investments in ARS, as well as a Rights
Option issued by UBS Financial Services, giving the Company the right to put the
ARS investments back to UBS at par for a specified period of time beginning on
January 2, 2009.





On January 5, 2009, the Company
exercised its rights under the UBS Rights Offering to sell the ARS investments
to UBS at par.  As a result, the Company received $1.0 million in net
proceeds and liquidated its outstanding UBS Credit Facility in the amount of
$2.9 million.  Since the investments were redeemed at par, there was
no realized gain or loss associated with this transaction.  The
Company has no remaining ARS investments and the UBS Credit Facility has been
terminated.





5








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




Level
      3 Auction
                          Rate
      Securities
                        
                        
                        Level
      3 Rights
                          Option
                        
                        
                        Level
      3 TotalBalance
      at December 31, 2008
                        
                        $
                        3,275,710
                        
                        
                        $
                        624,290
                        
                        
                        $
                        3,900,000Sales,
      net
                        
                        
                        (3,275,710
                        )
                        
                        
                        (624,290
                        )
                        
                        
                        (3,900,000
                        )Transfers
      to Level 3
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Included
      in accumulated other comprehensive loss
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Balance
      at March 31, 2009
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -Sales,
      net
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Transfers
      to Level 3
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Included
      in accumulated other comprehensive loss
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Balance
      at June 30, 2009
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -




Note
3. Inventory




Inventory
at June 30, 2009 and December 31, 2008 consisted of the
following:




June
      30,
                      
                      
                      December
      31,2009
                      
                      
                      2008Raw
      materials and components
                      
                      $
                      1,431,454
                      
                      
                      $
                      1,341,933PokerPro
      systems in process
                      
                      
                      378,374
                      
                      
                      
                      611,974Finished
      goods
                      
                      
                      1,475,951
                      
                      
                      
                      1,859,515Reserve
                      
                      
                      (328,558
                      )
                      
                      
                      (266,323
                      )Inventory,
      net
                      
                      $
                      2,957,221
                      
                      
                      $
                      3,547,099


Note
4. Prepaid Expenses and Other Assets
 
 Prepaid
expenses and other assets at June 30, 2009 and December 31, 2008 consisted
of the following:




June
      30,
                          
                          
                          December
      31,2009
                          
                          
                          2008Prepaid
      expenses
                          
                          $
                          137,289
                          
                          
                          $
                          162,249Other
                          
                          
                          8,904
                          
                          
                          
                          50,973Prepaid
      expenses and other assets
                          
                          $
                          146,193
                          
                          
                          $
                          213,222Deferred
      licensing fees, net
                          
                          $
                          425,966
                          
                          
                          $
                          488,280Other
                          
                          
                          54,383
                          
                          
                          
                          53,934Other
      assets
                          
                          $
                          480,349
                          
                          
                          $
                          542,214


6





Note
5. PokerPro Systems








PokerPro
systems at June 30, 2009 and December 31, 2008 consisted of the
following:




June
      30,
                        
                        
                        December
      31,2009
                        
                        
                        2008PokerPro
      systems
                        
                        $
                        7,888,086
                        
                        
                        $
                        8,217,515Temporarily
      idle PokerPro systems (a)
                        
                        
                        709,396
                        
                        
                        
                        531,8998,597,482
                        
                        
                        
                        8,749,414Less:
      accumulated depreciation (a)
                        
                        
                        (5,806,761
                        )
                        
                        
                        (4,928,038
                        )PokerPro
      systems, net
                        
                        $
                        2,790,721
                        
                        
                        $
                        3,821,376





(a)
The systems will be redeployed as scheduling allows.  Included in the
June 30, 2009 and December 31, 2008 accumulated depreciation is $440,874 and
$272,799, respectively, related to the temporarily idle PokerPro
systems.





Note
6. Property and Equipment





Property
and equipment at June 30, 2009 and December 31, 2008 consisted of the
following:




June
      30,
                        
                        
                        December
      31,2009
                        
                        
                        2008Equipment
                        
                        $
                        759,764
                        
                        
                        $
                        722,027Leasehold
      improvements
                        
                        
                        199,948
                        
                        
                        
                        189,917Capitalized
      software
                        
                        
                        157,067
                        
                        
                        
                        155,3871,116,779
                        
                        
                        
                        1,067,331Less:
      accumulated depreciation
                        
                        
                        (598,106
                        )
                        
                        
                        (467,559
                        )Property
      and equipment, net
                        
                        $
                        518,673
                        
                        
                        $
                        599,772




Capitalized
software consists of purchased software, consulting and capitalized internal
costs related to the purchase and implementation of a new internal-use
enterprise resource management system.  Accumulated depreciation on
capitalized software at June 30, 2009 was $34,846.  The software
portion of this systems investment was financed through a capital lease
obligation (see Note 8, Debt).





Note
7. Accrued Liabilities





Accrued
liabilities at June 30, 2009 and December 31, 2008 consisted of the
following:





June
      30,
                        
                        
                        December
      31,2009
                        
                        
                        2008Deferred
      revenue
                        
                        $
                        218,591
                        
                        
                        $
                        194,051Accrued
      professional fees
                        
                        
                        74,667
                        
                        
                        
                        117,167Other
                        
                        
                        536,022
                        
                        
                        
                        742,012Accrued
      liabilities
                        
                        $
                        829,280
                        
                        
                        $
                        1,053,230





7





Note
8. Debt





The Company’s outstanding debt
balances as of June 30, 2009 and December 31, 2008 consisted of the
following:




June
      30,
                        
                        
                        December
      31,2009
                        
                        
                        2008SVB
      Credit Facility
                        
                        $
                        -
                        
                        
                        $
                        -UBS
      Credit Facility
                        
                        
                        -
                        
                        
                        
                        2,865,357Founders'
      Loan
                        
                        
                        2,000,000
                        
                        
                        
                        2,000,000Capital
      lease obligation
                        
                        
                        50,865
                        
                        
                        
                        62,539Total
      debt
                        
                        $
                        2,050,865
                        
                        
                        $
                        4,927,896Current
      portion of debt
                        
                        
                        2,025,044
                        
                        
                        
                        2,889,261Long-term
      portion of debt
                        
                        $
                        25,821
                        
                        
                        $
                        2,038,635





SVB Credit
Facility:  On July 25, 2008, the Company entered into a credit
facility with Silicon Valley Bank to support the Company’s working capital (the
“SVB Credit Facility”).  The SVB Credit Facility is nominally denoted
as a $5.0 million facility with an actual maximum availability that varies based
on specified percentages of domestic and foreign accounts receivable and
inventory.  Based on the Company’s accounts receivable and inventory
levels on June 30, 2009, as of such date availability under the SVB Credit
Facility was approximately $0.7 million, with no borrowings
outstanding.  The SVB Credit Facility has a one-year term and bears
interest at an annual rate equal to the greater of prime plus 2.0% or
6.5%.  The SVB Credit Facility includes covenants requiring the
achievement of specified financial ratios and thresholds and contains other
terms and conditions customary for this type of credit facility.  As of
June 30, 2009, the Company was in compliance with these
covenants.  The SVB Credit Facility is collateralized by security
interests in substantially all of the assets of the Company.  As of
June 30, 2009, there were no amounts drawn under the SVB Credit
Facility.  Refer to Note 14 – Subsequent Events.





