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 March
      31, 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: 4,644,875 common shares as
of  May 12, 2008




1
 
  TABLE OF
CONTENTS




PagePART I - FINANCIAL
    INFORMATIONItem 1.
            Financial
      Statements
            4Item 2.
            Managements’
      Discussion and Analysis of Financial Condition and Results of
      Operations
            13Item
      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
            20




2




PART
I - FINANCIAL INFORMATION





Item1. Financial
Statements





Our
      consolidated financial statements included in this Form 10-Q are as
      follows:1
            Balance Sheets as
      of  March 31, 2008 and December 31,
  2007;2
            Statements of Operations for the
      three months ended March 31, 2008 and  2007;3
            Statements of Cash Flows for the
      three  months ended March 31, 2008 and
    2007;4
            Notes to Consolidated Condensed
      Financial  Statements.






3





Item
1. Financial Statements.





LIGHTNING
GAMING, INC. AND SUBSIDIARY


CONSOLIDATED
BALANCE SHEETS


March
      31, 2008
            
            December
      31, 2007(unaudited)AssetsCurrent
      AssetsCash
            
            $
            1,836,112
            
            $
            2,638,266Accounts
      receivable, net
            
            
            86,692
            
            
            411,615Inventory
            
            
            867,150
            
            
            768,553Prepaid
      expenses and notes receivable
            
            
            36,753
            
            
            73,552Total
      Current Assets
            
            
            2,826,707
            
            
            3,891,986Property,
      Plant and Equipment, net
            
            
            1,109,125
            
            
            982,570Intangible
      Assets, net
            
            
            510,691
            
            
            521,991Other
      Assets
            
            
            60,482
            
            
            36,082Total
      Assets
            
            $
            4,507,005
            
            $
            5,432,629Liabilities
      and Stockholders' DeficitCurrent
      LiabilitiesCurrent
      portion of  long term debt
            
            $
            15,879
            
            $
            -Accounts
      payable
            
            
            528,397
            
            
            433,390Accrued
      expenses
            
            
            543,987
            
            
            579,042Total
      Current Liabilities
            
            
            1,088,263
            
            
            1,012,432Long
      Term DebtLong
      term debt
            
            
            8,254,287
            
            
            8,124,235Interest
      payable
            
            
            684,006
            
            
            514,006Total
      Long Term Debt
            
            
            8,938,293
            
            
            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 outstanding at March 31, 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
            
            
            2,949,710
            
            
            -Accumulated
      deficit
            
            
            (8,473,906)
            
            
            (7,168,540
            )Total
      Stockholder's Deficit
            
            
            (5,519,551)
            
            
            (4,218,044
            )Total
      Liabilities and Stockholders’ Deficit
            
            $
            4,507,005
            
            $
            5,432,629


See Notes to Consolidated Financial
Statements


4




LIGHTNING GAMING, INC. AND
SUBSIDIARY


CONSOLIDATED
STATEMENTS OF OPERATIONS


Three  Months
Ended March 31, 2008 and 2007




Three
      Months EndedMarch
      31,2008
            
            
            2007RevenuesSales
      of systems and parts
            
            $
            241,936
            
            
            $
            213,500License
      fees
            
            
            
            72,487
            
            
            
            -Total
      revenues
            
            
            
            314,423
            
            
            
            213,500Costs
      and operating expensesCost
      of products sold
            
            
            
            95,633
            
            
            
            114,965Operating
      expenses
            
            
            
            133,494
            
            
            
            269,125Research and
      development
            
            416,065
            
            
            
            245,817Selling
      general & administrative expenses
            
            
            624,510
            
            
            
            412,656Depreciation
      and amortization
            
            
            
            144,880
            
            
            
            33,398Total
      costs and operating expenses
            
            
            
            1,414,582
            
            
            
            1,075,961Operating
      loss
            
            
            
            (1,100,159)
            
            
            
            (862,461)Non-operating
      income (expense)Net
      interest expense
            
            
            (205,207)
            
            
            
            (78,026)Net
      Loss
            
            
            $
            (1,305,366
            )
            
            $
            (940,487)Net
      loss per common share-basic and diluted
            
            
            $
            (0.28)
            
            
            $
            (0.23)Weighted
      average common shares outstanding-basic and diluted
            
            
            
            4,644,785
            
            
            
