UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549





FORM
10-Q





[X]
            Quarterly
      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For the quarterly period ended June 30,
      2008[ 
       ]
            Transition
      Report pursuant to 13 or 15(d) of the Securities Exchange Act of
      1934For
      the transition period __________ 
  to __________Commission
      File Number:000-52575





Lightning Gaming,
Inc.


(Exact
name of registrant as specified in its charter)





Nevada
            20-8583866(State or other jurisdiction of
      incorporation or organization)
            (IRS
      Employer Identification No.)




106
      Chelsea Parkway , Boothwyn, Pa 19061(Address
      of principal executive offices)





(610) 494 5534(Registrant’s
      telephone number)(Former
      name, former address and former fiscal year, if changed since last
      report)





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   ̈




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     ̈                                                                           Small
reporting company  x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). o
Yes   x No





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: 4,636,974 common shares as
of  August 1, 2008










1


TABLE
      OF CONTENTS
            PagePART I - FINANCIAL
      INFORMATIONItem 1.
            Financial
      Statements
            3Item 2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            14Item
      3.
            Quantitative
      and Qualitative  Disclosures About Market Risk
            18Item4.
            Controls and Procedures
            18PART II - OTHER
      INFORMATIONItem 1.
            Legal Proceedings
            19Item 2.
            Unregistered Sales of Equity
      Securities and Use of Proceeds
            19Item 3.
            Defaults Upon Senior
      Securities
            19Item 4.
            Submission of Matters to a Vote
      of Security Holders
            19Item 5.
            Other
      Information
            19Item 6.
            Exhibits
            19





2




PART
I - FINANCIAL INFORMATION





Item1. Financial
Statements





The
      Company’s unaudited financial statements included in this Form 10-Q are as
      follows:1
            Balance Sheet as  Balance
      Sheets as of  June 30, 2008 and December 31,
      2007;2
            Statements of Operations for the
      three months  and six months ended June 30, 2008
      and  2007;3
            Statements of Cash Flows for the
      six months ended June 30, 2008 and 2007;4
            Notes to Consolidated Condensed
      Financial  Statements.











3








Item
1. Financial Statements.





LIGHTNING
GAMING, INC. AND SUBSIDIARY


CONSOLIDATED
BALANCE SHEETS


June
      30, 2008
            
            
            December
      31, 2007(unaudited)AssetsCurrent
      AssetsCash
            
            $
            2,414,126
            
            
            $
            2,638,266Accounts
      receivable, net
            
            
            144,134
            
            
            
            411,615Inventory
            
            
            743,358
            
            
            
            768,553Prepaid
      expenses and notes receivable
            
            
            123,622
            
            
            
            73,552Total
      Current Assets
            
            
            3,425,240
            
            
            
            3,891,986Property,
      Plant and Equipment, net
            
            
            1,537,775
            
            
            
            982,570Intangible
      Assets net
            
            
            470,709
            
            
            
            521,991Other
      Assets
            
            
            109,180
            
            
            
            36,082Total
      Assets
            
            $
            5,542,904
            
            
            $
            5,432,629Liabilities
      and Stockholders' DeficitCurrent
      LiabilitiesCurrent
      portion of  long term debt
            
            $
            2,015,879
            
            
            $
            -Accounts
      payable
            
            
            715,659
            
            
            
            433,390Accrued
      interest
            
            
            286,466
            
            
            
            -Accrued
      expenses
            
            
            643,892
            
            
            
            579,042Total
      Current Liabilities
            
            
            3,661,896
            
            
            
            1,012,432Long
      Term DebtLong
      term debt
            
            
            8,170,010
            
            
            
            8,124,235Accrued
      interest and other long term liabilities
            
            
            541,187
            
            
            
            514,006Total
      Long Term  Liabilities
            
            
            8,711,197
            
            
            
            8,638,241CommitmentsStockholders'
      DeficitPreferred
      stock: $0.001 par value; authorized 10,000,000 shares, no shares issued
      and outstanding
            
            
            -
            
            
            
            -Common
      stock: $0.001 par value; authorized 90,000,000 shares,
              4,644,785  shares
      issued and 4,636,974 outstanding at June 30, 2008
            
            
            4,645
            
            
            
            -Capital
      stock, authorized 50,000,000 shares, no par value,
              4,644,785  shares
      issued and outstanding at December 31, 2007
            
            
            -
            
            
            
            2,950,496Additional
      Paid in Capital
            
            
            3,134,465
            
            
            
            -Accumulated
      deficit
            
            
            (9,961,488)
            
            
            
            (7,168,540
            )Treasury
      stock, 7,811 shares at cost
            
            
            (7,811)
            
            
            
            -Total
      Stockholder's Deficit
            
            
            (6,830,189)
            
            
            
            (4,218,044
            )Total
      Liabilities and Stockholders’ Deficit
            
            $
            5,542,904
            
            
            $
            5,432,629See Notes to Consolidated
      Financial Statements






4





LIGHTNING GAMING, INC. AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF OPERATIONS


Three  Months
Ended June 30, 2008 and 2007


Three
      Months EndedJune
      30,2008
            
            
            2007RevenuesSales
      of systems and parts
            
            $
            220,356
            
            
            $
            675,466License
      and service  fees
            
            
            71,639
            
            
            
            42,000Total
      revenues
            
            
            
            291,995
            
            
            
            717,466Costs
      and operating expensesCost of products
      sold
            
            99,656
            
            
            
            331,078Operating
      expenses
            
            224,502
            
            
            
            69,124Research and
      development
            
            429,026
            
            
            
            384,730Selling,
      general & administrative expenses
            
            
            549,008
            
            
            
            367,391Depreciation
      and amortization
            
            
            231,687
            
            
            
            50,752Total
      costs and operating expenses
            
            
            1,533,879
            
            
            
