Form
10-Q


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549








[X]
                    Quarterly
      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the quarterly period ended March 31, 2009[ 
        ]
                    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     ̈
              Smaller 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: 4,647,474 common shares as of  May 1, 2009






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
                      17Item
      3.
                      Quantitative
      and Qualitative  Disclosures About Market Risk
                      21Item
      4T.
                      Controls
      and Procedures
                      21PART
      II - OTHER INFORMATIONItem
      1.
                      Legal
      Proceedings
                      22Item
      2.
                      Unregistered
      Sales of Equity Securities and Use of Proceeds
                      22Item
      3.
                      Defaults
      Upon Senior Securities
                      22Item
      4.
                      Submission
      of Matters to a Vote of Security Holders
                      22Item
      5.
                      Other
      Information
                      22Item
      6.
                      Exhibits
                      22









2




PART
I - FINANCIAL INFORMATION





Item
1. 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  March 31, 2009
      and December 31, 2008;2
              Statements of Operations for the three months ended March 31, 2009
      and  2008;3
              Statements of Cash Flows for the three months ended March 31, 2009 and
      2008;4
              Notes to Consolidated Condensed
  Financial Statements.










3














Item
1. Financial Statements.





LIGHTNING
GAMING, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


March
      31, 2009
                        
                        
                        December
      31, 2008(unaudited)AssetsCurrent
      AssetsCash
                        
                        $
                        1,737,674
                        
                        
                        $
                        2,429,493Accounts
      receivable, net
                        
                        
                        163,063
                        
                        
                        
                        68,518Inventory
                        
                        
                        1,268,407
                        
                        
                        
                        824,268Prepaid
      expenses
                        
                        
                        15,135
                        
                        
                        
                        211,868Total
      Current Assets
                        
                        
                        3,184,278
                        
                        
                        
                        3,534,147Property,
      Plant and Equipment, net
                        
                        
                        1,383,190
                        
                        
                        
                        1,488,541Intangible
      Assets net
                        
                        
                        184,667
                        
                        
                        
                        144,567Other
      Assets
                        
                        
                        129,422
                        
                        
                        
                        143,094Total
      Assets
                        
                        $
                        4,881,557
                        
                        
                        $
                        5,310,349Liabilities
      and Stockholders' DeficitCurrent
      LiabilitiesCurrent
      portion of  long term debt
                        
                        $
                        15,879
                        
                        
                        $
                        15,879Accounts
      payable
                        
                        
                        442,306
                        
                        
                        
                        538,512Accrued
      expenses
                        
                        
                        926,072
                        
                        
                        
                        813,544Total
      Current Liabilities
                        
                        
                        1,384,257
                        
                        
                        
                        1,367,935Long
      Term DebtLong
      term debt
                        
                        
                        12,347,764
                        
                        
                        
                        12,290,831Accrued
      interest and other long term liabilities
                        
                        
                        1,499,523
                        
                        
                        
                        1,250,765Fair
      value of warrants
                        
                        
                        109,718
                        
                        
                        
                        -Total
      Long Term  Liabilities
                        
                        
                        13,957,005
                        
                        
                        
                        13,541,596CommitmentsStockholders'
      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,
                          4,655,285  shares
      issued and 4,647,474 outstanding at March 31, 2009 and
                          December
      31, 2008
                        
                        
                        4,656
                        
                        
                        
                        4,656Additional
      Paid in Capital
                        
                        
                        2,293,042
                        
                        
                        
                        3,174,647Accumulated
      deficit
                        
                        
                        (12,749,592)
                        
                        
                        
                        (12,770,674
                        )Treasury
      stock, 7,811 shares at cost
                        
                        
                        (7,811)
                        
                        
                        
                        (7,811)Total
      Stockholders’ Deficit
                        
                        
                        (10,459,705)
                        
                        
                        
                        (9,599,182
                        )Total
      Liabilities and Stockholders’ Deficit
                        
                        $
                        4,881,557
                        
                        
                        $
                        5,310,349See Notes to Consolidated
      Condensed Financial Statements








4




LIGHTNING GAMING, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


Three Months
Ended March 31, 2009 and 2008


Three Months EndedMarch,
      312009
                                                            
                                                            
                                                            2008RevenuesSales
      of systems and parts
                                                            
                                                            $
                                                            385,312
                                                            
                                                            
                                                            $
                                                            241,936License
      and service  fees
                                                            