UBS Credit
Facility:On August 13, 2008, the Company entered into a Credit Line
Agreement (the “Line of Credit”) with UBS Bank USA for a demand revolving line
of credit with respect to the Company’s ARS held in an account with
UBS.   On January 5, 2009, the Company exercised its rights under
the UBS Rights Offering to sell the ARS investments to UBS at par.  As
a result, the Company liquidated its outstanding UBS Credit Facility in the
amount of $2.9 million.  The Company has no remaining ARS investments
and the UBS Credit Facility has been terminated.





Founders’
Loan:On March 24, 2008, the Company entered into a loan
agreement with Lyle A. Berman, James T. Crawford III, Arthur Lee Lomax and
Gehrig H. “Lou” White.  Messrs. Crawford, Lomax and White are the
founders of the Company.  Each of the lenders are also members of our
board of directors, with Mr. Berman serving as Chairman and Mr. White serving as
Vice Chairman.   Upon closing, the lenders loaned the Company
$2.0 million and the Company issued the lenders a promissory note in the
principal amount of $2.0 million. The loan bears interest at 13% with all unpaid
principal and interest payable on March 24, 2010.  The Company intends
to pay interest on a monthly basis and the loan may be repaid prior to maturity
without penalty.  The loan contains no restrictive covenants and is
collateralized by security interests in the Company’s PokerPro systems deployed
in North America and on cruise ships as of December 31,
2007.   Refer to Note 14 – Subsequent Events.





As of
June 30, 2009, the carrying value of the Founders’ Loan was $2.0 million and its
fair value was approximately $2.0 million.





Capital Lease
Obligation:  During 2008, the Company entered into capital
lease obligations totaling $73,273 to finance the purchase of a new internal-use
ERP system. These capital lease obligations bear interest at an annual rate of
9.4% and have a term of 36 months, resulting in monthly payments of
$2,396.  At the end of the lease term, the Company has the option to
purchase the software for $101.  The net book value of the assets
under lease at June 30, 2009 was $122,222.  Related depreciation
expense recognized during the three months and six months ended June 30, 2009
was $13,089 and $26,178, respectively, resulting in accumulated depreciation of
$34,846.




8





Note
9. Employee Benefit Plan





The
Company has established a salary deferral plan under Section 401(k) of the
Internal Revenue Code covering substantially all employees. The plan allows
eligible employees to defer 3% to 5% of their annual compensation. The Company
matches the contributions equal to 100% on the first 3% of the deferral and 50%
on the deferral from 3% to 5%. For the three months ended June 30, 2009 and
June 30, 2008, the Company recorded contribution expense of $23,184 and
$34,496, respectively.  For the six months ended June 30, 2009 and
June 30, 2008, the Company recorded contribution expense of $47,091 and
$71,152, respectively.





Note
10.                       Shareholders’
Equity





Stock
Incentive Plan





Option activity under the Company’s
stock incentive plans for the six months ended June 30, 2009 was as
follows:




Weighted
      AverageShares
                                                        
                                                        
                                                        Exercise
      Price
                                                        
                                                        
                                                        Remaining
                                                          Contractual
                                                          Term
                                                        
                                                        
                                                        Aggregate
                                                          Intrinsic
      ValueOutstanding
      at January 1, 2009
                                                        
                                                        
                                                        2,023,263
                                                        
                                                        
                                                        $
                                                        8.06Granted
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -Exercised
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -Forfeited
                                                        
                                                        
                                                        (382,838
                                                        )
                                                        
                                                        
                                                        10.81Expired
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -Outstanding
      at June 30, 2009
                                                        
                                                        
                                                        1,640,425
                                                        
                                                        
                                                        $
                                                        7.42
                                                        
                                                        
                                                        
                                                        6.7
                                                        
                                                        
                                                        $
                                                        (10,917,043
                                                        )Exercisable
      at June 30, 2009
                                                        
                                                        
                                                        1,332,113
                                                        
                                                        
                                                        $
                                                        7.16
                                                        
                                                        
                                                        
                                                        6.4
                                                        
                                                        
                                                        $
                                                        (8,527,201
                                                        )


Note
11. Income taxes





For the
three months ended June 30, 2009 and June 30, 2008, the Company recognized a tax
provision of $21,421 and $123,473, respectively.  For the six months ended
June 30, 2009 and June 30, 2008, the Company recognized a tax provision of
$63,970 and $123,473, respectively.  These provisions are based
principally on the Company’s estimated foreign income tax withholding liability
which is attributable to the Company’s Canadian revenues.





The
effective rates for the periods ending June 30, 2009 and 2008 differ from the
U.S. federal statutory rate principally because: (1) the tax benefit arising
from the Company’s net operating losses are fully offset by the valuation
allowance established against the Company’s deferred tax assets: and (2) the
Company incurs withholding taxes in Canada.





Note
12. Related Party Transactions





Transactions
with Aristocrat





License
fees from and equipment sales to Aristocrat of $139,788 and $21,497,
respectively, were recorded in the three months ended June 30, 2009, while
$138,682 and $1,171,816, respectively, were recorded during the three
months ended June 30, 2008.   License fees from and equipment
sales to Aristocrat of $313,452 and $102,025, respectively, were recorded in the
six months ended June 30, 2009, while $285,725 and $1,980,305,
respectively, were recorded during the six months ended June 30,
2008.  As of June 30, 2009, $132,914 due from Aristocrat was included
in accounts receivable in the accompanying balance sheet.




9




Office
Lease




The
Company leases its office and manufacturing facility under an annual operating
lease from an entity owned and controlled by the Company’s President and the
Company’s Vice Chairman of the Board of Directors.  The lease expires
in August 2011.  Rent expense recorded for the leased space for the
three months ended June 30, 2009 and June 30, 2008 was $48,800 and $54,900,
respectively.  Rent expense recorded for the leased space for the six
months ended June 30, 2009 and June 30, 2008 was $103,700 and $109,800,
respectively.  This lease was amended as of June 1, 2009 with rent
expense for the aggregate leased space adjusted to equal $14,200 per
month.





Founders’
Loan





On
March 24, 2008, the Company entered into a loan agreement with Lyle A. Berman,
James T. Crawford III, Arthur Lee Lomax and Gehrig H. “Lou”
White.  Messrs. Crawford, Lomax and White are the founders of the
Company.  Refer to Note 8, “Debt” for a description of the terms of
this loan.  During the first six months of 2009, the Company made
$107,561 in aggregate interest payments and $0 in aggregate principal payments.
Refer to Note 14 – Subsequent Events.