            1,203,075Operating
      loss
            
            
            
            (1,241,884)
            
            
            
            (485,609)Non-operating
      expenseNet
      interest expense
            
            
            (245,698)
            
            
            
            (133,095)Net
      loss
            
            
            $
            (1,487,582)
            
            
            $
            (618,704)Net
      loss per common share-basic and diluted
            
            
            $
            (0.32)
            
            
            $
            (0.15)Weighted
      average common shares outstanding-basic and diluted
            
            
            
            4,644,184
            
            
            
            4,217,394See
      Notes to Consolidated Financial Statements








5














LIGHTNING GAMING, INC. AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF OPERATIONS


Six
Months Ended June 30, 2008 and 2007




Six  Months
      EndedJune
      30,2008
            
            
            2007RevenuesSales
      of systems and parts
            
            $
            462,292
            
            
            $
            888,966License
      and service fees
            
            
            144,126
            
            
            
            42,000Total
      revenues
            
            
            
            606,418
            
            
            
            930,966Costs
      and operating expensesCost of products
      sold
            
            195,289
            
            
            
            446,043Operating
      expenses
            
            357,996
            
            
            
            338,249Research and
      development
            
            845,091
            
            
            
            630,547Selling,
      general & administrative expenses
            
            
            1,173,518
            
            
            
            780,047Depreciation
      and amortization
            
            
            376,567
            
            
            
            84,150Total costs and operating
      expenses
            
            
            
            2,948,461
            
            
            
            2,279,036Operating
      loss
            
            
            
            (2,342,043)
            
            
            
            (1,348,070)Non-operating
      expenseNet
      interest expense
            
            
            (450,905)
            
            
            
            (211,121)Net
      loss
            
            
            $
            (2,792,948)
            
            
            $
            (1,559,191)Net
      loss per common share-basic and diluted
            
            
            $
            (0.60)
            
            
            $
            (0.37)Weighted
      average common shares outstanding-basic and diluted
            
            
            
            4,644,485
            
            
            
            4,159,060See
      Notes to Consolidated Financial Statements








6





LIGHTNING
GAMING, INC. AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF CASH FLOWS


Six  Months
Ended June 30, 2008 and 2007








Six
      Months EndedJune
      30,2008
              
              
              2007NET
      CASH USED IN OPERATING ACTIVITES
              
              $
              (1,395,175)
              
              
              $
              (1,849,699)CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of equipment
              
              
              (936,660)
              
              
              
              (439,350)Increase
      in other assets
              
              
              (182,601)
              
              
              
              -Proceeds
      from sale of  equipment
              
              
              210,000
              
              
              
              -NET
      CASH USED IN INVESTING ACTIVITIES
              
              
              (909,261)
              
              
              
              (439,350)CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from issuance of debt
              
              
              2,088,107
              
              
              
              5,700,000Proceeds
      from issuance of common stock
              
              
              -
              
              
              
              220,000Purchase
      of treasury stock
              
              
              (7,811)
              
              
              
              -NET
      CASH PROVIDED BY FINANCING ACTIVITIES
              
              
              2,080,296
              
              
              
              5,920,000NET
      INCREASE ( DECREASE) IN CASH
              
              
              (224,140)
              
              
              
              3,630,951CASH
      - Beginning of period
              
              
              2,638,266
              
              
              
              310,145CASH
      - End of period
              
              $
              2,414,126
              
              
              $
              3,941,096Supplemental
      Disclosure of cash Flow Information:Cash
      paid for interest
              
              $
              1,679
              
              
              $
              -Non
      cash financing activities:Issuance
      of capital stock warrants in connection with notes payable
              
              $
              159,000
              
              
              $
              184,292See
      Note to Consolidated Financial Statements










7







LIGHTNING
GAMING, INC. AND SUBSIDIARY


Notes
to  Consolidated Condensed Financial Statements


June 30,
2008





Note
1.   Nature of Business and Summary of Significant Accounting
Policies





Nature of
Business:





On
January 29, 2008, under the Agreement and Plan of Merger dated September 28,
2007 (the “Merger Agreement”), Lightning Gaming, Inc. (formerly known
as  Red Pearl Acquisition Corp.) (the “Company”) completed a merger
(the "Merger") with Lightning Poker, Inc. (“Lightning Poker”). As a result of
the Merger, LPI Acquisition Corp., a wholly-owned subsidiary of the Company,
merged with and into Lightning Poker and Lightning Poker became a wholly-owned
subsidiary of the Company.





Lightning
Poker was formed to manufacture and market fully automated, proprietary
electronic poker tables  (“Systems”) to commercial and tribal casinos,
card clubs, other gaming and lottery venues, bars and restaurants and the home
market.  Lightning Poker’s  product is designed to improve
economics for casino operators while improving overall player
experience.





On
November 12, 2007 Lightning Poker acquired certain assets of Poker Automation
LLC ("Poker Automation"), pursuant to an Asset Purchase Agreement. In connection
with the acquisition and in consideration for the assets acquired, Lightning
Poker paid $400,000 in cash at closing.  In
addition  344,058 shares of Lightning Poker’s stock were issued
to Poker Automation’s members and  certain creditors.





In
January 2007 Lightning Poker entered into an exclusive licensing and
distribution agreement with Shuffle Master, Inc. (“Shuffle
Master”).  Pursuant to the agreement, Shuffle Master acts as the
worldwide exclusive distributor of the Systems to the gaming
industry.  In exchange for distributing the Systems, Shuffle Master
will receive a fixed distribution fee for each System placed into
operation.  The initial term of the agreement is for ten years and is
renewable for an additional five year term at Shuffle Master's option if
specific minimum order requirements are met.  Shuffle Master must also
achieve certain minimum order requirements during the first five years of the
agreement to retain exclusive distribution rights.  In addition to
selling Systems, Shuffle Master is responsible for carrying out all service and
maintenance on Systems and will receive all the service revenues.





