UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







FORM
10-Q





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


For
the Quarterly Period Ended March 31, 2009





OR





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


For
the transition period from
_____________________to______________________





Commission
File Number: 000-51572











PokerTek,
      Inc.


(Exact
name of registrant as specified in its charter)


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


(704)
849-0860


(Registrant’s
      telephone number, including area
code)





Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.Yes
x  No
 ̈





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  ̈   No
 ̈





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


 ̈
                Large
      accelerated filer
                 ̈
                Accelerated
      filer ̈
                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  ̈  No
x





As of
April 30, 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
                    11Item
      3.
                    Quantitative
      and Qualitative Disclosures about Market Risk
                    15Item
      4T.
                    Controls
      and Procedures
                    16PART
      II – OTHER INFORMATIONItem
      6.
                    Exhibits
                    17Signatures
                    17Exhibit
      Index
                    18







POKERTEK,
INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(UNAUDITED)





Three Months Ended March 31,2009
                
                
                2008Revenue:License
      and service fees
                
                $
                1,387,901
                
                
                $
                1,521,676Product
      sales
                
                
                747,967
                
                
                
                1,679,820Total
      revenue
                
                
                2,135,868
                
                
                
                3,201,496Direct
      cost of revenue:Depreciation
      of PokerPro systems
                
                
                666,240
                
                
                
                567,995Cost
      of product sales
                
                
                613,298
                
                
                
                1,228,933Total
      direct cost of revenue
                
                
                1,279,538
                
                
                
                1,796,928Operating
      Expenses:Selling,
      general and administrative
                
                
                1,857,257
                
                
                
                2,395,116Research
      and development
                
                
                359,826
                
                
                
                866,340Share-based
      compensation expense
                
                
                258,246
                
                
                
                295,828Depreciation
                
                
                64,258
                
                
                
                49,463Total
      operating expenses
                
                
                2,539,587
                
                
                
                3,606,747Operating
      loss
                
                
                (1,683,257
                )
                
                
                (2,202,179
                )Interest
      income (expense), net
                
                
                (84,707
                )
                
                
                65,855Net
      loss before income taxes
                
                
                (1,767,964
                )
                
                
                (2,136,324
                )Income
      tax provision
                
                
                (42,549
                )
                
                
                -Net
      loss
                
                $
                (1,810,513
                )
                
                $
                (2,136,324
                )Net
      loss per common share - basic and diluted
                
                $
                (0.16
                )
                
                $
                (0.20
                )Weighted
      average common shares outstanding - basic and diluted
                
                
                11,021,429
                
                
                
                10,934,464




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


1


POKERTEK,
INC.


CONSOLIDATED
BALANCE SHEETS





March 31, 2009(unaudited)
                          
                          
                          December
      31, 2008AssetsCurrent
      assets:Cash
      and cash equivalents
                          
                          $
                          1,557,178
                          
                          
                          $
                          1,481,530Investments
                          
                          
                          -
                          
                          
                          
                          3,900,000Accounts
      receivable, net
                          
                          
                          1,471,257
                          
                          
                          
                          1,600,464Inventory
                          
                          
                          3,164,175
                          
                          
                          
                          3,547,099Prepaid
      expenses and other assets
                          
                          
                          202,878
                          
                          
                          
                          213,222Total
      current assets
                          
                          
                          6,395,488
                          
                          
                          
                          10,742,315Other
      assets:PokerPro
      systems, net
                          
                          
                          3,367,831
                          
                          
                          
                          3,821,376Property
      and equipment, net
                          
                          
                          545,707
                          
                          
                          
                          599,772Other
      assets
                          
                          
                          568,390
                          
                          
                          
                          542,214Total
      assets
                          
                          $
                          10,877,416
                          
                          
                          $
                          15,705,677Liabilities
      and Shareholders' EquityCurrent
      liabilities:Accounts
      payable
                          
                          $
                          1,145,014
                          
                          
                          $
                          1,590,681Accrued
      liabilities
                          
                          
                          1,094,029
                          
                          
                          