Note
13. Segment Information





In
accordance with SFAS No. 131, “Disclosures about Segments of anEnterpriseand Related Information”,
the Company reports segment information based on the “management approach”. The
management approach designates the internal reporting used by management for
making decisions and assessing performance as the source of the Company’s
reportable segments.




The
Company’s business is organized and reported in two segments,  PokerPro®
and Heads-Up ChallengeTM, which are described in Note 1,Nature of Business and
Basis of Presentation.    The Heads-Up Challenge amusement
product was launched and began operations during 2007.    The
Company evaluates the performance of its two segments primarily based on revenue
and direct cost of revenue.   The accounting policies of the segments
are the same as those described in Note 1.




10





The
following provides financial information concerning our reportable segments of
our operations:


Casino
      Products
                              
                              
                              Amusement
                                Products
                              
                              
                              Corporate
                                and
      Other
                              
                              
                              TotalThree months ended June 30,
      2009Revenue
                              
                              $
                              1,230,153
                              
                              
                              $
                              288,879
                              
                              
                              $
                              -
                              
                              
                              $
                              1,519,032Cost
      of product sales
                              
                              
                              22,965
                              
                              
                              
                              242,175
                              
                              
                              
                              -
                              
                              
                              
                              265,140Depreciation
      and amortization
                              
                              
                              694,358
                              
                              
                              
                              15,663
                              
                              
                              
                              28,437
                              
                              
                              
                              738,458Capital
      expenditures
                              
                              
                              -
                              
                              
                              
                              37,738
                              
                              
                              
                              1,518
                              
                              
                              
                              39,256Six months ended June 30,
    2009Revenue
                              
                              $
                              2,718,808
                              
                              
                              $
                              936,092
                              
                              
                              $
                              -
                              
                              
                              $
                              3,654,900Cost
      of product sales
                              
                              
                              54,298
                              
                              
                              
                              824,140
                              
                              
                              
                              -
                              
                              
                              
                              878,438Depreciation
      and amortization
                              
                              
                              1,382,788
                              
                              
                              
                              30,045
                              
                              
                              
                              56,123
                              
                              
                              
                              1,468,956Capital
      expenditures
                              
                              
                              -
                              
                              
                              
                              37,738
                              
                              
                              
                              11,711
                              
                              
                              
                              49,449Indentifiable
      assets
                              
                              
                              5,719,275
                              
                              
                              
                              1,680,953
                              
                              
                              
                              1,468,174
                              
                              
                              
                              8,868,402Three months ended June 30,
      2008Revenue
                              
                              $
                              2,477,870
                              
                              
                              $
                              1,362,220
                              
                              
                              $
                              -
                              
                              
                              $
                              3,840,090Cost
      of product sales
                              
                              
                              848,833
                              
                              
                              
                              876,107
                              
                              
                              
                              -
                              
                              
                              
                              1,724,940Depreciation
      and amortization
                              
                              
                              680,774
                              
                              
                              
                              14,077
                              
                              
                              
                              14,254
                              
                              
                              
                              709,105Capital
      expenditures
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              72,776
                              
                              
                              
                              72,776Six months ended June 30,
    2008Revenue
                              
                              $
                              4,633,615
                              
                              
                              $
                              2,407,971
                              
                              
                              $
                              -
                              
                              
                              $
                              7,041,586Cost
      of product sales
                              
                              
                              1,350,527
                              
                              
                              
                              1,603,346
                              
                              
                              
                              -
                              
                              
                              
                              2,953,873Depreciation
      and amortization
                              
                              
                              1,270,488
                              
                              
                              
                              27,599
                              
                              
                              
                              28,476
                              
                              
                              
                              1,326,563Capital
      expenditures
                              
                              
                              9,419
                              
                              
                              
                              33,320
                              
                              
                              
                              72,776
                              
                              
                              
                              115,515Indentifiable
      assets
                              
                              
                              7,604,644
                              
                              
                              
                              2,493,727
                              
                              
                              
                              7,203,833
                              
                              
                              
                              17,302,204




Amounts
presented in the column labeled “Corporate and Other” primarily consist of
assets that are not specifically associated with either segment, principally
cash equivalents, investments and other corporate assets.




REVENUE
BY GEOGRAPHIC AREA





Revenues
by geographic area are determined based on the location of the Company’s
customers. For the three months ended June 30, 2009 and 2008, sales to customers
outside the United States accounted for 21% and 67% of the Company’s
consolidated revenue, respectively.  For the six months ended June 30,
2009 and 2008, sales to customers outside the United States accounted for 35%
and 65% of the Company’s consolidated revenue, respectively.





11








The
following provides financial information concerning the Company’s revenues by
geographic area:




Three
      months ended June 30,
                      
                      
                      Six
      months ended June 30,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008Revenue:United
      States
                      
                      $
                      1,200,948
                      
                      
                      $
                      1,252,656
                      
                      
                      $
                      2,377,269
                      
                      
                      $
                      2,449,533Europe
                      
                      
                      78,965
                      
                      
                      
                      1,382,557
                      
                      
                      
                      480,946
                      
                      
                      
                      2,247,404Canada
                      
                      
                      156,186
                      
                      
                      
                      695,016
                      
                      
                      
                      611,454
                      
                      
                      
                      1,537,847Australia
                      
                      
                      77,720
                      
                      
                      
                      491,727
                      
                      
                      
                      163,324
                      
                      
                      
                      753,567Other
      International
                      
                      
                      5,213
                      
                      
                      
                      18,134
                      
                      
                      
                      21,907
                      
                      
                      
                      53,235$
                      1,519,032
                      
                      
                      $
                      3,840,090
                      
                      
                      $
                      3,654,900
                      
                      
                      $
                      7,041,586


Note
14. Subsequent Events





On July
23, 2009, the Company entered into amendments to the SVB Credit Facility, which
extended the maturity date for the facility to July 23, 2010, adjusted the
facility amount to have a Facility Limit of $2.5 million with maximum advances
determined based on the composition of our eligible accounts receivable and
inventory balances and modified certain other provisions of the
facility.  The amendments are attached as exhibits 10.1 and 10.2 to
this Form 10-Q.  The SVB Credit Facility was also previously amended
on or about December 23, 2008.





On July
9, 2009, the Founder’s Loan was amended to provide that monthly interest
payments may be made, at the election of the holder, in our common stock at a
13% annual interest rate pursuant to a formula or cash at a 9% annual interest
rate.  In addition, the maturity date of the loan was extended to
March 21, 2012. This amendment is attached as exhibit 10.14 to this Form
10-Q.





Pursuant
to a Stock Purchase Agreement dated July 31, 2009, between the Company and ICP
Electronics, Inc., a Taiwan corporation (“ICP Electronics”), the Company agreed
to sell 565,000 shares of its common stock to ICP Electronics.  ICP
Electronics is a manufacturer of Heads-Up Challenge units that the Company
markets to its customers.  The shares were sold in reliance upon an
exemption from registration under the Securities Act of 1933, as amended,
pursuant to Section 4(6) and Regulation S.  The shares were valued at
a price of $0.85 per share and were exchanged with ICP Electronics for 191
Heads-Up Challenge units for immediate delivery.  In addition, the
parties agreed to payment terms for the Company’s remaining purchase commitment
with ICP, totaling $945,337, to be paid in installments of $39,389 over a 24
month period.  In exchange, ICP will complete and deliver an
additional 293 Heads-Up Challenge units as directed by the Company.