Through
December 31, 2006, Lightning Poker was considered a development stage company.
During 2007, Lightning Poker increased its customer base and commenced leasing
and sales of Systemsto a point
that it no longer believes this classification is necessary.





Lightning
Poker’s activities through December 31, 2006 principally related to the
development of its Systems, assembling and training personnel and applying for
and obtaining the required licenses and certifications to operate in certain
jurisdictions in the gaming industry.





From
April 1, 2004 (inception) through June 1, 2005, Lightning Poker operated as a
limited liability company, Pokermatic, L.L.C.  On June 1, 2005,
Lightning Poker incorporated under the name Pokermatic, Inc.  In
September 2006 Lightning Poker changed its name to Lightning Poker,
Inc.





Basis
of Presentation:





The
unaudited  condensed statements of operations and cash flows reflect
the Merger as if the Merger occurred on January 1, 2007.





The
unaudited interim financial statements contained herein should be read in
conjunction with the Company’s amended report on Form 8-K filed on April 29,
2008 (“Merger Form 8-K”). The accompanying interim financial statements are
presented in accordance with the requirements of  Article 8.03 of
Regulation S-X promulgated by the Securities and Exchange Commission and,
accordingly, do not include all the disclosures required by generally accepted
accounting principles with respect to annual financial statements. The interim
consolidated condensed financial statements have been prepared in accordance
with the Company’s accounting practices described in the Merger Form 8-K but
have not been audited. In management’s opinion, the financial statements include
all adjustments, which consist only of normal recurring adjustments, necessary
for a fair statement of the Company’s results of operations for the periods
presented. The balance sheet data as of December 31, 2007 were derived from the
Company’s audited financial statements, but do not include all disclosures
required by accounting principles generally accepted  in the United
States of America (“GAAP”). The results of operations for the
six  months ended June 30, 2008 are not necessarily indicative of the
results to be expected for the entire year.







8





Lightning
Gaming, Inc. and Subsidiary Notes to Consolidated Condensed Financial Statements
(Continued)





Note 1.   Nature of
Business and Summary of Significant Accounting Policies








There
were no material changes during the most recent fiscal quarter in the
Company’s significant accounting policies described in the Merger Form
8-K.





The
allowance for doubtful accounts at June 30, 2008 and December 31, 2007 was
$25,604 and $13,625, respectively.





The
accompanying financial statements have been prepared on a going concern basis,
which assumes realization of all assets and settlement or payment of all
liabilities in the ordinary course of business. The Company has limited capital
resources, net operating losses and negative cash flows from operations since
inception and expects these conditions to continue for the foreseeable
future.The
generation of cash flow sufficient to meet the Company’s cash needs in the
future will depend on its ability to obtain the regulatory approvals required to
distribute its Systems and successfully market it to casinos and card clubs.
However, if sales of the Systems do not meet its projections or its expenses
exceed its projections, the Company may need to raise additional funds
through  public or private offerings of its  securities or
through a credit facility. If that becomes necessary,  there
is  no assurance that the Company  would be able to obtain
such financing at all, or on  reasonable terms. If the
Company  needs additional funding and is unable to  obtain
it,  its financial condition would be materially and adversely
affected. In that event, it would have  to postpone or discontinue
planned operations and projects. The Company’s  continuance as a going
concern is dependent upon these factors, among others. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.





Note
2.   Inventory





Inventory  consists
of the following:





June
      30,
              2008
            
            
            December
      31,2007Finished
      tables
            
            $
            320,928
            
            
            $
            484,540Raw
      materials
            
            
            422,430
            
            
            
            284,013Inventory
            
            $
            743,358
            
            
            $
            768,553








Note
3.   Property and Equipment





Property
and equipment consist of the following:




June
      30,
              2008
            
            
            December
      31,2007Equipment,
      principally Systems
            
            $
            2,020,965
            
            
            $
            1,260,620Furniture
      and fixtures
            
            
            20,796
            
            
            
            20,796Property,
      plant and equipment
            
            
            2,041,761
            
            
            
            1,281,416Less
      accumulated depreciation
            
            
            503,986
            
            
            
            298,846Property,
      plant and equipment, net
            
            $
            1,537,775
            
            
            $
            982,570












9




Lightning
Gaming, Inc. and Subsidiary Notes to Consolidated Condensed Financial Statements
(Continued)








Note
4.   Intangible Assets





Intangible
assets consist of the following:





June
      30,
              2008
            
            
            December
      31,2007Customer
      contracts
            
            $
            377,540
            
            
            $
            377,540Non-compete
      agreement
            
            
            167,052
            
            
            
            167,052Software
      license
            
            
            16,518
            
            
            
            -Total
      intangibles
            
            
            561,110
            
            
            
            544,592Less
      accumulated amortization
            
            
            90,401
            
            
            
            22,601Intangible
      assets, net
            
            $
            470,709
            
            
            $
            521,991





At June
30, 2008, the weighted average amortization period for the customer
contracts  acquired in 2007 is 2.5 years.  The weighted
average amortization period for the non-compete agreement  acquired in
2007 is 2 years.  The software license  acquired in 2008 is
being amortized over 3 years.