                          1,053,230Long-term
      debt, current portion
                          
                          
                          2,024,468
                          
                          
                          
                          2,889,261Total
      current liabilities
                          
                          
                          4,263,511
                          
                          
                          
                          5,533,172Long-term
      debt
                          
                          
                          32,302
                          
                          
                          
                          2,038,635Total
      liabilities
                          
                          
                          4,295,813
                          
                          
                          
                          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 March 31, 2009 and December
      31, 2008
                          
                          
                          -
                          
                          
                          
                          -Additional
      paid-in capital
                          
                          
                          42,717,579
                          
                          
                          
                          42,459,333Accumulated
      deficit
                          
                          
                          (36,135,976
                          )
                          
                          
                          (34,325,463
                          )Total
      shareholders' equity
                          
                          
                          6,581,603
                          
                          
                          
                          8,133,870Total
      liabilities and shareholders' equity
                          
                          $
                          10,877,416
                          
                          
                          $
                          15,705,677







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


2


POKERTEK,
INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(UNAUDITED)





Three months ended March 31,2009
                
                
                2008Cash
      flows from operating activities:Net
      loss
                
                $
                (1,810,513
                )
                
                $
                (2,136,324
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
                
                
                730,498
                
                
                
                617,458Share-based
      compensation expense
                
                
                258,246
                
                
                
                295,828Provision
      for accounts and other receivables
                
                
                13,219
                
                
                
                -Changes
      in assets and liabilities:Accounts
      and other receivables
                
                
                115,988
                
                
                
                (904,331
                )Prepaid
      expenses and other assets
                
                
                (15,832
                )
                
                
                84,730Inventory
                
                
                382,924
                
                
                
                (236,742
                )PokerPro
      systems
                
                
                (212,695
                )
                
                
                (195,738
                )Accounts
      payable and accrued expenses
                
                
                (404,868
                )
                
                
                734,047Net
      cash used in operating activities
                
                
                (943,033
                )
                
                
                (1,741,072
                )Cash
      flows from investing activities:Purchases
      of property and equipment
                
                
                (10,193
                )
                
                
                (42,739
                )Sale
      of investments
                
                
                3,900,000
                
                
                
                2,050,000Net
      cash provided by investing activities
                
                
                3,889,807
                
                
                
                2,007,261Cash
      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
                
                
                (5,769
                )
                
                
                -Net
      cash provided by (used in) financing activities
                
                
                (2,871,126
                )
                
                
                3,000,000Net
      increase in cash and cash equivalents
                
                
                75,648
                
                
                
                3,266,189Cash
      and cash equivalents, beginning of year
                
                
                1,481,530
                
                
                
                1,229,980Cash
      and cash equivalents, end of period
                
                $
                1,557,178
                
                
                $
                4,496,169Supplemental
      Disclosure of Cash Flow InformationCash
      paid for:Interest
                
                $
                82,177
                
                
                $
                -Income
      taxes
                
                $
                45,086
                
                
                $
                -





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 months ended March
31, 2009 are not necessarily indicative of the results to be expected for the
entire year.





Recent
Accounting Pronouncements





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 FAS 161 did not have any effect on the
Company's results of operations, financial condition, or cash
flows.


4


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.





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
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -





Note
3. Inventory




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





March 31,
                    
                    
                    December 31,2009
                    
                    
                    2008Raw
      materials and components
                    
                    $
                    1,520,451
                    
                    
                    $
                    1,341,933PokerPro
      systems in process
                    
                    
                    425,692
                    
                    
                    
                    611,974Finished
      goods
                    
                    
                    1,484,355
                    
                    
                    
                    1,859,515Reserve
                    
                    
                    (266,323
                    )
                    
                    
                    (266,323
                    )Inventory,
      net
                    
                    $
                    3,164,175
                    
                    
                    $
                    3,547,099


5




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




March 31,
                      
                      
                      December 31,2009
                      
                      
                      2008Prepaid
      expenses
                      
                      $
                      167,264
                      
                      
                      $
                      162,249Other
                      
                      
                      35,614
                      
                      
                      