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.




12





All
forward-looking statements are subject to the risks and uncertainties inherent
in predicting the future.  Our actual results may differ materially
from those 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, further
approvals of regulatory authorities, adverse court rulings, production and/or
quality control problems, the denial, suspension or revocation of permits or
licenses by regulatory or governmental authorities, termination or non-renewal
of customer contracts, amendment or termination of our loans, disruption of our
relationships with our suppliers, competitive pressures, general economic and
political conditions, such as political instability, credit market uncertainty,
inflationary pressures from higher energy and fuel costs and the rate of
economic growth or decline in our principal geographic markets, each of which
may be amplified by recent disruptions in the U.S. and global financial markets,
our ability to access the capital markets, and our financial
condition.  These and other risks and uncertainties are described in
more detail in our most recent Annual Report on Form 10-K, as well as other
reports and statements that we file with the Securities and Exchange
Commission.





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





Overview




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





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








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





Revenues.Revenues decreased by $2.3 million (60%) to $1.5 million for the three
months ended June 30,
2009 as compared to $3.8 million for the three months ended June 30, 2008
primarily due to lower product sales.





License
and service fees decreased by $0.2 million (15%) to $1.2 million for the three
months ended June 30, 2009 as compared to $1.4 million for the three months
ended June 30, 2008.  The amount of license and service fees
recognized in a given period is a function of the number of tables placed on
lease, the contractual rates negotiated with our customers, and, in some cases,
is determined as a percentage of the customer’s revenues.  The
decrease in license and service fees was impacted by all three of those factors,
including the impact of impact of the current economic conditions on the rate of
play at some of our customers.  In addition, while the number of
tables on lease grew modestly as compared to the prior period, the decline in
the number of tables in Canada and other mix changes offset the increase in the
number of tables.





Product
sales decreased by $2.1 million (87%) to $0.3 million for the three months ended
June 30, 2009 as compared to $2.4 million for the three months ended June 30,
2008.  Product sales consist of casino products, primarily PokerPro
systems sold to Aristocrat for deployment in international casinos, sales of
consumables and peripheral equipment to our PokerPro customers, as well as sales
of our Heads-Up Challenge amusement product.





Sales of
the Heads-Up Challenge amusement product contributed $0.3 million in revenue for
the three months ended June 30, 2009, as compared to $1.4 million in revenue for
the comparable period of 2008.  Demand from our customers for the
Heads-Up Challenge product continued to be affected by a combination of weak
economic conditions and the related impact on the ability of operators to
finance and place amusement products.  We sold 69 units during the
three months ended June 30, 2009 as compared with 303 units during the three
months ended June 30, 2008.




13




Sales of
casino products for the three months ended June 30, 2009 amounted to $24,900, a
decrease of $1.1 million over the comparable period in 2008.  During
the three months ended June 30, 2009, our international distributor did not
place any orders for new PokerPro systems as the Eastern European markets that
drove growth during the prior year were impacted by reduced operator
demand.  The casino product sales recognized during the three months
ended June 30, 2009 resulted from sales of consumables and peripheral equipment
to our PokerPro customers.





Direct Cost of
Revenue.  Direct cost of revenue consists of depreciation of
PokerPro systems and the cost of PokerPro systems sold primarily to Aristocrat
and the cost of Heads-Up Challenge product sales.  Total direct costs
decreased by $1.4 million (61%) to $0.9 million for the three months ended June
30, 2009.  As a percentage of total revenues, direct cost of revenues
was 62% of total revenues for the three months ended June 30, 2009, and for the
comparable period in 2008.





Depreciation
of PokerPro systems increased by $13,585 (2%) to $672,168 for the three months
ended June 30, 2009 as compared to $658,583 for the three months ended June 30,
2008.    Cost of product sales decreased by $1.5 million
(85%) to $0.3 million for the three months ended June 30, 2009 as compared to
$1.7 million for the three months ended June 30, 2008.  This decrease
in cost of sales was attributable to the lower unit product sales of both
PokerPro and Heads-Up Challenge.





Selling, General
and Administrative Expenses.  Selling, general and
administrative expenses (“SG&A”) decreased by $0.7 million (29%) to $1.6
million for the three months ended June 30, 2009 as compared to $2.3 million for
the three months ended June 30, 2008. This decrease was primarily due to lower
salaries and other employee-related expenses as a result of the headcount
reductions and other cost reduction initiatives implemented during 2008 and the
first half of 2009.  As a percentage of total revenues, SG&A
expenses were 107% of total revenues for the three months ended June 30, 2009,
compared with 60% of total revenues for the comparable period in 2008 on lower
product sale revenues.





Research and
Development Expenses.Research and development
expensesdecreased
by $0.4 million (56%) to $0.3 million for the three months ended June 30, 2009
as compared to $0.7 million for the three months ended June 30, 2008. We
continue to invest in software and hardware development to improve our gaming
and amusement products through the addition of new games and features and to
improve manufacturability.  However, as our Heads-Up Challenge and
PokerPro products are now fully commercialized, we have been able to reduce
spending on pre-production engineering and internal development
efforts.





Depreciation.Depreciation
increased by $15,768 (31%) for the three months ended June 30, 2009 to $66,290
from $50,522 for the comparable period in 2008.  The increase in
depreciation was primarily attributable to depreciation associated with our
investment in capitalized software.





Interest Income
(expense), net.Interest expense
increased $57,207 (145%) for the three months ended June 30, 2009
to   $96,564 from $39,357 for the three months ended June 30,
2008.  We incurred interest expense in 2009 on the loan from our
founders of $64,821 and recognized loan origination and unused line fees
associated with the credit line from Silicon Valley Bank totaling
$30,461.  In addition, we incurred interest on our capital lease of
$1,282.  During 2008, our interest expense was partially offset by
interest income earned on our ARS investments, which were liquidated on January
5, 2009 and contributed essentially no income for the three months ended June
30, 2009.





Income
Taxes.Income tax provision was $21,421 for the three months
ended June 30, 2009 and 123,473 in the comparable period of 2008.  The
decrease in income tax provision was attributable to decreased revenue in
Canada.





Net
Loss.Net loss for the three months ended June 30, 2009 was
$1.6 million, an improvement of $0.3 million (16%) from $2.0 million for the
three months ended June 30, 2008.  Net loss per share, basic and
diluted, was $0.15 per share for the three months ended June 30, 2009, an
improvement of $0.03 (17%) per share from $0.18 for the comparable period of
2008.   Net loss and net loss per share improved over the prior
year period due primarily to the combination of lower direct cost of revenue
from the casino and amusement product lines and lower operating expenses,
partially offset by lower revenue.