                                                            
                                                            298,954
                                                            
                                                            
                                                            
                                                            72,487Total
      revenues
                                                            
                                                            
                                                            
                                                            684,266
                                                            
                                                            
                                                            
                                                            314,423Costs
      and operating expensesCost
      of products sold
                                                            
                                                            183,366
                                                            
                                                            
                                                            
                                                            95,633Operating
      expenses
                                                            
                                                            138,541
                                                            
                                                            
                                                            
                                                            133,494Research
      and development
                                                            
                                                            267,337
                                                            
                                                            
                                                            
                                                            416,065Selling,
      general & administrative expenses
                                                            
                                                            
                                                            320,530
                                                            
                                                            
                                                            
                                                            624,510Depreciation and
amortization
                                                            
                                                            
                                                            231,235
                                                            
                                                            
                                                            
                                                            144,880Total
      costs and operating expenses
                                                            
                                                            
                                                            1,141,009
                                                            
                                                            
                                                            
                                                            1,414,582Operating
      loss
                                                            
                                                            
                                                            
                                                            (456,743)
                                                            
                                                            
                                                            
                                                            (1,100,159)Non-operating
      expenseNet
      interest expense
                                                            
                                                            
                                                            (308,269)
                                                            
                                                            
                                                            
                                                            (205,207)Change
      in value of warrants
                                                            
                                                            
                                                            (93,824)
                                                            
                                                            
                                                            
                                                            -Other
      expense
                                                            
                                                            
                                                            (13,323)
                                                            
                                                            
                                                            
                                                            -Net
      loss
                                                            
                                                            
                                                            $
                                                            (872,159)
                                                            
                                                            
                                                            $
                                                            (1,305,366)Net
      loss per common share-basic and diluted
                                                            
                                                            
                                                            $
                                                            (0.19)
                                                            
                                                            
                                                            $
                                                            (0.28)Weighted
      average common shares outstanding-
                                                              basic
      and diluted
                                                            
                                                            
                                                            
                                                            4,647,474
                                                            
                                                            
                                                            
                                                            4,644,785See
      Notes to Consolidated Condensed Financial Statements












5





LIGHTNING
GAMING, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


Three Months
Ended March 31, 2009 and 2008








Three
      Months EndedMarch
      31,2009
                                                                    
                                                                    
                                                                    2008NET
      CASH USED IN OPERATING ACTIVITES
                                                                    
                                                                    $
                                                                    (783,707)
                                                                    
                                                                    
                                                                    $
                                                                    (745,778)CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of equipment
                                                                    
                                                                    
                                                                    (156,239)
                                                                    
                                                                    
                                                                    
                                                                    (310,459)Increase
      in intangible and other assets
                                                                    
                                                                    
                                                                    (74,791)
                                                                    
                                                                    
                                                                    
                                                                    (48,636)Proceeds
      from sale of  equipment
                                                                    
                                                                    
                                                                    327,000
                                                                    
                                                                    
                                                                    
                                                                    210,000NET
      CASH PROVIDED  BY  (USED IN) INVESTING
      ACTIVITIES
                                                                    
                                                                    
                                                                    95,970
                                                                    
                                                                    
                                                                    
                                                                    (149,095)CASH
      FLOWS FROM FINANCING ACTIVITIESPayment
      on capital lease
                                                                    
                                                                    
                                                                    (4,082)
                                                                    
                                                                    
                                                                    
                                                                    -Proceeds
      from  issuance of debt
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    92,719NET
      CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
                                                                    
                                                                    
                                                                    (4,082)
                                                                    
                                                                    
                                                                    
                                                                    92,719NET
      DECREASE  IN CASH
                                                                    
                                                                    
                                                                    (691,819)
                                                                    
                                                                    
                                                                    
                                                                    (802,154)CASH
      - Beginning of period
                                                                    
                                                                    
                                                                    2,429,493
                                                                    
                                                                    
                                                                    
                                                                    2,638,266CASH
      - End of period
                                                                    
                                                                    $
                                                                    1,737,674
                                                                    
                                                                    
                                                                    $
                                                                    1,836,112See
      Note to Consolidated Condensed Financial Statements










6








LIGHTNING
GAMING, INC. AND SUBSIDIARIES


Notes
to Consolidated Condensed Financial Statements


March 31,
2009





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 a fully automated, proprietary
electronic poker table  (the”System”) to commercial and tribal casinos,
card clubs, other gaming and lottery venues, bars and restaurants and the home
market.   The System is designed to improve economics for casino
operators while improving overall player experience.