            4,100,727


See Notes to Consolidated Financial
Statements




5





LIGHTNING
GAMING, INC. AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF CASH FLOWS


Three  Months
Ended March 31, 2008 and 2007





Three Months EndedMarch
      31,2008
            
            
            2007NET
      CASH USED IN OPERATING ACTIVITES
            
            $
            (745,778
            )
            
            $
            (987,475
            )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of equipment
            
            
            (310,459
            )
            
            
            (150,390
            )Increase
      in other assets
            
            
            (48,636
            )
            
            
            -Proceeds
      from sale of  equipment
            
            
            210,000
            
            
            
            -NET
      CASH USED BY INVESTING ACTIVITIES
            
            
            (149,095
            )
            
            
            (150,390
            )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from issuance of debt
            
            
            92,719
            
            
            
            1,000,000NET
      CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            92,719
            
            
            
            1,000,000NET
      DECREASE IN CASH
            
            
            (802,154
            )
            
            
            (137,865
            )CASH
      - Beginning of period
            
            
            2,638,266
            
            
            
            310,145CASH
      - End of period
            
            $
            1,836,112
            
            
            $
            172,280






See Notes to Consolidated Financial
Statements






6




LIGHTNING
GAMING, INC. AND SUBSIDIARY


Notes
to the Consolidated Condensed Financial Statements


March
31, 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  System is designed to improve
economics for casino operators while improving overall player
experience.





On
November 12, 2007 Lightning Poker completed the acquisition of certain assets of
Poker Automation LLC ("Poker Automation"), pursuant to an Asset Purchase
Agreement. In connection with the completion of 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 issuable 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 our 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
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


7




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




Note
1.   Nature of Business and Summary of Significant Accounting
Policies (Continued)








generally
accepted  in the United States of America. The results of operations
for the three months ended March 31. 2008 are not necessarily indicative of the
results to be expected for the entire year.








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





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 System and successfully market it to casinos and card clubs. The
Company  believe it will be able to support its operations for the
foreseeable future, and it does not expect to have to raise additional capital
to fund its operations. However, if sales of the System 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, if at all , or
on  reasonable terms. If the Company  needs additional
funding and is unable to  obtain it,  its financial
condition would be 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  consisted
of the following:





March
      31,
              2008
            
            
            December
      31, 2007Finished
      tables
            
            $
            542,934
            
            
            $
            484,540Raw
      materials
            
            
            324,216
            
            
            
            284,013Inventory
            
            $
            867,150
            
            
            $
            768,553








Note
3.   Property and Equipment





Property
and equipment consist of the following:




March31,
              2008
            
            
            December
      31, 2007Equipment,
      principally tables
            
            $
            1,493,865
            
            
            $
            1,260,620Furniture
      and fixtures
            
            
            20,796
            
            
            
            20,796Property,
      plant and equipment
            
            
            1,514,661
            
            
            
            1,281,416Less
      accumulated depreciation
            
            
            405,536
            
            
            
            298,846Property,
      plant and equipment, net
            
            $
            1,109,125
            
            
            $
            982,570




8




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




Note
4.   Intangible Assets





Intangible
assets consist of the following:





March
      31,
              2008
            
            December
      31,
                2007Customer
      contracts
            
            $
            377,540
            
            $
            377,540Non
      -compete agreement
            
            
            167,052
            
            
            167,052Total
      intangibles
            
            
            544,592
            
            
            544,592Less
      accumulated amortization
            
            
            33,901
            
            
            22,601Intangible
      assets, net
            
            $
            510,691
            
            $
            521,991





At March
31, 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.








Note
5.   Debt




Long Term
Debt consists of the following:




March
      31,
              2008
            
            
            December
31,
              2007Capital
      Lease obligation interest at 7.5% payable monthly through March,
      2013
            
            $
            92,719
            
            
            $
            -Notes
      Payable 8% interest due 2009
            
            
            2,000,000
            
            
            
            2,000,000Notes
      Payable 8% interest due 2010
            
            
            6,500,000
            
            
            
            6,500,000Total
      long term debt
            
            
            8,592,719
            
            
            
            8,500,000Less:
      current installments
            
            
            (15,879
            )
            
            
            -Less:
      unamortized fair market value of  warrants
            
            
            (322,553
            )
            
            
            (375,7665
            )Total
      long term debt
            
            $
            8,254,287
            
            
            $
            8,124,235




In
March  2008, the Company entered into a  capital lease
obligation to finance the purchase of a recreational
vechicle.  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.