Results
of Operations for the Six Months Ended June 30, 2009 Compared to the Six Months
Ended June 30, 2008





Revenues.Revenues decreased by $3.4 million (48%) to $3.7 million for the six
months ended June 30,
2009 as compared to $7.0 million for the six months ended June 30, 2008 due to
lower product sales.




14




License
and service fees decreased by $0.3 million (12%) to $2.6 million for the six
months ended June 30, 2009 as compared to $2.9 million for the six months ended
June 30, 2008.  The amount of license and service fees recognized in a
given period is a function of the number of tables placed on lease, the
contractual rates negotiated with our customers, and, in some cases, is
determined as a percentage of the customer’s revenues.  The decrease
in license and service fees was impacted by all three of those factors,
including the impact of impact of the current economic conditions on the rate of
play at some of our customers.  In addition, while the number of
tables on lease grew modestly as compared to the prior period, the decline in
the number of tables in Canada and other mix changes offset the increase in the
number of tables.





Product
sales decreased by $3.0 million (74%) to $1.1 million for the six months ended
June 30, 2009 as compared to $4.1 million for the six months ended June 30,
2008.  Product sales consist of casino products, primarily PokerPro
systems sold to Aristocrat for deployment in international casinos, sales of
consumables and peripheral equipment to our PokerPro customers, as well as sales
of our Heads-Up Challenge amusement product.





Sales of
the Heads-Up Challenge amusement product contributed $0.9 million in revenue for
the six months ended June 30, 2009, as compared to $2.4 million in revenue for
the comparable period of 2008.  Demand from our customers for the
Heads-Up Challenge product continued to be affected by a combination of weak
economic conditions and the related impact on the ability of operators to
finance and place amusement products.  As a result, we sold 251 units
during the six months ended June 30, 2009 as compared with 540 units during the
six months ended June 30, 2008,.





Sales of
casino products for the six months ended June 30, 2009 amounted to $125,653, a
decrease of $1.6 million over the comparable period in 2008.  During
the six months ended June 30, 2009, our international distributor did not place
any orders for new PokerPro systems as the Eastern European markets that drove
growth during the prior year were impacted by reduced operator demand and they
continue to work through their inventory.  The casino product sales
recognized during the first six months of 2009  resulted from sales of
consumables and peripheral equipment to our PokerPro customers, as well as our
share of the proceeds from the sale of tables by Aristocrat.





Direct Cost of
Revenue.  Direct cost of revenue consists of depreciation of
PokerPro systems and the cost of PokerPro systems sold primarily to Aristocrat
and the cost of Heads-Up Challenge product sales.  Total direct costs
decreased by $2.0 million (47%) to $2.2 million for the six months ended June
30, 2009.  As a percentage of total revenues, direct cost of revenues
was 61% of total revenues for the six months ended June 30, 2009, compared with
59% of total revenues for the comparable period in 2008.





Depreciation
of PokerPro systems increased by $0.1 million (9%) to $ 1.3 million for the six
months ended June 30, 2009 as compared to $1.2 million for the six months ended
June 30, 2008.  Cost of product sales decreased by $2.1 million (70%)
to $0.9 million for the six months ended June 30, 2009 as compared to $3.0
million for the six months ended June 30, 2008.  This decrease in cost
of sales was attributable to the lower unit product sales of both PokerPro and
Heads-Up Challenge.





Selling, General
and Administrative Expenses.  SG&A decreased by $1.2
million (26%) to $3.5 million for the six months ended June 30, 2009 as compared
to $4.7 million for the six months ended June 30, 2008. This decrease was
primarily due to lower salaries and other employee-related expenses as a result
of the headcount reductions and other cost reduction initiatives implemented
during 2008 and the first half of 2009.  As a percentage of total
revenues, SG&A expenses were 95% of total revenues for the six months ended
June 30, 2009, compared with 67% of total revenues for the comparable period in
2008 on lower product sale revenues.





Research and
Development Expenses.Research and development
expensesdecreased
by $0.9 million (57%) to $0.7 million for the six months ended June 30, 2009 as
compared to $1.5 million for the six months ended June 30, 2008. We continue to
invest in software and hardware development to improve our gaming and amusement
products through the addition of new games and features and to improve
manufacturability.  However, as our Heads-Up Challenge and PokerPro
products are now fully commercialized, we have been able to reduce spending on
pre-production engineering and internal development efforts.





Depreciation.Depreciation
increased by $30,563 (31%) for the six months ended June 30, 2009 to $130,548
from $99,985 for the comparable period in 2008.  The increase in
depreciation was primarily attributable to depreciation associated with our
investment in capitalized software.




15




Interest Income
(Expense), net.Interest income
(expense), net changed by $207,769 (784%) for the six months ended June 30, 2009
to an expense of $181,271 from income of $26,498 for the six months ended June
30, 2008.  We incurred interest expense in 2009 on the loan from our
founders of $128,930 and recognized loan origination and unused line fees
associated with the credit line from Silicon Valley Bank totaling
$48,156.  In addition, we incurred interest on our capital lease of
$2,700.  During 2008, we earned interest income on our ARS
investments, which were liquidated on January 5, 2009 and contributed
essentially no income for the six months ended June 30, 2009.





Income
Taxes.Income tax provision was $63,970 for the six months
ended June 30, 2009 and $123,473 for the comparable period of
2008.  The decrease in income tax provision was attributable to
decreased revenue in Canada.





Net
Loss.Net loss for the six months ended June 30, 2009 was $3.5
million, an improvement of $0.6 million (16%) from $4.1 million for the six
months ended June 30, 2008.  Net loss per share, basic and diluted,
was $0.31 per share for the six months ended June 30, 2009, an improvement of
$0.06 (16%) per share from $0.37 for the comparable period of
2008.   Net loss and net loss per share improved over the prior
year period due primarily to the combination of lower direct cost of revenue
from the casino and amusement product lines and lower operating expenses,
partially offset by lower revenue.





Liquidity
and Capital Resources





We have
incurred net operating losses since inception and operating expenses may
continue to exceed revenues.  We have typically funded our operating
costs, research and development activities, working capital investments and
capital expenditures associated with our growth strategy with proceeds from the
issuances of our common stock, as well as through credit arrangements from
financial institutions and a loan from certain members of our Board of
Directors.  These transactions are described in more detail following
the discussion of cash flows below:





Discussion
of Statement of Cash Flows




Six
      Months Ended June 30,2009
                      
                      
                      2008
                      
                      
                      ChangeNet
      cash used in operating activities
                      
                      $
                      (1,323,846
                      )
                      
                      $
                      (3,045,772
                      )
                      
                      $
                      1,721,926Net
      cash provided by investing activities
                      
                      
                      3,850,551
                      
                      
                      
                      1,986,519
                      
                      
                      
                      1,864,032Net
      cash provided by (used in) financing activities
                      
                      
                      (2,877,031
                      )
                      
                      
                      2,998,452
                      
                      
                      
                      (5,875,483
                      )Net
      increase (decrease) in cash and cash equivalents
                      
                      
                      (350,326
                      )
                      
                      
                      1,939,199
                      
                      
                      
                      (2,289,525
                      )Cash
      and cash equivalents, beginning of year
                      
                      
                      1,481,530
                      
                      
                      
                      1,229,980Cash
      and cash equivalents, end of period
                      
                      $
                      1,131,204
                      
                      
                      $
                      3,169,179




For the
six months ended June 30, 2009, net cash used in operating activities was $1.3
million, as compared to $3.0 million for the six months ended June 30, 2008, a
decrease of $1.7 million.  The decrease in cash used in operating
activities was primarily due to the reduction in net loss due to expense
reduction initiatives and reduced inventory purchases, which were partially
offset by reductions in accounts payable and accrued expenses.