The
Company routinely enters into license agreements with others for the use of
intellectual properties and technologies in the System. These agreements
generally provide for royalty advances and license fee payments when the
agreements are signed and minimum commitments which are cancellable in certain
circumstances








Basis of
Presentation:





The
unaudited interim financial statements contained herein should be read in
conjunction with the Company’s annual report on Form 10-K filed on April 8, 2009
(“Form 10-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 (“SEC”) 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 Form 10-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, 2008 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 three months ended March 31,
2009 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 the
Company’s significant accounting policies described in the Form
10-K.





The
allowance for doubtful accounts at March 31, 2009 and December 31, 2008 was
$10,000 .





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. The Company believes it will be able to
support its operations for the foreseeable








7





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


Basis of Presentation
(Continued)





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 the Company would be able
to obtain such financing on reasonable and feasible terms. If the Company needs
additional funding and is unable to obtain it, the
Company’s financial condition would be 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. The Company has recently
received assurance from a major stockholder to support its operations for 2009
should such support become necessary.




Recent Accounting
Pronouncements





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157 Fair Value Measurements. SFAS
No. 157 defines fair value, establishes a framework for measuring fair value in
accordance with accounting principles generally accepted in the United States,
and expands disclosures about fair value measurements. SFAS No. 157 established
a three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value. These tiers include: Level 1, defined as observable inputs
such as quoted prices in active markets; Level 2, defined as inputs other than
quoted prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs in which little or no
market data exists, therefore requiring an entity to develop its own
assumptions. The fair value hierarchy also requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when
measuring fair value.





The
Company adopted SFAS No.157 as of January 1, 2008, for financial instruments
measured at fair value on a recurring and nonrecurring basis. Although the
adoption of SFAS No.157 did not


materially
impact its financial condition, results of operations, or cash flows, the
Company is now required to provide additional disclosures as part of its
financial statements.





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





In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles . SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting principles to be used in the
preparation of financial statements that are presented in conformity
with  GAAP. The GAAP hierarchy was previously set forth in the
American Institute of Certified Public Accountants Statement on Auditing
Standards No. 69, The Meaning
of Present Fairly in Conformity With Generally Accepted Accounting
Principles. Though the FASB does not expect a change in current practice,
the FASB issued SFAS No. 162 in order for the GAAP hierarchy to reside in the
accounting literature established by the FASB. SFAS No. 162 is effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. Any effect of
applying the provisions of SFAS No.162 shall be reported as a change in
accounting principle in accordance with SFAS No. 154, Accounting Changes and
Error








8




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





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


Recent Accounting
Pronouncements (Continued)





Corrections. The Company is
currently reviewing SFAS No. 162 to determine its impact on the
Company’s  financial statements upon adoption.





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




Effective
January 1, 2009 we adopted the provisions of EITF  No.07-5, "Determining Whether an
Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock”. EITF No.
07-5 applies to any freestanding financial instruments or embedded features that
have the characteristics of a derivative, as defined by SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” and to any
freestanding financial instruments that are potentially settled in an entity’s
own common stock. As a result of adopting EITF No. 07-05, 7,009,145 of
our  outstanding  warrants previously treated as equity
pursuant to the derivative treatment exemption were no longer afforded equity
treatment. These warrants have a weighted average exercise price of $1.70 and a
weighted average remaining life of 3.35 years. As such, effective January 1,
2009 we reclassified the fair value of these  warrants, which have
exercise price reset features, from equity to liability status as if these
warrants were treated as a derivative liability since their date of issue. On
January 1, 2009, we reclassified from additional paid-in capital, as a
cumulative effect adjustment, $909,000 to beginning retained earnings and
$16,000 to a long-term warrant liability to recognize the fair value of such
warrants on such date. The fair value of these warrants increased  to
$110,000 as of March 31, 2009. As such, we recognized a $94,000 loss from
the change in fair value of these warrants for the three months ended
March 31, 2009.




In
accordance with  loans obtained by the Company (Note 5), the lenders
hold warrants to purchase 7,009,145 shares of the Company’s
common 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 warrants were not issued with the intent of effectively
hedging any future cash flow, fair value of any asset, liability or any net
investment in a foreign operation. The warrants do not qualify for hedge
accounting, and as such, all future changes in the fair value of these warrants
will be recognized currently in earnings until such time as the warrants are
exercised or expire. The Company measures its warrants  at fair value.
In accordance with SFAS 157, the Company’s  Warrants  are
classified within Level 3 because they are valued using the Black-Scholes model
.. Some of the inputs to these valuations are unobservable in the market and are
significant.