Note
5.   Debt




Long Term
Debt consists of the following:




June
      30, 2008
            
            
            December 31, 2007Capital
      Lease obligation interest at 7.5% payable monthly through March,
      2013
            
            $
            88,308
            
            $
            -Notes
      Payable 8% interest due 2009
            
            
            2,000,000
            
            
            2,000,000Notes
      Payable 8% interest due 2010
            
            
            6,500,000
            
            
            6,500,000Notes
      Payable 8% interest due 2011
            
            
            2,000,000
            
            
            -Total
      long term debt
            
            
            10,588,308
            
            
            8,500,000Less:
      current installments
            
            
            2,015,879
            
            
            -Less:
      unamortized fair market value of  warrants
            
            
            (402,419)
            
            
            (375,765)Total
      long term debt
            
            $
            8,170,010
            
            $
            8,124,235




In June
2008 the Company entered into a $4,000,000 three year loan agreement with
interest at 8% per annum.  The Notes issued under the loan agreement
are secured by the assets of Lightning Poker.  In connection with the
loan, the Company issued warrants to purchase $4,000,000 worth of shares of
capital stock at an exercise price equal to $2.00 per share of
stock.  The warrants are exercisable through June 2013.





TheCompanyborrowed $2,000,000 in June 2008 and
another $2,000,000 in  July 2008, under the June 2008 loan
agreement.





Interest
is payable at maturity of the Notes.








In
March  2008, the Company entered into a  capital lease
obligation to finance the purchase of a recreational
vehicle.  Annual  payments, including interest, under the
capital lease  are $22,152 a year. The capital lease is secured by the
vehicle and a certificate of deposit in the amount of $40,000. The certificate
of deposit is included in other assets.







10





Lightning
Gaming, Inc. and Subsidiary Notes to Consolidated Condensed Financial Statements
(Continued)





Note
5.   Debt (continued)







In
accordance with the loans obtained by the Company , the lenders
hold warrants to purchase 7,009,145 shares of the
Company’s  stock at any time through June 2013 at
prices  ranging between $1.10 and $2.00 per share.  The
purchase price is subject to adjustment from time to time pursuant to the
provisions of the respective warrant agreements.  The Company accounts
for the value of these warrants in the same manner used for stock-based
compensation.Expense
recognizedfor
thethree months ended June
30, 2008 and June 30, 2007 and six monthsended June 30, 2008 and
June 30, 2007related  to
these warrants was $79,133; $65,590; $132,346; and $93,700, respectively, and
was included in interest expense.








Note
6.   Stockholders’ Deficit





Stockholders’
deficit includes the following transactions:





Stock Option
Plan:  In 2007 the Company  adopted the 2007 Equity
Incentive Plan (the “Stock Plan”) to enable the Company  to offer key
employees, consultants and directors equity interests in the Company , thereby
helping to attract, retain and motivate such persons to exercise their best
efforts on behalf of the Company.  The options are granted at the
discretion of the Board of Directors (acting as the Company’s Compensation
Committee) and, at June 30, 2008, the maximum aggregate number of shares of
common stock issuable under the Stock Plan
was  2,500,000.  The exercise price of each option will be
determined by the Board at the time the option is granted, but in no event will
be less than 100% of the fair market value of the common stock at the time of
grant.  Options granted will not be exercisable after 10 years from
the grant date.





Options
generally vest at 20% per year starting from the grant date and are fully vested
after five years.  The options can be exercised in partial or full
amounts upon a change in control and at such other times as specified in the
award agreements.





As
permitted under GAAP, options granted under the Stock  Plan are
accounted for under Statement  of Financial Accounting Standards
(“SFAS”) No. 123R, “Share Based Payments”, and its related
interpretations.  Accordingly, compensation costs of $25,758 and
$23,522 have been recognized for the three months  ended June 30,
2008, and 2007, and $69,613 and $45,640  have been recognized for the
six months ended June 30, 2008 and 2007, respectively.





A summary
of option transactions in 2008  is as follows:




WeightedAverageShares
            
            
            Exercise
      PriceOutstanding
      at December 31, 2007
            
            
            1,873,000
            
            
            $
            1.53Options
      granted
            
            
            185,200
            
            
            $
            1.65Options
      exercised
            
            
            -
            
            
            
            -Options
      cancelled
            
            
            (325,000)
            
            
            $
            1.21Options
      outstanding at June 30, 2008
            
            
            1,733,200
            
            
            $
            1.59Options
      available for grant at June 30, 2008
            
            
            766,800




The fair
value of each option award is estimated on the date of grant using the
Black-Scholes option pricing model that used the assumptions noted in the
following table.  Expected volatility is based upon publicly traded
companies with characteristics similar to those of the Company.  The
Company  uses historical data to estimate option exercise and employee
termination within the valuation model.  The expected term of options
granted represents the period of time that options granted are expected to be
outstanding.  The risk-free rate for periods within the contractual
life of the option is based on the U.S. Treasury yield curve in effect at the
time of grant.





11


Lightning
Gaming, Inc. and Subsidiary Notes to Consolidated Condensed Financial Statements
(Continued)





Note
6.   Stockholders’ Deficit (continued)


Stock Option Plan
(continued)





The
weighted average grant-date fair value of options granted during the three
months ended June 30, 2008 was $0.14.





Stock-based compensation expense is
recognized in the statement of operations based on awards ultimately expected to
vest and may be reduced for estimated forfeitures.  The Company
estimated 0% forfeitures forthe stock options that were granted in
2008.





The
following table summarizes information with respect to stock options outstanding
at June 30, 2008:




Options
      Outstanding
            
            Vested
      OptionsWeightedAverage
            Weighted
            
            
            
            Weighted
            WeightedRemaining
            Average
            Aggregate
            
            
            Average
            Average
            AggregateContractual
            Exercise
            Intrinsic
            
            
            Contractual
            Exercise
            IntrinsicNumber
            Life (Years)
            Price
            Value
            
            Number
            Term (Years)
            Price
            Value1,733,200
            6.61
            $1.59
            -
            
            610,200
            7.01
            $1.10
            -








The
following table summarizes information with respect to stock options outstanding
at December 31, 2007:





Options
      Outstanding
            
            Vested
      OptionsWeightedAverage
            Weighted
            
            
            
            Weighted
            WeightedRemaining
            Average
            Aggregate
            
            
            Average
            Average
            AggregateContractual
            Exercise
            Intrinsic
            
            
            Contractual
            Exercise
            IntrinsicNumber
            Life
      (Years)
            Price
            Value
            
            Number
            Term
      (Years)
            Price
            Value1,873,000
            7.70
            $1.53
            -
            
            558,200
            8.70
            $1.10
            -








As
of  June 30, 2008, there was approximately $252,000 of total
unrecognized compensation cost related to nonvested share-based compensation
arrangements granted under the Stock Plan.  The cost is expected to be
recognized over a weighted-average period of 3 years.