                      50,973Prepaid
      expenses and other assets
                      
                      $
                      202,878
                      
                      
                      $
                      213,222Deferred
      licensing fees, net
                      
                      $
                      514,006
                      
                      
                      $
                      488,280Other
                      
                      
                      54,384
                      
                      
                      
                      53,934Other
      assets
                      
                      $
                      568,390
                      
                      
                      $
                      542,214





Note
5. PokerPro Systems





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





March
      31,
                  
                  
                  December
      31,2009
                  
                  
                  2008PokerPro
      systems
                  
                  $
                  7,825,787
                  
                  
                  $
                  8,217,515Temporarily
      idle PokerPro systems (a)
                  
                  
                  1,029,237
                  
                  
                  
                  531,8998,855,024
                  
                  
                  
                  8,749,414Less:
      accumulated depreciation (a)
                  
                  
                  (5,487,193
                  )
                  
                  
                  (4,928,038
                  )PokerPro
      systems, net
                  
                  $
                  3,367,831
                  
                  
                  $
                  3,821,376





(a)
The systems will be redeployed as scheduling allows.  Included in the
March 31, 2009 and December 31, 2008 accumulated depreciation is $478,948 and
$272,799, respectively, related to the temporarily idle PokerPro
systems.





Note
6. Property and Equipment





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





March 31,
                  
                  
                  December 31,2009
                  
                  
                  2008Equipment
                  
                  $
                  722,027
                  
                  
                  $
                  722,027Leasehold
      improvements
                  
                  
                  198,430
                  
                  
                  
                  189,917Capitalized
      software
                  
                  
                  157,067
                  
                  
                  
                  155,3871,077,524
                  
                  
                  
                  1,067,331Less:
      accumulated depreciation
                  
                  
                  (531,817
                  )
                  
                  
                  (467,559
                  )Property
      and equipment, net
                  
                  $
                  545,707
                  
                  
                  $
                  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 March 31, 2009 was $21,757.  The software
portion of this systems investment was financed through a capital lease
obligation (see Note 8, Debt).




6




Note
7. Accrued Liabilities





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





March
      31,
                    
                    
                    December
      31,2009
                    
                    
                    2008Deferred
      revenue
                    
                    $
                    183,225
                    
                    
                    $
                    194,051Accrued
      professional fees
                    
                    
                    170,667
                    
                    
                    
                    117,167Other
                    
                    
                    740,137
                    
                    
                    
                    742,012Accrued
      liabilities
                    
                    $
                    1,094,029
                    
                    
                    $
                    1,053,230





Note
8. Debt





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





March 31,
                      
                      
                      December 31,2009
                      
                      
                      2008SVB
      Credit Facility
                      
                      $
                      -
                      
                      
                      $
                      -UBS
      Credit Facility
                      
                      
                      -
                      
                      
                      
                      2,865,357Founders'
      Loan
                      
                      
                      2,000,000
                      
                      
                      
                      2,000,000Capital
      lease obligation
                      
                      
                      56,770
                      
                      
                      
                      62,539Total
      debt
                      
                      $
                      2,056,770
                      
                      
                      $
                      4,927,896Current
      portion of debt
                      
                      
                      2,024,468
                      
                      
                      
                      2,889,261Long-term
      portion of debt
                      
                      $
                      32,302
                      
                      
                      $
                      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 March 31, 2009, as of such date availability under the SVB Credit
Facility was approximately $1.7 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
March 31, 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.





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.


7


As of
March 31, 2009, the carrying value of the Founders’ Loan was $2.0 million and
its fair value was approximately $1.9 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 March 31, 2009 was $135,311.  Related depreciation
expense recognized during the first three months of 2009 was $13,089, resulting
in accumulated depreciation of $21,757.





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 March 31, 2009
and March 31, 2008, the Company recorded contribution expense of $23,907
and $36,656, respectively.