9





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





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


Recent Accounting
Pronouncements (Continued)




These common
stock purchase warrants do not trade in an active securities market, and as
such, the Companny’s estimate the fair value of these warrants using the
Black-Scholes option pricing model using the following assumptions:


March
      31,
                
                January
      1,2009
                
                2009Annual
      dividend yield
                
                
                —
                
                
                
                —Expected
      life (years)
                
                
                3.35
                
                
                
                3.6Risk-free
      interest rate
                
                
                2.69
                %
                
                
                2.24
                %Expected
      volatility
                
                
                45
                %
                
                
                40
                %





The Company
currently has no reason to believe future volatility over the expected remaining
life of these warrants is likely to differ materially from historical
volatility. The expected life is based on the remaining term of the warrants.
The risk-free interest rate is based on one-year U.S. Treasury
securities.





In
December 2007, the FASB issued SFAS No. 160 , Noncontrolling Interest in
Consolidated Financial Statements - an amendment of ARB No. 51. SFAS
No. 160 changes reporting standards for noncontrolling interests in a
subsidiary. The standard is effective for fiscal years beginning on or after
December 15, 2008. The Company adopted SFAS No.160 and it
did  not  have any effect on the Company's results of
operations, financial condition, or cash flows.





In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Liabilities . SFAS No. 159 provides entities with the option
to report selected financial assets and liabilities at fair value. Business
entities adopting SFAS No.159 will report unrealized gains and losses in
earnings at each subsequent reporting date on items for which the fair value
option has been elected. The Company has not elected the fair value option for
any of its assets or liabilities.





Note
2.   Inventory





Inventory consists
of the following:





March
      31,
                              2009
                            
                            
                            December
      31,
                              2008Finished
      tables
                            
                            $
                            509,339
                            
                            
                            $
                            246,609Raw
      materials
                            
                            
                            759,068
                            
                            
                            
                            577,659Inventory
                            
                            $
                            1,268,407
                            
                            
                            $
                            824,268





Note
3.   Property and Equipment





Property
and equipment consist of the following:




March
      31,
                                2009
                              
                              
                              December
      31,
                                2008Equipment,
      principally Systems
                              
                              $
                              2,505,578
                              
                              
                              $
                              2,474,113Furniture
      and fixtures
                              
                              
                              42,606
                              
                              
                              
                              43,426Property,
      plant and equipment
                              
                              
                              2,548,184
                              
                              
                              
                              2,517,539Less
      accumulated depreciation
                              
                              
                              (1,164,994
                              )
                              
                              
                              (1,028,998
                              )Property,
      plant and equipment, net
                              
                              $
                              1,383,190
                              
                              
                              $
                              1,488,541






10




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





Note
4.   Intangible Assets





Intangible
assets consist of the following:





March
      31,
                                      2009
                                    
                                    
                                    December
      31,
                                      2008Non-compete
      agreement
                                    
                                    $
                                    167,052
                                    
                                    
                                    $
                                    167,052Purchased
      licenses and software
                                    
                                    
                                    144,964
                                    
                                    
                                    
                                    74,964Total
      intangibles
                                    
                                    
                                    312,016
                                    
                                    
                                    
                                    242,016Less
      accumulated amortization
                                    
                                    
                                    (127,349)
                                    
                                    
                                    
                                    (97,449)Intangible
      assets, net
                                    
                                    $
                                    184,667
                                    
                                    
                                    $
                                    144,567





The
weighted average amortization period for the non-compete agreement acquired
in 2007 is 2 years.  The software licenses acquired in 2009 and
2008 are being amortized over 3 years.








Note
5.   Debt




Long Term
Debt consists of the following:




March
      31, 2009
                                            
                                            
                                            December
      31, 2008Capital
      Lease obligation interest at 7.5% payable monthly through March,
      2013
                                            
                                            $
                                            60,960
                                            
                                            $
                                            65,042Notes
      Payable 8% interest due 2010
                                            
                                            
                                            8,500,000
                                            
                                            
                                            8,500,000Notes
      Payable 8% interest due 2011
                                            
                                            
                                            4,000,000
                                            
                                            
                                            4,000,000Total
      long term debt
                                            
                                            
                                            12,560,960
                                            
                                            
                                            12,565,042Less:
      unamortized fair market value of  warrants
                                            
                                            
                                            (213,196)
                                            
                                            
                                            (274,211)Total
      long term debt
                                            
                                            $
                                            12,347,764
                                            
                                            $
                                            12,290,831




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 common
stock  at an exercise price of $2.00 per share .  The
warrants are exercisable through June 2013.