Net cash
provided by investing activities was $3.9 million for the six months ended June
30, 2009, compared to $2.0 million for the six months ended June 30,
2008.  Cash provided by investing activities is primarily a function
of investments and redemptions of our auction rate securities (“ARS”) portfolio,
and to a smaller degree, capital expenditures for assets used in our
operations.





Net cash
used in financing activities was $2.9 million for the six months ended June 30,
2009, primarily due to the repayment of the UBS Credit Facility which occurred
as a result of the sale of the ARS investment, as well as payments on our
capital lease obligation.  For the six months ended June 30, 2008, net
cash provided by financing activities was $3.0 million, consisting primarily of
proceeds from our loan to our founders ($2.0 million), and net advances from the
UBS line of credit ($1.0 million).




16




We have
the ability to impact the timing and extent of our cash needs primarily by
managing the pace of growth in both our PokerPro and Heads-Up Challenge products
and managing our operating expenses. However, we also have significant
contractual obligations and our ability to control both the timing and extent of
the cash needs of the business is not unlimited, particularly in light of the
current economic climate and the capital intensive nature of the PokerPro
business.




Our
intent is to balance revenue growth with operating expense and working capital
management, while carefully monitoring the impact of growth on our cash needs
and cash balances. Accordingly, reductions in our working capital investments or
declines in demand for our products or continued deterioration in general
economic conditions could impact our ability to grow or to effectively manage
our liquidity needs.




Based on
the Company’s current capital structure and our anticipated growth plans, we
intend to explore various alternatives to fund our growth, which may
include  raising additional funds through public or private offerings
of our securities, obtaining additional credit facilities, converting our debt,
or seeking alternative sources of financing which may or may not be available on
favorable terms, if at all.  If such sources of capital are not
available,  we may seek other avenues to fund the business, including
sale/leaseback arrangements, transitioning our products from a capital intensive
leasing strategy to a product sale strategy,  seeking to sell assets
of the Company, or reducing our operations.




Subsequent
to the end of the quarter, we entered into amendments to our SVB Credit Facility
and our Founders Loan, extending the term of both arrangements and allowing the
Founders’ Loan to be paid in either stock or cash. In addition we entered into a
Stock Purchase Agreement with a key vendor to issue common stock in exchange for
inventory and to extend the timing of payments for our purchase commitments.
Refer to Subsequent Events.




If we
decide to raise addtional capital in the equity markets or take other actions,
shareholders could incur significant dilution, or, if we are unable to raise
capital, our ability to effectively operate our business could be
impaired.




Founders’ Loan.On March 24, 2008, we entered into a loan agreement with Lyle A. Berman,
James T. Crawford III, Arthur Lee Lomax and Gehrig H. “Lou”
White.  Messrs. Crawford, Lomax and White are the founders of the
Company.  Each of the lenders are also members of our board of
directors, with Mr. Berman serving as Chairman and Mr. White serving as Vice
Chairman. Upon closing, the lenders loaned us $2.0 million and we issued the
lenders a promissory note in the principal amount of $2.0 million. The loan
bears interest at an annual rate of 13% with all unpaid principal and interest
payable on March 21, 2010.  We are paying and intend to continue to
pay interest on a monthly basis. The loan principal may be repaid prior to
maturity without penalty.  The loan contains no restrictive covenants
and is collateralized by a security interest in our PokerPro systems deployed in
North America and on cruise ships as of December 31, 2007.  Refer to
Subsequent Events.





SVB Credit
Facility.On July 25,
2008, the Company entered into a credit facility with Silicon Valley Bank to
support the Company’s working capital (the “SVB Credit
Facility”).  The SVB Credit Facility is nominally denoted as a $5.0
million facility with an actual maximum availability that varies based on
specified percentages of domestic and foreign accounts receivable and
inventory.  Based on the Company’s accounts receivable and inventory
levels on June 30, 2009, as of such date availability under the SVB Credit
Facility was approximately $0.7 million, with no borrowings
outstanding.  The SVB Credit Facility has a one-year term and bears
interest at an annual rate of the greater of prime plus 2.0% or
6.5%.  The SVB Credit Facility includes covenants requiring the
achievement of specified financial ratios and thresholds and contains other
terms and conditions customary for this type of credit facility.  As of
June 30, 2009, the Company was in compliance with these
covenants.  The SVB Credit Facility is collateralized by security
interests in substantially all of the assets of the Company.  Refer to
Subsequent Events.




17




Contractual
Obligations





The table
below sets forth our known contractual obligations as of June 30,
2009:




Total
                    
                    
                    Less
      than
                      1
      year
                    
                    
                    1
      - 3 years
                    
                    
                    3
      - 5 years
                    
                    
                    More
      than
                      5
      yearsDebt
      obligations(1)
                    
                    $
                    2,195,000
                    
                    
                    $
                    2,195,000
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Operating
      lease obligations(2)
                    
                    
                    378,800
                    
                    
                    
                    204,000
                    
                    
                    
                    174,800
                    
                    
                    
                    -
                    
                    
                    
                    -Capital
      lease obligations(3)
                    
                    
                    55,872
                    
                    
                    
                    28,747
                    
                    
                    
                    27,125
                    
                    
                    
                    -
                    
                    
                    
                    -Purchase
      obligations(4)
                    
                    
                    1,418,363
                    
                    
                    
                    1,418,363
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Other
      long-term liabilities
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    $
                    4,048,035
                    
                    
                    $
                    3,846,110
                    
                    
                    $
                    201,925
                    
                    
                    $
                    -
                    
                    
                    $
                    -


(1)
            Represents
      the outstanding principal amount and interest on our Founder’s
      Loan.


(2)
            Represents
      operating lease agreements for office and storage facilities and office
      equipment.


(3)
            Represents
      outstanding principal and interest payable under capital lease obligations
      related to our purchase of internal-use ERP
  system.


(4)
            Represents
      open purchase orders with our vendors, primarily purchase obligations for
      Heads-Up Challenge.





Contractual
obligations decreased to $4.0 million as of June 30, 2009 from $8.1 million as
of December 31, 2008 due principally to the retirement of the UBS Credit
Facility and a decrease in the level of inventory purchase commitments and lease
obligations.