Interest
is payable at maturity of the Notes.




9




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





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 and, at March 31, 2008, the maximum
aggregate number of shares of common stock issuable under the Stock Plan
was  2,500,000.  The purchase 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 accounting principles generally accepted in the United States of
America, options granted under the plan are accounted for under SFAS No. 123R,
Share Based Payments, and its related interpretations.  Accordingly,
compensation costs of $43,858 and $28,672 have been recognized for the
three  months  ended March 31, 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
            
            
            165,200
            
            
            
            1.54Options
      exercised
            
            
            -
            
            
            
            -Options
      cancelled
            
            
            (290,000)
            
            
            
            1.10Options
      at March 31, 2008
            
            
            1,748,200
            
            
            $
            1.56Options
      available for grant at March 31,2008
            
            
            751,800




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.





The
weighted average grant-date fair value of options granted during the three
months ended March 31, 2008 was $0.15.





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.





10




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





Note
6.   Stockholders’ Deficit (continued)


Stock Option Plan
(continued)








The
following table summarizes information with respect to stock options outstanding
at March 31, 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
            Value1,748,200
            6.63
            $1.56
            -
            556,200
            6.38
            $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
            7.7
            $1.53
            -
            558,200
            8.7
            $1.10
            -








As
of  March 31, 2008, there was approximately $330,000 of total
unrecognized compensation cost related to nonvested share-based compensation
arrangements granted under the 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,
whereby they may purchase 4,453,157 shares of the Company’s  stock at
any time through June 2012 at a  price  ranging between
$1.10 and $2.57 per share.  The purchase price shall be subject to
adjustment from time to time pursuant to the respective provisions of the
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 three months ended March 31, 2008:





WeightedWarrants
            
            
            AverageOutstanding
            
            
            Exercise
      PriceOutstanding
      at December 31,2007
            
            
            4,453,157
            
            
            $
            1.77Warrants granted
            
            
            -
            
            
            
            -Warrants exercised
            
            
            -
            
            
            
            -Warrants cancelled
            
            
            -
            
            
            
            -Warrants at
      March 31. 2008
            
            
            4,453,157
            
            
            $
            1.77





11




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
March 31, 2008:





Warrants Outstanding
            Vested
      WarrantsWeightedAverage
            Weighted
            
            
            WeightedRemaining
            Average
            Aggregate
            
            Average
            AggregateContractual
            Exercise
            Intrinsic
            
            Exercise
            IntrinsicNumber
            Life
      (Years)
            Price
            Value
            Number
            Price
            Value4,453,157
            3.87
            $1.77
            -
            4,453,157
            $1.77
            -





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
            4.1
            $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 March 31, 2008, the Company has
available, for federal and state income tax purposes, net operating loss (“NOL”)
carryforwards ofapproximately $6,000,000,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 and 2007 the Company  borrowed a total of
$5,500,000  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. Mr. Caldwell, a director of the Company,  is the founder
and Chief Executive Officer of Cross Atlantic and  Mr. 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 3,178,990 shares of common stock. The
aggregate fair market value of the warrants at the time the Company issued them
was $706,088. During the three months ended March 31, 2008 and 2007, interest on
the CI II Loans amounted to $110,000 and $53,000, respectively . During 2008 and
2007, we made no  principal payments on the CI II Loans.  As
of March 31, 2008, the aggregate outstanding principal amount of the CI II Loans
was $5,500,000.





Mr. Tecce
is of counsel to the law firm of Buchanan Ingersoll & Rooney PC, which
the Company


retained for various legal matters
in  2007.  During  the three
months  ended March 31, 2008 and 2007  fees and expenses
incurred to that firm totaled $0 and  $50,000,
respectively.




12




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 our 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
(the “ Securities Act), 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 complying with 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. Our 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 our operations
and future prospects on a consolidated basis include, but are not limited to:
our future results under our ownership of Lightning Poker, Inc. (“Lightning Poker”),
our ability to obtain additional gaming licenses, changes in economic
conditions, 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 our business, including additional factors that could
materially affect our financial results, is included herein and in our other
filings with the Securities and Exchange
Commission  (“SEC”).