Note
10. Shareholders’ Equity





Stock
Incentive Plan





Option activity under the Company’s
stock incentive plans for the three months ended March 31, 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
                        
                        
                        (69,875
                        )
                        
                        
                        9.23Expired
                        
                        
                        -
                        
                        
                        
                        -Outstanding
      at March 31, 2009
                        
                        
                        1,953,388
                        
                        
                        $
                        8.01
                        
                        
                        
                        7.1
                        
                        
                        $
                        (13,702,528
                        )Exercisable
      at March 31, 2009
                        
                        
                        1,332,013
                        
                        
                        $
                        7.20
                        
                        
                        
                        6.7
                        
                        
                        $
                        (8,254,804
                        )





Note
11. Income taxes





For the
three months ended March 31, 2009, the Company recognized a tax provision of
$42,549, based principally on the Company’s estimated foreign income tax
withholding liability.  The non-recoverable withholding taxes incurred for
the period ended March 31, 2009 were attributable to the Company’s Canadian
revenues. As the Company’s Canadian operations commenced during the second
quarter of 2008, no such withholding liabilities were incurred during the three
months ended March 31, 2008.





The
effective rates for the periods ending March 31, 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.


8


Note
12. Related Party Transactions





Transactions
with Aristocrat





License
fees from and equipment sales to Aristocrat of $173,664 and $80,527,
respectively, were recorded in the three months ended March 31, 2009, while
$147,043 and $808,488, respectively, were recorded during the three
months ended March 31, 2008. As of March 31, 2009, $210,920 due from
Aristocrat was included in accounts receivable in the accompanying balance
sheet.





Office
Lease





The
Company leases its office and manufacturing facility under an annual operating
lease from an entity owned and controlled by the Company’s President and the
Company’s Vice Chairman of the Board of Directors.  The lease expires
in August 2011.  Rent expense recorded for the leased space for the
three months ended March 31, 2009 and March 31, 2008 was $54,900.





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 three months of 2009, the Company made
$64,109 in aggregate interest payments and $0 in aggregate principal
payments.





Note
13. Segment Information




In
accordance with SFAS No. 131, “Disclosures about Segments of an
Enterprise and 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.





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


9





Casino Products
                    
                    
                    Amusement
                      Products
                    
                    
                    Corporate
                      and Other
                    
                    
                    TotalThree months ended March 31,
      2009Revenue
                    
                    $
                    1,488,655
                    
                    
                    $
                    647,213
                    
                    
                    $
                    -
                    
                    
                    $
                    2,135,868Cost
      of product sales
                    
                    
                    31,333
                    
                    
                    
                    581,965
                    
                    
                    
                    -
                    
                    
                    
                    613,298Depreciation
      and amortization
                    
                    
                    666,240
                    
                    
                    
                    14,382
                    
                    
                    
                    49,876
                    
                    
                    
                    730,498Capital
      expenditures
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    10,193
                    
                    
                    
                    10,193Indentifiable
      assets
                    
                    
                    6,726,269
                    
                    
                    
                    2,179,061
                    
                    
                    
                    1,972,086
                    
                    
                    
                    10,877,416Three months ended March 31,
      2008Revenue
                    
                    $
                    2,155,746
                    
                    
                    $
                    1,045,750
                    
                    
                    $
                    -
                    
                    
                    $
                    3,201,496Cost
      of product sales
                    
                    
                    501,693
                    
                    
                    
                    727,240
                    
                    
                    
                    -
                    
                    
                    
                    1,228,933Depreciation
      and amortization
                    
                    
                    567,995
                    
                    
                    
                    13,522
                    
                    
                    
                    35,941
                    
                    
                    
                    617,458Capital
      expenditures
                    
                    
                    -
                    
                    
                    
                    33,320
                    
                    
                    
                    9,419
                    
                    
                    
                    42,739Indentifiable
      assets
                    
                    
                    8,513,224
                    
                    
                    
                    1,694,935
                    
                    
                    
                    8,604,341
                    
                    
                    
                    18,812,500





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 March 31, 2009 and 2008, sales to
customers outside the United States accounted for 45% and 63% of the Company’s
consolidated revenue, respectively.