Warrants:  In accordance with the
loans obtained by the Company (Note 5), the lenders hold  warrants to
purchase 7,009,145 shares of the Company’s  stock at any time through
June 2013 at  prices  ranging between $1.10 and $2.00 per
share.  The purchase price is subject to adjustment from time to time
pursuant to the provisions of the respective warrant agreements.  The
Company accounts for the value of these warrants in the same manner used for
stock-based compensation.





The
following table is a summary of the  Company’s  warrant
activity for the six months ended June 30, 2008:





WeightedWarrants
            
            
            AverageOutstanding
            
            
            Exercise
      PriceOutstanding
      at December 31, 2007
            
            
            4,453,157
            
            
            $
            1.77Warrants granted
            
            
            4,500,000
            
            
            $
            2.00Warrants exercised
            
            
            -
            
            
            
            -Warrants cancelled
            
            
            (1,944,012)
            
            
            $
            2.57Warrants outstanding
      at June 30, 2008
            
            
            7,009,145
            
            
            $
            1.70




12






Lightning
Gaming, Inc. and Subsidiary Notes to Consolidated Condensed Financial Statements
(Continued)





Note
6.   Stockholders’ Deficit (continued)


Warrants
(continued)





The
following table summarizes information with respect to warrants outstanding at
June 30, 2008:





Warrants Outstanding
            
            Vested
      WarrantsWeightedAverage
            Weighted
            
            
            
            WeightedRemaining
            Average
            Aggregate
            
            
            Average
            AggregateContractual
            Exercise
            Intrinsic
            
            
            Exercise
            IntrinsicNumber
            Life
      (Years)
            Price
            Value
            
            Number
            Price
            Value7,009,145
            4.03
            $1.70
            -
            
            7,009,145
            $1.70
            -




The
weighted average fair value of each warrant granted for the six months ended
June 30, 2008 was $0.05.





The
following table summarizes information with respect to warrants outstanding at
December 31, 2007:





Warrants Outstanding
            
            Vested
      WarrantsWeightedAverage
            Weighted
            
            
            
            WeightedRemaining
            Average
            Aggregate
            
            
            Average
            AggregateContractual
            Exercise
            Intrinsic
            
            
            Exercise
            IntrinsicNumber
            Life
      (Years)
            Price
            Value
            
            Number
            Price
            Value4,453,157
            4.10
            $1.77
            -
            
            4,453,157
            $1.77
            -





The
weighted average fair value of each warrant granted for the year ended December
31, 2007 was $0.08.





Note
7.   Income Taxes





The
Company  accounts for income taxes under the provisions of SFAS
No.109, “Accounting for Income Taxes”.  SFAS No.109 provides for the
recognition and measurement of deferred income tax benefits and liabilities
based on the likelihood of their realization in future years.  A
valuation allowance must be established to reduce deferred income tax benefits
if it is more likely than not that a portion of the deferred benefits will not
be realized.





As of June 30, 2008, the Company has
available, for federal and state income tax purposes, net operating loss (“NOL”)
carryforwards ofapproximately $7,000,000,which expire at various times through
2028.  The utilization of the NOL carryforwards is dependent upon the
ability of  the Company to generate sufficient taxable income during
the carryforward periods.  The NOL carryforwards are also subject to
certain limitations on their utilization should changes in Company ownership
occur.





Note
8. Related Party Transactions





During
2006 , 2007 and 2008 the Company  borrowed $9,500,000  under
various  loan agreements (the “CI II Loans”) with the  Co
Investment Fund II LP (“CI II”). CI II is managed by Cross Atlantic Capital
Partners Inc. (“Cross Atlantic”) and beneficially owns more than 5% of the
Company’s outstanding common stock. Donald Caldwell, a director of the
Company,  is the founder and Chief Executive Officer of Cross
Atlantic  and  Frederick Tecce, also a director of the
Company, is a  managing director and of counsel of Cross
Atlantic.  In connection with the CI II Loans, the Company issued to
CI II warrants to purchase 4,401,385 shares of common stock. The aggregate fair
market value of the warrants at the time the Company issued them was $791,205.
During the three months ended June 30, 2008 and 2007 and six
months  ended June 30, 2008 and 2007, interest on the CI II Loans
amounted to $110,000, $68,227, $220,000 and $167,295, respectively . During 2008
and 2007, we made no  principal payments  on the CI II
Loans.  As of June 30, 2008, the aggregate outstanding principal
amount of the CI II Loans was $9,500,000.





Mr. Tecce is of counsel to the law firm
of Buchanan Ingersoll & Rooney PC, which the Company retained for
various legal matters in 2008 and 2007.  During  the three
months ended June 30, 2008 and 2007 and six monthsended June 30, 2008 and
2007,fees and
expenses incurred to that firm totaled $0, $4,000, $7,000
and  $53,000, respectively.