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 . 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.




In
accordance with the loans obtained by the Company, the lenders
hold warrants to purchase 7,009,145 shares of the Company’s
common 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
recognized for the three months ended








11





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




Note
5.   Debt (Continued)





March 31,
2009 and March 31, 2008  related  to these warrants
was  $62,474; and $53,213, respectively, and was included in interest
expense.





Certain
notes in the amount of $1,500,000 and related accrued interest of $255,612 at
March 31, 2009 are convertible at the discretion of the noteholder into
877,806 shares of the Company’s common stock.





Note
6. Commitments




The
Company’s  discussions with the staff of the Pennsylvania Gaming
Control Board (“PGCB”) , which it reported in the Form 10K  in Note 6
to the consolidated condensed financial statements, have been satisfactorily
resolved without a consent agreement or any similar action.  The
Company’s  PGCB license applications are still pending.




In  2008   the
Company entered into a perpetual nonexlusive technology agreement with Intuecode
for a nonexclusive perpetual license to use its  gaming plateform
operating system.   The agreement provides for royalty fees on a
per unit basis and is for a term of two years.





In March
2009 the Company entered into an exclusive  license agreement with
Hasbro, Inc. to use the Scrabble brand in gaming devices distributed in the
United States and Canada.  The initial term of the agreement
is  five years with the Company’s right to extend the agreement for
two additional five- year terms if certain performance standards are met. The
agreement calls for minimum annual payments and may be cancelled under certain
conditions.





The
Company routinely enters into license agreements  for the use of
intellectual properties and technologies in our products. These agreements
generally provide for royalty advances and license fee payments when the
agreements are signed and minimum commitments which are cancellable in certain
circumstances.




At March
31, 2009, the Company had total  license fee commitments and
advances  made and potential future royalty and license fee payments
as follows:




Minimum
                          CommitmentsTotal
      royalty and license fee commitments
                        
                        $
                        900,000Advances  made
                        
                        
                        (50,000
                        )Potential
      future payments
                        
                        $
                        850,000






12










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




Note
6. Commitments (Continued)





As of
March 31, 2009, the Company estimates that potential future royalty payments in
each fiscal year will be as follows:




Minimum
                        Commitments2010
                      
                      $
                      100,0002011
                      
                      
                      200,0002012
                      
                      
                      250,0002013
                      
                      
                      300,000Thereafter
                      
                      
                      —Total
                      
                      $
                      850,000





Note
7.   Stockholders’ Deficit





Stockholders’
deficit includes the following transactions:





Stock
Options:  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 March 31, 2009, 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 of Directors 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
granted under the Stock Plan generally vest at 20% per year starting on the
first anniversary of 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, stock options granted  are accounted for under
SFAS No. 123R, “Share Based Payments”, and its related
interpretations.  Accordingly, compensation costs of $27,526 and
$43,858 have been recognized for the three months ended March 31, 2009 and
2008, respectively.





A summary
of option transactions in 2008 is as follows:




WeightedAverageShares
                        
                        
                        Exercise
      PriceOutstanding
      at December 31, 2008
                        
                        
                        1,813,200
                        
                        
                        $
                        1.68Options
      granted
                        
                        
                        -
                        
                        
                        $
                        -Options
      exercised
                        
                        
                        -
                        
                        
                        $
                        -Options
      cancelled
                        
                        
                        -
                        
                        
                        $
                        -Options
      outstanding at March 31, 2009
                        
                        
                        1,813,200
                        
                        
                        $
                        1.68Options
      available for grant  under the Stock Plan at March 31,
      2009
                        
                        
                        799,000








13


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





Note
7.   Stockholders’ Deficit (Continued)





Included
in the options granted during 2008 are options for 115,200 shares granted
outside the Stock Plan. The fair value of each option award is estimated on the
date of grant using the Black-Scholes option pricing model.  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.