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





Three
      months ended March 31,2009
                      
                      
                      2008Revenue:United
      States
                      
                      $
                      1,176,320
                      
                      
                      $
                      1,196,879Europe
                      
                      
                      401,981
                      
                      
                      
                      864,847Canada
                      
                      
                      455,268
                      
                      
                      
                      842,830Australia
                      
                      
                      85,604
                      
                      
                      
                      261,840Other
      International
                      
                      
                      16,695
                      
                      
                      
                      35,100$
                      2,135,868
                      
                      
                      $
                      3,201,496


10


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





Forward-Looking
Statements




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




All
forward-looking statements are subject to the risks and uncertainties inherent
in predicting the future.  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 with Silicon Valley
Bank, 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, the possible effect of anti-dilution provisions in our outstanding
warrants, 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 March 31, 2009 Compared to the Three
Months Ended March 31, 2008





Revenues.Revenues decreased by $1.1 million (33%) to $2.1 million for the three
months ended March 31,
2009 as compared to $3.2 million for the three months ended March 31, 2008 due
to lower product sales.





License
and service fees decreased by $0.1 million (9%) to $1.4 million for the three
months ended March 31, 2009 as compared to $1.5 million for the three months
ended March 31, 2008.  The decrease in license and service fees was
driven primarily by the impact of the current economic downturn, which has
resulted in lower gaming revenues in substantially all jurisdictions where our
PokerPro tables are deployed on lease.  As a result of lower revenues
and earnings by our customers, we also realized lower revenues per PokerPro
table than in the prior year.


11


Product
sales decreased by $0.9 million (55%) to $0.7 million for the three months ended
March 31, 2009 as compared to $1.7 million for the three months ended March 31,
2008.  Product sales consist of casino products, primarily PokerPro
systems sold to Aristocrat for deployment in international casinos, as well as
sales of our Heads-Up Challenge amusement product.





Sales of
the Heads-Up Challenge amusement product contributed $0.6 million in revenue for
the three months ended March 31, 2009, as compared to $1.0 million in revenue
for the comparable period of 2008.  Demand from our customers for the
Heads-Up Challenge product was affected by a combination of weakening worldwide
economic conditions and a stronger U.S. dollar.  As a result, we sold
182 units during the three months ended March 31, 2009  as compared
with 237 units during the three months ended March 31, 2008, and those units
sold in the most recent period were at lower average selling
prices.





Sales of
casino products for the three months ended March 31, 2009 amounted to $0.1
million, a decrease of $0.5 million over the comparable period in
2008.  Sales of casino products were impacted by a combination of
higher inventory levels held by our international distributor and the timing of
their regulatory approvals and customer contracts.





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 $0.5 million (29%) to $1.3 million for the three months ended March
31, 2009.  As a percentage of total revenues, direct cost of revenues
was 60% of total revenues for the three months ended March 31, 2009, compared
with 56% of total revenues for the comparable period in 2008.





Depreciation
of PokerPro systems increased by $0.1 million (17%) to $0.7 million for the
three months ended March 31, 2009 as compared to $0.6 million for the three
months ended March 31, 2008.  The increase in depreciation of PokerPro
systems resulted from the growth in the gross balance of PokerPro systems
subject to depreciation.  Cost of product sales decreased by $0.6
million (50%) to $0.6 million for the three months ended March 31, 2009 as
compared to $1.2 million for the three months ended March 31,
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 $0.5 million (22%) to $1.9
million for the three months ended March 31, 2009 as compared to $2.4 million
for the three months ended March 31, 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
early 2009.  As a percentage of total revenues, SG&A expenses were
87% of total revenues for the three months ended March 31, 2009, compared with
75% of total revenues for comparable period in 2008.