13
  Item 2.     Management’s Discussion and Analysis
of Financial Condition and Results of Operations





Forward-Looking
Statements





Certain
statements, other than purely historical information, including estimates,
projections, statements relating to the Company’s business plans, objectives,
and expected operating results, and the assumptions upon which those statements
are based, are “forward-looking statements” as the term is defined
in   Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended
(“Exchange Act”). These forward-looking statements generally are identified by
the words “believes,” “projects,” “expects,” “anticipates,” “estimates,”
“intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will
continue,” “will likely result,” and similar expressions, or the negatives of
any such words or expressions. We intend such forward-looking statements to be
covered by the safe-harbor provisions for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995, and are including this
statement for purposes of those safe-harbor provisions. Forward-looking
statements are based on current expectations and assumptions that are subject to
risks and uncertainties which may cause actual results to differ materially from
the forward-looking statements. The Company’s  ability to predict
results or the actual effect of future plans or strategies is inherently
uncertain. Factors which could have a material adverse affect on its operations
and future prospects on a consolidated basis include, but are not limited to:
the Company’s future results under its ownership of Lightning Poker, Inc.
(“Lightning Poker”), the Company’s ability to obtain additional gaming licenses,
changes in economic conditions, fuel price increases, the current slowdown
in the economy and condition of capital markets,
legislative/regulatory changes, availability of capital, interest rates,
competition, and changes in generally accepted accounting principles. These
risks and uncertainties should  be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements. We undertake no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise, unless applicable law requires us to do so. Further
information concerning the Company’s business, including additional factors that
could materially affect the Company’s financial results, is included herein and
in the Company’s other filings with the Securities and Exchange
Commission  (“SEC”).








Overview


On
January 29, 2008, the Company acquired Lightning Poker in a merger
(the “Merger”), under which Lightning Poker became a wholly-owned subsidiary,
the stockholders of Lightning Poker became the Company’s stockholders with the
same percentage ownership interests in the Company  as they had in
Lightning Poker prior to the Merger, all of the Company's previously outstanding
stock was canceled with no obligation on the part of the Company for the payment
of any consideration, and the Company ceased being a shell company.




Information concerning Lightning Poker
is contained in the amended Form 8-K that we filed with the SEC on April 29,
2008.  Exchange Act reports for periods ending after the date of the
Merger are presented on a consolidated basis, reflecting the Company’s ownership
of Lightning Poker.




Lightning
Poker was formed to develop and market an electronic poker table that provides a
fully automated table gaming experience without a dealer in casinos and card
rooms in regulated jurisdictions worldwide.   Lightning Poker's
fully automated, electronic poker table ( the “System”) is designed to increase
revenue and security while helping to reduce the labor costs associated with
poker play.  The System is a fully automated electronic poker table
that enables up to ten players to make their wagers and game decisions via
individual touch screen betting stations. It utilizes a software application
written in Java, which runs on a Linux-based multi-game table platform. The
System achieves the goal of increasing revenue by allowing a larger number of
hands to be played per hour, increasing the “rake” or per hand fee collected by
the operator commensurately.   The elimination of a live dealer
also reduces labor costs and permits more tables to be operational in
jurisdictions where skilled poker dealers are in short supply. The System has an
added benefit of eliminating mistakes by  the dealer or the player,
and it eliminates the need to tip the dealer.   The System also
provides an opportunity to present information about the game to the players via
individual player screens and via the common center monitor.




The System has received Gaming Laboratories Incorporated certification for a
casino version of Texas Hold'em, Omaha, cash, and single table tournament poker,
which the Company  needs  in order to install
the  System in certain jurisdictions.





Poker is
one of several card games in which two or more players strategically bet against
each other. Many casinos and “card clubs” operate poker rooms that typically
consist of tables at which up to 10 players play any of several types of poker
against the other players at the table. A dealer employed by the casino or card
club is responsible for dealing cards, calculating bets, collecting the “rake,”
which is the amount the casino or card club charges for each hand of poker, and
distributing payouts. Unlike most other games played at a casino, where the
casino may win the full amount of a player’s bet, the casino or card club’s
revenue from the poker room is limited to the rake.




Accordingly,
poker generally generates lower relative profits for the casino operator than
slots and other table games. The System is intended to improve the profitability
of poker by enhancing the operator’s revenue opportunities while decreasing the
labor burden.








14









The
number of Systems  installed at any particular location is fluid and
may increase or decrease over time. For example, casinos remodel periodically
and may expand or contract the amount of floor space allocated to poker. In
addition, from time to time certain customers find that they license more
Systems from us than demand will support in their poker rooms, which itself is
affected by factors ranging from seasonality (people tend to travel shorter
distances in the winter months) to macroeconomic and competitive factors. In
other cases, regulatory changes in a particular jurisdiction may result in a
temporary delay or removal of  Systems. Sometimes, we may elect to
redeploy Systems to more productive venues  to maximize the Company’s
return on investment. Frequently we install Systems at new customer sites where
we engage in trial periods of varying lengths with customers to satisfy
regulatory requirements as well as to test demand, and educate customers. We
view these fluctuations as an expected and normal part of the growth phase of
the Company’s business and an effective tool for managing the Company’s
assets.





The
Company  has a history of losses since the Company’s inception. The
Company incurred a net loss of $2,792,948 in the six months
ended  June 30, 2008. The Company has only recently begun to generate
operating revenue.






Three
Months Ended June 30, 2008  Compared to Three  Months Ended
June 30, 2007





Revenue





The
Company’s revenues for the three months ended June 30, 2008 were $291,995
compared to $717,466 for the comparable prior year period. The
decrease  in revenues was due to the absence
of  a  System sale  to an international
casino  in the current period.




Cost
of Products Sold




For the
three months ended June 30, 2008, cost of products sold  decreased
$231,422 or approximately 70% from $331,078  for the three months
ended June 30, 2007. This decrease was due to the absence in the current period
of a System sale  to an international casino .




Operating
Expenses





Operating
expenses increased by $155,378 to $224,502  for the three
months ended June 30, 2008, from $69,124 for the three months ended June 30,
2007.  This  increase  was primarily the result of
the  commencement of operations with the manufacturing, delivery,
testing and installation of  Systems during the current
quarter.