Overview




On
January 29, 2008, we acquired Lightning Poker in a merger (the “Merger”), under
which Lightning Poker became our wholly-owned subsidiary, the stockholders of
Lightning Poker became our stockholders with the same percentage ownership
interests in our company as they had in Lightning Poker prior to the Merger, all
of our previously outstanding stock was canceled with no obligation on our part
for the payment of any consideration, and we 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.  Our  Exchange Act reports for periods ending after
the date of the Merger will be presented on a consolidated basis, reflecting our
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.   Our fully
automated, electronic poker table ( our “System”) is designed to increase
revenue and security while helping to reduce the labor costs associated with
poker play.  Our 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.
Our System has an added benefit of eliminating mistakes by both the dealer and
the player, and eliminating the need to tip the dealer.   Our
System also provides an opportunity to present information about the game to the
players via individual player screens and via the common center
monitor.




13




Our
initial product is  our System, 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.
  Our
System has received Gaming Laboratories Incorporated certification for a casino
version of Texas Hold'em, Omaha, cash, and single table tournament poker, which
we need  in order to install our 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. Our gaming products seek to improve the
profitability of poker by enhancing the operator’s revenue opportunities while
decreasing the labor burden.





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 our 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 our business
and an effective tool for managing our assets.





We have
generated operating revenue but have a history of losses since our
inception. We incurred a net loss of $1,305,366 in the three months
ended  March 31, 2008. We have only recently begun to generate
operating revenue.




14




Three
Months Ended March 31, 2008  Compared to Three  Months Ended
March 31, 2007





Revenue





Our
revenues for the three months ended March 31, 2008 were $314,423 compared to
$213,500 for the comparable prior year period. The increase in revenues was due
to the commencement of  Systems  under license fee
arrangements and  the sale
of   additional  Systems to an international
casino.




Cost
of Products Sold




For the
three months ended March 31, 2008 cost of products sold  decreased
$19,332 or approximately 17% from $114,965  for the three months ended
March 31, 2007. This decrease was due to the absence in the current period of
commissioned sales partly offset by the cost of an additional System
sold.




Operating
Expenses





Operating
expenses decreased by $135,631 to $133,494  for the three
months ended March 31, 2008, from $269,125 for the three months ended March 31,
2007.  This  decrease  was primarily the result of
the  commencement of operations and the decrease in start up costs
incurred in 2007.





Research
and Development Expenses





Research
and development expenses increased by $170,248 to $416,065 for the three
months ended March 31, 2008, from $245,817 for the three months ended March 31,
2007. Research and development expenses are primarily related to the
development of our System.





Selling,
General and Administrative Expenses





Selling,
general and administrative expenses increased by $211,854 to $624,510 for the
three months ended March 31, 2008, from $412,656 for the three months ended
March 31, 2007.  This increase was primarily the result of the
addition of personnel, licensing expenditures and travel expenses to support our
growth strategy.







Depreciation
and Amortization





Depreciation
and amortization increased from $33,398 for the three months ended March 31,
2007 to $144,880 for the three months  ended March 31, 2008. This
increase was primarily related to the placement of our System under
contracts.





Net
Interest Income (Expense)





Net
interest expense increased from $78,026 for the three months  ended
March 31, 2007 to $205,207 for the three months  ended March 31, 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 our
inception, we have funded our startup costs, operating costs and capital
expenditures through loans and from the issuance of our common
stock.





For the
three months ended March 31, 2008, we incurred a net loss of $1,305,366 and used
$745,788 of cash in operating activities. At March 31, 2008, we had an
accumulated deficit of $8,473,906. The generation of cash flow sufficient to
meet our cash needs in the future will depend on our ability to obtain the
regulatory approvals required to distribute our System and successfully market
it to more casinos and card clubs.




15




Our
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 our System.





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




In
addition, our ability to sell or lease our System on a large scale may require
additional financing for working capital. There is no assurance that such
additional financing would be available to us, if at all, on reasonable terms.
Our inability to obtain such financing on terms that allow us to lease our
System profitably would hamper our ability to distribute our System on a large
scale.




Recent
Developments




In
January 2008, the maturity date of our $1.5 million one-year loan from The Co
Investment Fund II LP was extended by two years to June 27, 2010.