Research and
Development Expenses.Research and development
expensesdecreased
by $0.5 million (58%) to $0.4 million for the three months ended March 31, 2009
as compared to $0.9 million for the three months ended March 31, 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 $14,795 (30%) for the three months ended March 31, 2009 to $64,258
from $49,463 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 income
(expense), net changed by $150,562 (229%) for the three months ended March 31,
2009 to an expense of $84,707 from income of $65,855 for the three months ended
March 31, 2008.  We incurred interest expense in 2009 on the loan from
our founders and incurred fees associated with the credit line from Silicon
Valley Bank.  During 2008, we earned interest income on our ARS
investments, which were liquidated on January 5, 2009 and contributed
essentially no income for the three months ended March 31,
2009.


12


Income
Taxes.Income tax provision was $42,549 for the three months
ended March 31, 2009 and zero in the comparable period of 2008.  The
increase in income tax provision was attributable to taxes incurred in Canada,
which cannot be recovered or offset against domestic net operating loss
carryforwards.





Net
Loss.Net loss for the three months ended March 31, 2009 was
$1.8 million, an improvement of $0.3 million (15%) from $2.1 million for the
three months ended March 31, 2008.  Net loss per share, basic and
diluted, was $0.16 per share for the three months ended March 31, 2009, an
improvement of $0.04 (20%) per share from $0.20 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





Three Months Ended March 31,2009
                        
                        
                        2008
                        
                        
                        ChangeNet
      cash used in operating activities
                        
                        $
                        (943,033
                        )
                        
                        $
                        (1,741,072
                        )
                        
                        $
                        798,039Net
      cash provided by investing activities
                        
                        
                        3,889,807
                        
                        
                        
                        2,007,261
                        
                        
                        
                        1,882,546Net
      cash provided by (used in) financing activities
                        
                        
                        (2,871,126
                        )
                        
                        
                        3,000,000
                        
                        
                        
                        (5,871,126
                        )Net
      increase (decrease) in cash and cash equivalents
                        
                        
                        75,648
                        
                        
                        
                        3,266,189
                        
                        
                        
                        (3,190,541
                        )Cash
      and cash equivalents, beginning of year
                        
                        
                        1,481,530
                        
                        
                        
                        1,229,980Cash
      and cash equivalents, end of period
                        
                        $
                        1,557,178
                        
                        
                        $
                        4,496,169





For the
three months ended March 31, 2009, net cash used in operating activities was
$0.9 million, as compared to $1.7 million for the three months ended March 31,
2008, a decrease of $0.8 million.  The decrease in cash used in
operating activities was primarily due to the reduction in net loss and lower
accounts receivable and inventory.  These favorable working capital
improvements were partially offset by lower accounts payable and accrued
expenses.





Net cash
provided by investing activities was $3.9 million for the three months ended
March 31, 2009, compared to $2.0 million for the three months ended March 31,
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 three months ended March
31, 2009, primarily due to the liquidation 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 three months ended March 31,
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).





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.


13




Our
management’s strategy 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.  If we are unable to execute our operating
plan, manage our working capital effectively or are impacted by other events, we
may need to attempt to raise additional funds through public or private
offerings of our securities, additional credit facilities or other sources which
may not be available on favorable terms, if at all.  If such sources
of capital are not available on sufficiently available terms, we may seek other
avenues to fund the business, including sale/leaseback arrangements,
transitioning PokerPro from a capital intensive leasing strategy to a product
sale strategy, or seeking to sell assets of all, or a portion of, our
operations.  If we decide to raise 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 24, 2010.  We are paying and intend to continue to
pay interest on a monthly basis. The loan principal may be repaid prior to
maturity without penalty.  The loan contains no restrictive covenants
and is collateralized by a security interest in our PokerPro systems deployed in
North America and on cruise ships as of December 31, 2007.





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 March 31, 2009, as of such date availability under the SVB Credit
Facility was approximately $1.7 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
March 31, 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.