Research
and Development Expenses





Research
and development expenses increased by $44,296 to $429,026 for the three
months ended June 30, 2008, from $384,730 for the three months ended June 30,
2007. Research and development expenses are primarily related to the
development of the System.





Selling,
General and Administrative Expenses





Selling,
general and administrative expenses increased by $181,617 to $549,008 for the
three months ended June 30, 2008, from $367,391 for the three months ended June
30, 2007.  This increase was primarily the result of the expenses
related to the Merger, addition of personnel,  and travel expenses to
support the Company’s growth strategy.





Depreciation
and Amortization





Depreciation
and amortization increased from $50,752 for the three months ended June 30, 2007
to $231,687 for the three months  ended June 30, 2008. This increase
was primarily related to the placement of the  System under
contracts.





Net
Interest Expense





Net
interest expense increased from $133,095 for the three months  ended
June 30, 2007 to $245,698 for the three months  ended June 30, 2008.
This change was the result of the issuance of notes and related warrants during
2007 of $5,500,000.





Six Months Ended
June 30, 2008  Compared to Six  Months Ended June 30,
2007





Revenue





The
Company’s revenues for the six months ended June 30, 2008 were $606,418 compared
to $930,966 for the comparable prior year period. The decrease in revenues was
due to the absence in the current period of a sale of a  System to an
international casino, but was partly offset by the commencement
of  Systems  under license fee arrangements.








15





Cost
of Products Sold




For the
six months ended June 30, 2008, cost of products sold  decreased
$250,754  from $446,043  for the six months ended June 30,
2007. This decrease was due to the absence in the current period of  a
sale of a System to an international casino.




Operating
Expenses





Operating
expenses increased by $19,747 to $357,996 for the six months ended
June 30, 2008, from $338,249 for the six months ended June 30,
2007.  This  increase   was primarily the
result of  the manufacturing, delivery, testing and installation
of  Systems during the current period.





Research
and Development Expenses





Research
and development expenses increased by $214,544 to $845,091 for the six
months ended June 30, 2008, from $630,547 for the six months ended June 30,
2007. Research and development expenses are primarily related to the
development of the System.





Selling,
General and Administrative Expenses





Selling,
general and administrative expenses increased by $393,471 to $1,173,518 for the
six months ended June 30, 2008, from $780,047 for the six months ended June 30,
2007.  This increase was primarily the result of  expenses
associated with the Merger, addition of personnel, licensing and patent
expenditures, insurance  and travel expenses to support the Company’s
growth strategy.




Depreciation
and Amortization





Depreciation
and amortization increased from $84,150 for the six months ended June 30, 2007
to $376,567 for the six months  ended June 30, 2008. This increase was
primarily related to the placement of the  System under
contracts.





Net
Interest Expense





Net
interest expense increased from $211,121 for the six months  ended
June 30, 2007 to $450,905 for the six months  ended June 30, 2008.
This change was the result of the issuance of notes payable and related warrants
during 2007 of $5,500,000.







Liquidity
and Capital Resources





Since the
Company’s inception, the Company has funded its startup costs, operating costs
and capital expenditures through loans and  issuance of the Company’s
common stock.





For the
six months ended June 30, 2008, we incurred a net loss of $2,792,948 and used
$1,395,175 of cash in operating activities. At June 30, 2008, the Company had an
accumulated deficit of $9,961,488. The generation of cash flow sufficient to
meet the Company’s cash needs in the future will depend on the Company’s ability
to obtain the regulatory approvals required to distribute the System and
successfully market it to more casinos and card clubs.






16


The
Company’s current cash requirements are approximately $400,000 to $450,000 per
month, principally for salaries, professional services, marketing, office
expenses and the purchase of the hardware components for the
System.





Based on
the Company’s cash flow projections and anticipated revenues, we believe we will
be able to support the Company’s operations for the foreseeable future. However,
if sales of the System do not meet, or the Company’s expenses exceed, the
Company’s projections, the Company may need to raise additional funds through an
offering of securities or  a credit facility. If that becomes
necessary, there is no assurance that such financing would be available to the
Company at all, or on reasonable terms. If the Company needs additional
funding and is unable to obtain it, the Company’s financial condition would be
materially and adversely affected.




In
addition, the Company’s ability to sell or lease the  System on a
large scale may require additional financing for working capital. There is no
assurance that such additional financing would be available at all, or on
reasonable terms. The Company’s inability to obtain such financing on terms that
allow it to lease the  System profitably would hamper its ability to
distribute the  System on a large scale.




Recent
Developments




In June
2008, the Company entered into a $4,000,000 three year loan agreement with
interest at 8% per annum.  The Notes issued under the loan agreement
are secured by the assets of Lightning Poker.  In connection with the
loan, the Company issued warrants to purchase $4,000,000 worth of shares of
capital stock at an exercise price equal to $2.00 per share.  The
warrants are exercisable through June 2013.




Off-Balance
Sheet Arrangements





As of
June 30, 2008, there were no off-balance sheet arrangements.





Going
Concern





The
Company’s  financial statements have been prepared on a going concern
basis, which assumes realization of all assets and settlement or payment of all
liabilities in the ordinary course of business. We have limited capital
resources, net operating losses and negative cash flows from operations since
the Company’s  inception and expect these conditions to continue for
the foreseeable future. The generation of cash flow sufficient to meet the
Company’s cash needs in the future will depend on the Company’s ability to
obtain the regulatory approvals required to distribute the System and
successfully market it to  more casinos and card clubs. However, if
sales of the System do not meet, or the Company’s expenses exceed, the Company’s
projections, the Company  may need to raise additional funds through
an offering of securities or a credit facility. If that becomes necessary, there
is no assurance that the Company would be able to obtain such financing, at all,
or on reasonable terms. If the Company needs additional funding
and  is  unable to obtain it, the
Company’s  financial condition would be materially and adversely
affected. In that event, the Company would have to postpone or discontinue
planned operations and projects. The Company’s continuance as a going concern is
dependent upon these factors, among others. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.