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
following table summarizes information with respect to stock options outstanding
at March 31, 2009:




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
                                        Value1,813,200
                                        6.2
                                        $1.68
                                        -
                                        
                                        851,200
                                        6.4
                                        $1.36
                                        -





The
following table summarizes information with respect to stock options outstanding
at December 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
                                        Value1,813,200
                                        6.4
                                        $1.68
                                        -
                                        
                                        810,200
                                        6.3
                                        $1.18
                                        -








As
of March 31, 2009, there was approximately $336,000 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 2.5 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
common 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.








14




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





Note
7.   Stockholders’ Deficit (Continued)


Warrants(Continued)





The
following table is a summary of the Company’s warrant activity for the
three months ended March 31, 2009:





WeightedWarrants
                    
                    
                    AverageOutstanding
                    
                    
                    Exercise
      PriceOutstanding
      at December 31, 2008
                    
                    
                    7,009,145
                    
                    
                    $
                    1.70Warrants granted
                    
                    
                    -
                    
                    
                    $
                    -Warrants exercised
                    
                    
                    -
                    
                    
                    
                    -Warrants cancelled
                    
                    
                    -
                    
                    
                    $
                    -Warrants outstanding
      at March 31, 2009
                    
                    
                    7,009,145
                    
                    
                    $
                    1.70






The
following table summarizes information with respect to warrants outstanding at
March 31, 2009:





Warrants Outstanding
                                  
                                  Vested
      WarrantsWeightedAverage
                                  Weighted
                                  
                                  
                                  
                                  WeightedRemaining
                                  Average
                                  Aggregate
                                  
                                  
                                  Average
                                  AggregateContractual
                                  Exercise
                                  Intrinsic
                                  
                                  
                                  Exercise
                                  IntrinsicNumber
                                  Life
      (Years)
                                  Price
                                  Value
                                  
                                  Number
                                  Price
                                  Value7,009,145
                                  3.4
                                  $1.70
                                  -
                                  
                                  7,009,145
                                  $1.70
                                  -




The
following table summarizes information with respect to warrants outstanding at
December 31, 2008:





Warrants Outstanding
                                  
                                  Vested
      WarrantsWeightedAverage
                                  Weighted
                                  
                                  
                                  
                                  WeightedRemaining
                                  Average
                                  Aggregate
                                  
                                  
                                  Average
                                  AggregateContractual
                                  Exercise
                                  Intrinsic
                                  
                                  
                                  Exercise
                                  IntrinsicNumber
                                  Life
      (Years)
                                  Price
                                  Value
                                  
                                  Number
                                  Price
                                  Value7,009,145
                                  3.6
                                  $1.70
                                  -
                                  
                                  7,009,145
                                  $1.70
                                  -





The
weighted average fair value per share of each  warrant granted for the
year ended December 31, 2008 was $0.006.




15





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





Note
8.   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, 2009, the Company has available, for federal and state income tax
purposes, net operating loss (“NOL”) carryforwards of approximately $9,300,000,
which expire at various times through 2029.  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. The Company has not recognized any
tax carryforward benefits in the financial statements.





Note
9. Related Party Transactions





During
2006, 2007 and 2008 the Company borrowed $7,500,000 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 respective times the Company issued them was
$791,205. In addition, principal and interest on certain notes in the amount of
$1,752,612 at March 31, 2009 are convertible into 876,306 shares of common
stock. During the three months ended March 31, 2009 and 2008, interest on the CI
II Loans amounted to $150,000 and $110,000, respectively . During 2009 and 2008,
we made no principal payments on the CI II Loans.  As of
March 31, 2009, the aggregate outstanding principal amount of the CI II Loans
was $7,500,000.





Mr. Tecce
is of counsel to the law firm of Buchanan Ingersoll & Rooney PC, which
the Company retained for various legal matters in 2009 and
2008.  During  the three months ended March 31, 2009 and
2008,  fees and expenses incurred to that firm
totaled  $7,000 and  $0, respectively.




16




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





Forward-Looking
Statements





Throughout
this report we make “forward-looking statements,” as that 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 (the “Exchange
Act”).  Forward-looking statements include the words “may,” “will,”
“could,” “would,” “likely,” “estimate,” “intend,” “plan,” “continue,” “believe,”
“expect,” “projections” and “anticipate” or the negative of such terms and
similar words and include all discussions about our ongoing or future plans,
objectives or expectations.