Customer
Dependence





As of
June 30, 2009, five of our customers made up approximately 64% of our total
revenues.  The loss of any of these customers or changes in our
relationship with them could have a material adverse effect on our
business.





Critical
Accounting Policies





We follow
accounting principles generally accepted in the United States in preparing our
financial statements, which require us to make certain estimates and apply
judgments that affect our financial position and results of operations. We
continually review our accounting policies and financial information
disclosures. A summary of our significant accounting policies that require the
use of estimates and judgments in preparing the financial statements was
provided in our Annual Report on Form 10-K for the year ended December 31, 2008.
During the six months ended June 30, 2009, there were no material changes to the
accounting policies and assumptions previously disclosed.





Recent
Accounting Pronouncements





In June
2009, the FASB issued Statement of Financial Accounting Standard
No. 168 (“FAS 168”), The
FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles.FAS 168 establishes the FASB Accounting
Standards Codification as the single source of authoritative non-governmental
GAAP.  This statement is effective for interim and annual reporting
periods ending after September 15, 2009, and we do not expect the adoption to
have any effect on the Company's results of operations, financial condition, or
cash flows.





In May
2009, the FASB issued Statement of Financial Accounting Standard
No. 165 (“FAS 165”), Subsequent Events.FAS 165 requires disclosures regarding subsequent events for events
or transactions that occur after the balance sheet date but before the financial
statements are issued, for public companies, and requires disclosure of the date
through which an entity has evaluated subsequent events.  This
statement was effective for interim reporting periods ending after June 15,
2009, and its adoption did not have any effect on the Company's results of
operations, financial condition, or cash flows.




18




In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments.  This FSB and APB require disclosures
about fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial statements, as well as
disclosures in summarized financial information at interim reporting periods.
This statement was effective for interim reporting periods ending after
June 15, 2009, and its adoption did not have a material effect on our
results of operations, financial condition or cash flows.





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





In June
2008, the FASB issued FSP No. EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
(“FSP EITF 03-6-1”). The FASB concluded in this FSP that unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents are participating securities and shall be included in the
calculation of earnings per share pursuant to the two-class method. This FSP is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, requiring all prior-period earnings per share data presented
to be adjusted retrospectively. We do not have share-based payment awards
containing nonforfeitable rights to dividends or dividend equivalents;
therefore, the adoption of FAS 161 did not have any effect on our
results of operations, financial condition, or cash flows.





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





Subsequent
Events





On July
23, 2009, we entered into amendments to the SVB Credit Facility, which extended
the maturity date for the facility to July 23, 2010, adjusted the facility
amount to have a Facility Limit of $2.5 million with maximum advances determined
based on the composition of our eligible accounts receivable and inventory
balances and modified certain other provisions of the facility.  The
amendments are attached as exhibits 10.1 and 10.2 to this Form
10-Q.  The SVB Credit Facility was also previously amended on or about
December 23, 2008.





On July
9, 2009, the Founder’s Loan was amended to provide that monthly interest
payments may be made, at the election of the holder, in our common stock at a
13% annual interest rate pursuant to a formula or cash at a 9% annual interest
rate.  In addition, the maturity date of the loan was extended to
March 21, 2012. This amendment is attached as exhibit 10.14 to this Form
10-Q.





Pursuant
to a Stock Purchase Agreement dated July 31, 2009, between the Company and ICP
Electronics, Inc., a Taiwan corporation (“ICP Electronics”), the Company agreed
to sell 565,000 shares of its common stock to ICP Electronics.  ICP
Electronics is a manufacturer of Heads-Up Challenge units that we market to our
customers.  The shares were sold in reliance upon an exemption from
registration under the Securities Act of 1933, as amended, pursuant to Section
4(6) and Regulation S.  The shares were valued at a price of $0.85 per
share and were exchanged with ICP Electronics for 191 Heads-Up Challenge units
for immediate delivery.  In addition, the parties agreed to payment
terms for the remaining purchase commitment with ICP, totaling $945,337, to be
paid in installments of $39,389 over a 24 month period.  In exchange,
ICP will complete and deliver an additional 293 Heads-Up Challenge units as
directed by us.





Off-Balance
Sheet Arrangements





We have
no off-balance sheet arrangements.




19


Item
3. Quantitative
and Qualitative Disclosures About Market Risk.





Reference
is made to “Part II, Item 7A, Quantitative and Qualitative Disclosures about
Market Risk,” in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2008.  There have not been significant changes in our
exposure to market risk since December 31, 2008.





Item
4T. Controls and Procedures.




Disclosure Controls and Procedures





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





As of
June 30, 2009, an evaluation of the effectiveness of the Company’s disclosure
controls and procedures was conducted under the supervision of, and reviewed by,
the Company’s Acting Chief Executive Officer and Chief Financial Officer. Based
on that evaluation, the Company’s Acting Chief Executive Officer and Chief
Financial Officer has concluded that the Company’s disclosure controls and
procedures were effective as of June 30, 2009, to enable the Company to record,
process, summarize and report in a timely manner the information that the
Company is required to disclose in its Exchange Act reports, and that such
information is accumulated and communicated to the Company’s management,
including its Acting Chief Executive Officer and Chief Financial Officer, to
allow timely decisions regarding required disclosure.





Changes
in Internal Control over Financial Reporting





The
following systems-related significant deficiencies were previously identified
and remain unremediated as of June 30, 2009:





·
            The
      systems used in tracking and valuing inventory and PokerPro systems do not
      provide effective automated controls and are not integrated with each
      other or with the general ledger.  The lack of integration
      requires manual reconciliations between the
  applications.





·
            We
      utilized a software package for our general ledger that did not provide
      certain automated general controls, such as the presence of edit reports
      and workflow approvals.  We replaced our general ledger and
      other financial systems during the fourth quarter of 2008, but we had not
      performed sufficient testing  as of June 30, 2009 to affect
      management’s assessment of the effectiveness of internal control over
      financial reporting.





·
            Our
      procedures for establishing and modifying system user access privileges is
      not sufficiently documented and subjected to management review to ensure
      that only authorized users have access to our sensitive applications, and
      that those authorized users only have access to appropriate functions
      within those systems.





·
            Due
      to the relatively small size of the finance department, we lack an
      effective segregation of duties between the disbursement of funds and the
      reconciliation of its bank
accounts.





These
significant deficiencies have been previously reported to our Audit Committee by
our management and to our independent registered public accounting firm, and we
have continued to provide the Audit Committee with additional reports regarding
the status of these significant deficiencies as of June 30, 2009.  Our
management continues to believe that these significant deficiencies are not
indicative of a material weakness in our internal control over financial
reporting. As reported in our Annual Report on Form 10-K for the year ended
December 31, 2008, we also implemented a number of compensating controls as of
December 31, 2008, including more timely reconciliations, enhanced review and
approval procedures, and more robust physical inventory counting and valuation
procedures. These compensating controls continued to operate as of June 30,
2009.