17






Item 3. Quantitative  and Qualitative  Disclosures
About Market Risk.





Not
applicable.








Item
4. Controls and Procedures





The
Company carried out an evaluation of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2008. This evaluation
was carried out under the supervision and with the participation of the
Company’s Chief Executive Officer (“CEO”) and the Company’s Chief Financial
Officer (“CFO”).  Based upon that evaluation, the CEO and CFO
concluded that, as of June 30, 2008, the Company’s disclosure controls and
procedures were effective. There have been no changes in the Company’s internal
controls over financial reporting during the quarter ended June 30, 2008 that
have  materially affected, or are reasonably likely to materially
affect, the Company’s internal control  over financial
reporting.





Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in the Company’s reports filed
or submitted under the Exchange Act are recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in the
Company’s reports filed or furnished under the Exchange Act is accumulated and
communicated to management, including the CEO  and CFO, to allow
timely decisions regarding required disclosure.





Limitations on the
Effectiveness of Internal Controls





The
Company’s management does not expect that the Company’s disclosure controls and
procedures or the Company’s internal control over financial reporting will
necessarily prevent all fraud and material error. The Company’s disclosure
controls and procedures are designed to provide reasonable assurance of
achieving the Company’s objectives, and the CEO and CFO  concluded
that the Company’s disclosure controls and procedures are effective at that
reasonable assurance level. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within the Company have
been detected. These inherent limitations include the realities that judgments
in decision-making can be faulty, and that breakdowns can occur because of
simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of the internal control. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate.





18


PART
II - OTHER INFORMATION





Item
1.     Legal Proceedings


Not
applicable.





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





Issuer
      Purchases of Equity Securities(a)
            (b)
            (c)
            (d)Period
            Total
      number of shares (or units) purchased
            Average
      price paid per share(or unit)
            Total
      number of shares (or units) purchased as part of publicly announced plans
      or programs
            Maximum
      number (or approximate dollar value) of shares (or units) that may yet be
      purchased under the plans or programsJune
      1, 2008 to June 30, 2008(1)
            7,811
            $1.00
            -
            -Total
            7,811
            $1.00
            -
            -




Notes;


(1)
In June, 2008 the Company in a private transaction purchased 7,811 shares of
common stock from a shareholder.





Item
3.     Defaults upon Senior Securities


None





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


None





Item
5.     Other Information


None




Item
6.      Exhibits





Exhibit Number
            Description
      of Exhibit10.1(A)
            Lightning
      Gaming Inc. 2007 Equity Incentive Plan form of Incentive Stock Option
      Agreement10.2(A)
            Lightning
      Gaming Inc. 2007 Equity Incentive Plan form of Nonqualified Stock Option
      Agreement10.3*
            Loan
      Agreement dated June 30, 2008 among Lightning Poker, SIG Strategic
      Investments,LLLP (“SIG”) and Co Investment Fund II LP (“CI II”) (see
      Exhibit 99.1 to Form 8-K  filed  July 7, 2008,
      Commission File No. 000-52575)10.4*
            Promisory
      Note issued by Lightning Poker to CI II (see Exhibit 99.2 to Form
      8-K  filed  July 7, 2008, Commission File No.
      000-52575)10.5*
            Promisory
      Note issued by Lightning Poker to SIG (see Exhibit 99.3 to Form
      8-K  filed  July 7, 2008, Commission File No.
      000-52575)10.6*
            Warrant
      for Stock issued by Lightning Gaming, Inc. (“LGI”) to CI II (see Exhibit
      99.4 to Form 8-K  filed  July 7, 2008, Commission File
      No. 000-52575)10.7*
            Warrant
      for Stock issued by  LGI to SIG (see Exhibit 99.5 to Form
      8-K  filed  July 7, 2008, Commission File No.
      000-52575)10.8*
            Guaranty
      Agreement by LGI in favor of CI II as the Lenders’ Agent
      (“Agent”)   (see Exhibit 99.6 to Form
      8-K  filed  July 7, 2008, Commission File No.
      000-52575)10.9*
            Security
      Agreement between Lightning Poker  and CI II as Agent (see
      Exhibit 99.7 to Form 8-K  filed  July 7, 2008,
      Commission File No. 000-52575)10.10*
            Intellectual
      Property Security Agreement for Patents and Trademarks
      between  Lightning Poker and CI II as Agent  (see
      Exhibit 99.8 to Form 8-K  filed  July 7, 2008,
      Commission File No. 000-52575)10.11*
            Intellectual
      Property Security Agreement for Copyrights and Masked Works
      between  Lightning Poker and CI II as
      Agent   (see Exhibit 99.9 to Form
      8-K  filed  July 7, 2008, Commission File No.
      000-52575)31.1
            Certification
      of Principal Executive Officer pursuant to Exchange Act Rule
      13a-14(a)31.2
            Certification
      of Principal Financial Officer pursuant to Exchange Act Rule
      13a-14(a)32.1
            Certification
      of Principal Executive Officer and Principal Financial Officer pursuant to
      Exchange Act Rule 13a-14(b)
              and
      18 U.S.C. 1350







*
            This
      document is incorporated herein by reference as an exhibit
      hereto.  Following the description of such exhibit is a
      reference to the document as it appeared in a specified report previously
      filed with the SEC, to which there have been no amendments or changes
      unless otherwise indicated.




(A)                  Management
contract or compensatory plan or arrangement






19


SIGNATURES





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







Lightning
      Gaming, Inc.Date:
            August
      14, 2008By:      /s/ Brian Haveson
              Brian
      Haveson
              President,
      Chief Executive Officer and
Director