On March
25, 2008, Ronald Skotarczak resigned as the President and member of the board of
directors of Lightning Poker. We appointed Brian Haveson as Lightning Poker’s
President. See our 8-K filed March 28, 2008 reporting Mr. Skotarczak’s
resignation.




16




Off-
Balance Sheet Arrangements





As of
March 31, 2008, there were no off- balance sheet arrangements.





Going
Concern





Our  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 our  inception
and expect these conditions to continue for the foreseeable future. The
generation of cash flow sufficient to meet our cash needs in the future will
depend on our ability to obtain the regulatory approvals required to distribute
the System and successfully market it to  more casinos and card clubs.
Based on our cash flow projections and anticipated revenue we believe
we  will be able to support our operations for the foreseeable future,
and we  do not expect to have to raise additional capital to fund our
operations. However, if sales of the System do not meet, or our expenses exceed,
our projections, we  may need to raise additional funds through a
public or private offering of securities or a credit facility. If that becomes
necessary, there is no assurance that we would be able to obtain such
financing,  at all, or on reasonable terms. If we  need
additional funding and  we are unable to obtain it,
our  financial condition would be adversely affected. In that event,
we  would have to postpone or discontinue planned operations and
projects. Our 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. Quanitative  and Qualitative  Disclosures About Market
Risk.





Not
applicable




Item
4. Controls and Procedures





We
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of March 31, 2008. This evaluation was carried out
under the supervision and with the participation of our Chief Executive Officer
(“CEO”) and our Chief Financial Officer (“CFO”).  Based upon that
evaluation, our CEO and CFO concluded that, as of March 31, 2008, our disclosure
controls and procedures were effective. There have been no changes in our
internal controls over financial reporting during the quarter ended March 31,
2008 that have  materially affected, or are reasonably likely to
materially affect, our 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 our 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 our
reports filed or furnished under the Exchange Act is accumulated and
communicated to management, including our CEO  and CFO, to allow
timely decisions regarding required disclosure.





Limitations on the
Effectiveness of Internal Controls





Our
management does not expect that our disclosure controls and procedures or our
internal control over financial reporting will necessarily prevent all fraud and
material error. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving our objectives and our CEO and
CFO  concluded that our 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 our 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





On March
4, 2008, Lightning Gaming, Inc. (the “Company”) initiated litigation against
PokerTek, Inc. in the United States District Court for the District of New
Jersey for infringing the Company's U.S. Patent No. 7,306,516. The complaint
requests monetary damages and injunctive relief.  PokerTek answered
the complaint denying all allegations of infringement and did not assert any
counter claims.





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





On March
25, 2008, the Company granted to Ronald Skotarczak a nonqualified option to
purchase, between June 26, 2008 and March 25, 2010, up to 115,200
shares of the Company’s stock, subject to reduction by that number of shares (if
any) that  Mr. Skotarczak purchases under an outstanding stock
option that will terminate on June 26, 2008.  The exercise price
per share is $1.10.  The Company granted the option in connection with
Mr. Skotarczak’s resignation and as part of his separation agreement, for
the purpose of giving him a two-year period within which to exercise his options
that were vested as of the date of his resignation.  The Company
issued the option without registration under the Securities Act based on the
exemption from registration set forth in Section 4(2) of the Securities
Act.




For
information on other unregistered sales of equity securities during the quarter
ended March 31, 2008 that we previously reported, please see the amended
Form 8-K that we filed on April 29, 2008.





Item
3.     Defaults upon Senior Securities





None





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




None





Item
5.     Other Information





None




19





Item
6.      Exhibits





Exhibit Number
            Description of Exhibit10.1*
            Second
      Amendment  dated January 16, 2008 to Loan Agreement dated
      January 31, 2007 between Lightning Poker and The Co Investment Fund
      II LP (see Exhibit 10.20 to Form 8-K/A  filed  April
      29, 2008, Commission File No. 000-52575)10.2(A)
            Separation
      Agreement and Release and Stock Option Agreeement among Ronald
      Skotarczak, Lighting Poker and the Company,
      dated  March 25-26, 200831.1
            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 each 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.




20




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:
            May
      15, 2008By:      /s/ Brian Haveson
              Brian
      Haveson
              President,
      Chief Executive Officer and
Director