Contractual
Obligations





The table
below sets forth our known contractual obligations as of March 31,
2009:




Total
                  
                  
                  Less than
                    1 year
                  
                  
                  1 - 3 years
                  
                  
                  3 - 5 years
                  
                  
                  More than
                    5 yearsDebt
      obligations(1)
                  
                  $
                  2,260,000
                  
                  
                  $
                  2,260,000
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Operating
      lease obligations(2)
                  
                  
                  574,380
                  
                  
                  
                  259,920
                  
                  
                  
                  314,460
                  
                  
                  
                  -
                  
                  
                  
                  -Capital
      lease obligations(3)
                  
                  
                  63,060
                  
                  
                  
                  28,748
                  
                  
                  
                  34,312
                  
                  
                  
                  -
                  
                  
                  
                  -Purchase
      obligations(4)
                  
                  
                  1,628,839
                  
                  
                  
                  1,628,839
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Other
      long-term liabilities
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
                  
                  $
                  4,526,279
                  
                  
                  $
                  4,177,507
                  
                  
                  $
                  348,772
                  
                  
                  $
                  -
                  
                  
                  $
                  -





(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.


14


Contractual
obligations decreased to $4.5 million as of March 31, 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
March 31, 2009, five of our customers made up approximately 71% 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 three months ended March 31, 2009, there were no material changes to
the accounting policies and assumptions previously disclosed.





Recent
Accounting Pronouncements





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.





Off-Balance
Sheet Arrangements





We have
no off-balance sheet arrangements.





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.




15


Item
4T.      Controls and Procedures.




Disclosure
Controls and Procedures





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





As of
March 31, 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 Chief Executive Officer and Chief Financial Officer. Based on that
evaluation, the Company’s Chief Executive Officer and Chief Financial Officer
have concluded that the Company’s disclosure controls and procedures were
effective as of March 31, 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 Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.





Changes
in Internal Control Over Financial Reporting





The
following systems-related significant deficiencies were previously identified
and remain unremediated as of March 31, 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 the new
      system was not functioning for a sufficient period of time 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 March 31, 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 March 31,
2009.





With
regard to these systems-related significant deficiencies that had not been fully
remediated as of March 31, 2009, we have purchased and are in process of
implementing an integrated enterprise resource planning software package, SAP
Business One,  which we believe will aid in strengthening our internal
controls.


16





We are in
the process of configuring the application software package, training our staff,
and continuing to prepare for the implementation of SAP Business
One.  Therefore, the purchase of SAP Business One had no impact on the
operation of our internal control over financial reporting for the period ended
March 31, 2009.  We implemented certain financial modules of SAP
Business One during the fourth quarter of 2009 and expect to implement the
remaining modules during 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 implemented, there were no changes in our
internal control over financial reporting during the quarter ended March 31,
2009 that materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.





PART
II – OTHER INFORMATION





Item
6.        Exhibits.





Exhibit No.
              
              Description10.1
              
              First
      Amendment to Loan and Security Agreement, dated December 23, 2008, between
      PokerTek, Inc. and Silicon Valley Bank.10.2
              
              First
      Amendment to Export-Import Bank Loan and Security Agreement, dated
      December 23, 2008, between PokerTek, Inc. and Silicon Valley Bank.31.1
              
              Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
              
              Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
              
              Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2
              
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.


SIGNATURES





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





POKERTEK,
      INC.Date:
      May 14, 2009By:
              /s/ Christopher
      J.C. HalliganChristopher
      J.C. HalliganChief
      Executive Officer(Principal
      Executive Officer)Date:
      May 14, 2009/s/ Mark
      D. RobersonMark
      D. RobersonChief
      Financial Officer(Principal
      Financial Officer and Principal Accounting
  Officer)


17


POKERTEK,
INC.


EXHIBIT
INDEX





Exhibit No.
              
              Description10.1
              
              First
      Amendment to Loan and Security Agreement, dated December 23, 2008, between
      PokerTek, Inc. and Silicon Valley Bank.10.2
              
              First
      Amendment to Export-Import Bank Loan and Security Agreement, dated
      December 23, 2008, between PokerTek, Inc. and Silicon Valley Bank.31.1
              
              Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
              
              Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
              
              Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2
              
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.


18