20




With
regard to these systems-related significant deficiencies that had not been fully
remediated as of June 30, 2009, we are in the process of implementing an
integrated enterprise resource planning software package, SAP Business
One,  which we believe will aid in strengthening our internal
controls.





We
implemented certain financial modules of SAP Business One during the fourth
quarter of 2008 and, during the period ended June 30, 2009, we continued the
process of configuring the application software package, training our staff, and
preparing for the implementation of the non-financial modules of the ERP
system.  We expect to implement the non-financial modules during the
second half of the 2009.  However, we can provide no assurance that
implementation of SAP Business One will be successful or will fully resolve all
significant deficiencies.





Because
SAP Business One has not yet been fully  implemented, there were no
changes in our internal control over financial reporting during the quarter
ended June 30, 2009 that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.




PART
II – OTHER INFORMATION





Item 1. Risk Factors.




In addition to the other information
set forth in this quarterly report on Form 10-Q and set forth below, you should
carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in
our Annual Report on Form 10-K for the year ended December 31, 2008, which could
materially affect our business, financial condition or future results. The risks
described in our Annual Report on Form 10-K and our other reports and
statements that we file with the SEC, including those contained in our quarterly
reports on Form 10-Q, are not the only risks facing our Company. 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/or operating results.




We recently made
changes to our Heads-Up Challenge Amusement business, transitioning that
business towards a recurring revenue, operator-direct business
model.  The transition to this new business model introduces risks
that we may not be successful or that this new business model may increase our
need for capital.




We
recently changed our distribution model for the Heads-Up Challenge amusement
business.  We no longer sell the product to distributors on a
non-recurring, one-time sale basis, but instead place units directly with
operators who pay us on a recurring lease basis. If we are unable to attract
sufficiently qualified operators, if those operators are unsuccessful in placing
product, or if those operators fail to pay us, this change could have an adverse
impact effect on us.  In addition, we will collect cash from these
operators on an annuity, recurring basis, expansion of this program could create
cash flow needs that could have an adverse effect on us, or cause us to need to
raise additional capital.




21





Item
6. Exhibits.




Exhibit No.
                  
                  Description10.1
                  
                  Second
      Amendment to Loan and Security Agreement, dated July 23, 2009, between
      PokerTek, Inc. and Silicon Valley Bank.10.2
                  
                  Second
      Amendment to Export-Import Bank Loan and Security Agreement, dated July
      23, 2009, between PokerTek, Inc. and Silicon Valley Bank.10.3
                  
                  Board
      Member Agreement, dated July 15, 2009, between PokerTek, Inc. and Lyle
      Berman.10.4
                  
                  Board
      Member Agreement, dated July 15, 2009, between PokerTek, Inc. and Gehrig
      H. White.10.5
                  
                  Board
      Member Agreement, dated July 15, 2009, between PokerTek, Inc. and Joseph
      J. Lahti.10.6
                  
                  Board
      Member Agreement, dated July 15, 2009, between PokerTek, Inc. and Arthur
      L. Lomax.10.7
                  
                  Indemnification
      Agreement, dated July 15, 2009, between PokerTek, Inc. and Joseph J.
      Lahti.10.8
                  
                  Indemnification
      Agreement, dated July 15, 2009, between PokerTek, Inc. and Arthur L.
      Lomax.10.9
                  
                  Indemnification
      Agreement, dated July 15, 2009, between PokerTek, Inc. and James T.
      Crawford, III.10.10
                  
                  Indemnification
      Agreement, dated July 15, 2009, between PokerTek, Inc. and Gehrig H.
      White.10.11
                  
                  Indemnification
      Agreement, dated July 15, 2009, between PokerTek, Inc. and Mark D.
      Roberson.10.12
                  
                  Employment
      Agreement dated July 16, 2009, between PokerTek, Inc. and Mark D.
      Roberson.10.13
                  
                  Employment
      Agreement dated July 16, 2009, between PokerTek, Inc. and James T.
      Crawford, III.10.14
                  
                  Amendment
      No. 1 to a $2.0 million Secured Promissory Note between PokerTek, Inc. and
      Lyle Berman, Gehrig H. White, James T. Crawford, III, and Arthur L. Lomax,
      effective as of July 9, 2009.31.1
                  
                  Certification
      of Acting Chief Executive Officer and Chief Financial Officer pursuant to
      Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.32.1
                  
                  Certification
      of Acting 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.




22


SIGNATURES





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




POKERTEK,
      INC.Date:
      August 14, 2009
                    /s/
      Mark D. RobersonActing
      Chief Executive Officer and Chief Financial Officer
                      (Principal
      Executive Officer, Principal Financial
                      Officer
      and Principal Accounting Officer)




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POKERTEK,
INC.
 EXHIBIT
INDEX




Exhibit No.
              
              Description10.1
              
              Second
      Amendment to Loan and Security Agreement, dated July 23, 2009, between
      PokerTek, Inc. and Silicon Valley Bank.10.2
              
              Second
      Amendment to Export-Import Bank Loan and Security Agreement, dated July
      23, 2009, between PokerTek, Inc. and Silicon Valley Bank.10.3
              
              Board
      Member Agreement, dated July 15, 2009, between PokerTek, Inc. and Lyle
      Berman.10.4
              
              Board
      Member Agreement, dated July 15, 2009, between PokerTek, Inc. and Gehrig
      H. White.10.5
              
              Board
      Member Agreement, dated July 15, 2009, between PokerTek, Inc. and Joseph
      J. Lahti.10.6
              
              Board
      Member Agreement, dated July 15, 2009, between PokerTek, Inc. and Arthur
      L. Lomax.10.7
              
              Indemnification
      Agreement, dated July 15, 2009, between PokerTek, Inc. and Joseph J.
      Lahti.10.8
              
              Indemnification
      Agreement, dated July 15, 2009, between PokerTek, Inc. and Arthur L.
      Lomax.10.9
              
              Indemnification
      Agreement, dated July 15, 2009, between PokerTek, Inc. and James T.
      Crawford, III.10.10
              
              Indemnification
      Agreement, dated July 15, 2009, between PokerTek, Inc. and Gehrig H.
      White.10.11
              
              Indemnification
      Agreement, dated July 15, 2009, between PokerTek, Inc. and Mark D.
      Roberson.10.12
              
              Employment
      Agreement dated July 16, 2009, between PokerTek, Inc. and Mark D.
      Roberson.10.13
              
              Employment
      Agreement dated July 16, 2009, between PokerTek, Inc. and James T.
      Crawford, III.10.14
              
              Amendment
      No. 1 to a $2.0 million Secured Promissory Note between PokerTek, Inc. and
      Lyle Berman, Gehrig H. White, James T. Crawford, III, and Arthur L. Lomax,
      effective as of July 9, 2009.31.1
              
              Certification
      of Acting Chief Executive Officer and Chief Financial Officer pursuant to
      Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.32.1
              
              Certification
      of Acting 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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