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. We have based these forward-looking statements on
our current expectations and projections about future events.  These
forward-looking statements are subject to known and unknown risks, uncertainties
and assumptions that may cause our actual results, level of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such
forward-looking statements.  You should read this report completely
and with the understanding that actual future results may be materially
different from what we currently expect.  We do not plan to update
forward-looking statements unless applicable law requires us to do so, even
though our situation or plans may change in the future.




All
future written and oral forward-looking statements attributable to us or any
person acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section or elsewhere in
this report.  In light of these and other risks, uncertainties and
assumptions, the forward-looking events discussed in this report might not
occur.  Factors that might cause our actual results to differ from our
expectations, might cause us to modify our plans or objectives, or might affect
our ability to meet our expectations include, but are not limited
to:  the severe economic downturn that the gaming industry is
suffering; the dramatic decline in national and global economic conditions; the
tightening of credit in financial markets generally and the particularly severe
tightening of them for the gaming industry, which may adversely affect our
ability to raise funds through debt or equity financing and the ability of our
customers to purchase our product and services; interest rates; our ability to
obtain additional gaming licenses, fuel price increases, legislative/regulatory
changes; competition, and changes in generally accepted accounting principles.
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”).




The
information contained in this section has been derived from our financial
statements and should be read together with the financial statements and related
notes contained elsewhere in this report.







17





Overview





On
January 29, 2008, Lightning Gaming, Inc. (the” Company”) acquired
Lightning Poker, Inc. (“Lightning Poker”) in a merger (the “Merger”), under
which Lightning Poker became a wholly-owned subsidiary of the Company, 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.




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 Holdem, Omaha, cash, and single table tournament poker, which the
Company needs in order to install the System in certain
jurisdictions.





The
Company has filed and will continue to file applications for licensure in
various gaming jurisdictions. The Company evaluates economic impact of each
jurisdiction in determining the priority of filing in a
jurisdiction.  The Company has applied for the required gaming
regulatory approvals to sell the System in Nevada.  However, due to
the current state of the United States economy, the Company has requested that
the investigation of its application be suspended until further
notice.  A decision from the Nevada gaming regulatory authorities
could take up to 24 months from the start of the investigation of the
application, and there is no assurance of obtaining the required approvals to
sell the System in Nevada.




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.




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 a
history of losses since the Company’s inception. We incurred a net loss of
$872,159 in the three months ended March 31, 2009.






18


Three
Months Ended March 31, 2009  Compared to Three  Months Ended
March 31, 2008


( All
amounts rounded to the nearest $1,000)


Revenues





The
Company’s revenues for the three months ended March 31, 2009 were $684,000
compared to $314,000 for the comparable prior year period. The increase in
revenues was due to the increase in both sales of Systems and parts and license
and service fees.





Sales of
Systems and parts increased by $143,000 (59%) to $385,000 for the three months
ended March 31, 2009 as compared to $242,000 for the three months ended March
31, 2008 due to the placement of additional Systems at existing international
customers.





License
and service fees increased by $227,000 (315%) to $299,000 for the three months
ended March 31, 2009 as compared to $72,000 for the three months ended March 31,
2008 due to the placement of Systems at new and existing casino
customers.




Cost
of Products Sold




For the
three months ended March 31, 2009, cost of products sold increased $87,000
(91%) to $183,000 as compared to $96,000 for the three months ended March 31,
2008 due to the placement of additional Systems at existing international
customers. Gross margins were 52% for the three months ended March 31, 2009
compared with 60% for the three months ended March 31, 2008. The decrease in
gross margin for the three months ended March 31, 2009 was principally due to
favorable terms the Company offered to customers on multi- System
placements.





Operating
Expenses





Operating
expenses increased by $6,000 to $139,000 for the three months
ended March 31, 2009, from $133,000 for the three months ended March 31,
2008.  This increase was primarily the result of the
increase in installation costs associated with the Systems installed during
the current quarter.





Research
and Development Expenses





Research
and development expenses decreased by $149,000 to $267,000 for the three
months ended March 31, 2009, from $416,000 for the three months ended March 31,
2008. Research and development expenses are primarily related to the
development of the System.





Selling,
General and Administrative Expenses





Selling,
general and administrative expenses decreased by $304,000 to $321,000 for the
three months ended March 31, 2009, from $625,000 for the three months ended
March 31, 2008.  This decrease was primarily due to the decrease in
staff costs, absence of merger costs and timing of licensing
activity.







19


Depreciation
and Amortization





Depreciation
and amortization  increased by $ 86,000 to $231,000 for the three
months ended March 31, 2009 from $145,000 for the three months ended March
31, 2008. This increase was primarily related to the installation of Systems
during 2008 and 2009.





Net
Interest Expense





Net
interest expense increased by $103,000 to $308,000 for the three
months ended March 31, 2009 from $205,000 for the three months ended
March 31, 2008. This change was the result of the issuance of notes and related
warrants during 2008 of $4,000,000, which was  partly offset by
interest income from the investment of cash balances.





Change
in Value of Warrants





In June
2008, the Financial Accounting Standards Board finalized Emerging Issues Task
Force (“EITF”) No. 07-5, "Determining Whether an Instrument (or Embedded
Feature) is indexed to an Entity's Own Stock". The EITF lays out a procedure to
determine if an equity-linked financial instrument (or embedded feature) is
indexed to its own common stock. The EITF is effective for fiscal years
beginning after December 15, 2008. The outstanding warrants that were previously
classified in equity were reclassified to derivative liabilities on January 1,
2009 as a result of this EITF.  We estimated the fair value of these
liabilities as of January 1, 2009 to be $16,000. The fair value of these
liabilities was $110,000 at March 31, 2009. The $94,000 change in fair value is
reported in our consolidated statement of operations as a “Change in value of
warrants”.





Other Expense





The
Company receives payment in Euros for certain  license fees and sales
revenues  from some international customers. Other expense represents
foreign exchange transaction costs of conversion of Euros to US
dollars.





Liquidity
and Capital Resources





Since our
inception, we have  funded our startup costs, operating costs and
capital expenditures through loans and issuances of common
stock.





For the
three months ended March 31, 2009, we incurred a net loss of $872,000 and used
$783,000 of cash in operating activities. At March 31, 2009, we had an
accumulated deficit of $12,750,000. 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.




Our
current cash requirements are approximately $150,000 to $250,000 per month,
principally for salaries, professional services, marketing, office expenses and
the purchase of the hardware components for the System.





Based on
our cash flow projections and anticipated revenues, we believe we will be able
to support our operations for the foreseeable future. However, if sales of the
System do not meet, or our expenses exceed, our projections, we 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 us, particularly during this economic recession
and severe downturn in the gaming industry. If we need additional
funding and are unable to obtain it, our financial condition would be adversely
affected. We have recently received assurance from a major stockholder to
support our operations for 2009 should such support become
necessary.







20


In
addition, our 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. Our
inability to obtain such financing on terms that allow us to lease
the System profitably would hamper our ability to distribute
the System on a large scale.




Off-Balance
Sheet Arrangements





As of
March 31, 2009, 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. The Company believes it will be able to
support its 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 the Company would be able to obtain such financing  on
reasonable terms and feasible terms. If the Company needs additional funding
and is unable to obtain it, the Company’s financial condition
would be 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. The Company has recently received assurance from a major
stockholder to support its operations for 2009 should such support become
necessary.





Item 3. Quantitative and Qualitative Disclosures about Market
Risk.





Not
applicable.








Item
4T. Controls and Procedures





We
maintain disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) 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, and that such information is accumulated and
communicated to our management including our Chief Executive Officer (“CEO”) and
Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions
regarding required disclosure.  In designing and evaluating our
disclosure controls and procedures, our management recognizes that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and
management  is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.  As of
March 31, 2009, we conducted an evaluation, under the supervision and with the
participation of our management including our CEO and CFO, of the effectiveness
of our disclosure controls and procedures.  Based on that evaluation,
our CEO and CFO have concluded that as of March 31, 2009, our disclosure
controls and procedures were effective at the reasonable assurance
level.







21




PART
II - OTHER INFORMATION








Item
1.     Legal Proceedings.





Our
discussions with the staff of the Pennsylvania Gaming Control Board (“PGCB”),
which we reported in Part I, Item 3 of our December 31, 2008 Form 10-K, have
been satisfactorily resolved without a consent agreement or any similar
action.  Our PGCB license applications are still pending.








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


None





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
                EXHIBIT
      DESCRIPTION10.1
                Agreement
      with The Co-Investment Fund II, L.P., dated as of December 31, 2008 and
      entered into on March 26, 2009, to extend the maturity date of promissory
      notes





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












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.







Date: 
      May 15, 2009
            Lightning
      Gaming, Inc.By:      /s/ Brian Haveson
              Brian
      Haveson
              President,
      Chief Executive Officer and
Director