POKERTEK, INC. - FORM 10-K/A

Attached files

file	filename
EX-32 - EXHIBIT 32 - POKERTEK, INC.	a6360466ex32.htm
EX-21 - EXHIBIT 21 - POKERTEK, INC.	a6360466ex21.htm
EX-31 - EXHIBIT 31 - POKERTEK, INC.	a6360466ex31.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment No. 1

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

For the fiscal year ended December 31, 2009

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

For the transition period from _____________________to______________________

Commission File Number: 000-51572

PokerTek, Inc.

(Exact name of registrant as specified in its charter)

North Carolina		61-1455265
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1150 Crews Road, Suite F, Matthews, North Carolina 28105

(Address of principal executive offices) (Zip Code)

(704) 849-0860

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, no par value	The NASDAQ Stock Market LLC (NASDAQ Capital Market)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

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

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

The aggregate market value of the common equity held by non-affiliates of the registrant as of June 30, 2009 was $3,918,669 based upon the last reported sale price on the NASDAQ Capital Market on June 30, 2009.

On March 19, 2010, there were 14,081,043 outstanding shares of the registrant’s common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of our Proxy Statement for the 2010 Annual Meeting of Shareholders are incorporated by reference into Part III of our Annual Report on Form 10-K filed with the SEC on March 31, 2010.

EXPLANATORY NOTE

We are filing this Amendment No.1 to Annual Report on Form 10-K for the year ended December 31, 2009 (“Amendment”), originally filed with the Securities and Exchange Commission (“SEC”) on March 31, 2010, to include in Part IV, Item 15, Exhibits, Financial Statement Schedules a revised Report of Independent Registered Public Accounting Firm that corrects a typographical error in the report.

This Amendment does not revise, update, or in any way affect any information or disclosure contained in the Form 10-K for the year ended December 31, 2009 other than what is mentioned in the paragraph above and we have not updated the disclosures contained herein to reflect events that occurred at a later date.

In addition, in accordance with applicable SEC rules, this Amendment includes currently-dated certifications from our Chief Executive Officer, who is our principal executive officer, and our Chief Financial Officer, who is our principal accounting and financial officer, in Exhibits 31 and 32.

TABLE OF CONTENTS

		Page

PART IV
Item 15.	Exhibits, Financial Statement Schedules	1

Signatures		2
Exhibit Index

(i)

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a) The following documents are filed as a part of this Amendment No. 1 to Form 10-K/A:

1. Financial Statements

The following financial statements are included in a separate section of this Amendment No. 1 to Annual Report on Form 10-K/A beginning on page F-1:

●	Report of Independent Registered Public Accounting Firm;

●	Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and 2007;

●	Consolidated Balance Sheets as of December 31, 2009 and December 31, 2008;

●	Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2009, 2008 and 2007;

●	Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007; and

●	Notes to Consolidated Financial Statements.

2. Financial Statement Schedules

The following financial statement schedule is included in a separate section of this Amendment No. 1 to Annual Report on Form 10-K/A on page S-1:

●	Valuation and Qualifying Accounts and Reserves

Other financial statement schedules are omitted because they are not required or are not applicable, or the required information is provided in the consolidated financial statements or notes described in Item 15(a)(1) above.

3. Exhibits

The Exhibits listed in the Exhibit Index, which appears immediately following the Financial Statement Schedules and is incorporated herein by reference, are part of our Annual Report on Form 10-K filed with the SEC on March 31, 2010.

(b) See the Exhibit Index.

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PokerTek, Inc.

Date: July 16, 2010	By:	/s/ Mark D. Roberson
		Mark D. Roberson
		Chief Executive Officer, Chief Financial Officer and Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/	Mark D. Roberson	Date:	July 16, 2010
Name:	Mark D. Roberson
Title:	Chief Executive Officer, Chief Financial Officer and Treasurer
	(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)


/s/	Lyle A. Berman	Date:	July 16, 2010
Name:	Lyle A. Berman
Title:	Chairman of the Board of Directors


/s/	Gehrig H. White	Date:	July 16, 2010
Name:	Gehrig H. White
Title:	Vice Chairman of the Board of Directors


/s/	James T. Crawford, III	Date:	July 16, 2010
Name:	James T. Crawford, III
Title:	President, Secretary and Director


/s/	Joseph J. Lahti	Date:	July 16, 2010
Name:	Joseph J. Lahti
Title:	Director


/s/	Arthur L. Lomax	Date:	July 16, 2010
Name:	Arthur L. Lomax
Title:	Director

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2

Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and 2007	F-3

Consolidated Balance Sheets as of December 31, 2009 and 2008	F-4

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2009, 2008 and 2007	F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007	F-6

Notes to Consolidated Financial Statements	F-7

Consolidated Financial Statement Schedules:
II. Valuation and Qualifying Accounts and Reserves	S-1

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

PokerTek, Inc.

We have audited the accompanying consolidated balance sheets of PokerTek, Inc.(“PokerTek” or the “Company”) as of December 31, 2009 and 2008, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2009. Our audits also included the financial statement schedules of PokerTek, Inc. listed in Item 15(a). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PokerTek as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

We were not engaged to examine management's assessment of the effectiveness of PokerTek’s internal control over financial reporting as of December 31, 2009, included in the accompanying “Management’s Report on Internal Control over Financial Reporting” and, accordingly, we do not express an opinion thereon.

/s/ McGladrey & Pullen, LLP

Charlotte, NC

March 31, 2010

F-2

POKERTEK, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years Ended December 31,
	2009			2008			2007
Revenue:
Gaming	$	5,413,822		$	9,668,656		$	3,807,244
Amusement		1,278,526			4,756,068			197,447
Total revenue		6,692,348			14,424,724			4,004,691

Cost of Revenue:
Gaming		3,015,451			5,699,962			3,314,603
Amusement		1,194,870			3,373,551			277,412
Cost of revenue		4,210,321			9,073,513			3,592,015

Gross profit		2,482,027			5,351,211			412,676
Operating Expenses:
Selling, general and administrative		5,535,674			8,549,878			8,867,377
Research and development		1,210,371			2,766,543			3,992,449
Share-based compensation expense		759,673			1,106,113			822,349
Depreciation		254,699			210,260			144,717
Total operating expenses		7,760,417			12,632,794			13,826,892

Operating loss		(5,278,390	)		(7,281,583	)		(13,414,216	)

Interest income (expense), net		(287,956	)		(94,285	)		564,600

Net loss before income taxes		(5,566,346	)		(7,375,868	)		(12,849,616	)

Income tax provision		(107,865	)		(262,905	)		-

Net loss	$	(5,674,211	)	$	(7,638,773	)	$	(12,849,616	)


Net loss per common share - basic and diluted	$	(0.47	)	$	(0.70	)	$	(1.23	)

Weighted average common shares outstanding - basic and diluted		11,966,928			10,941,117			10,462,912

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

F-3

POKERTEK, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
Assets	2009			2008
Current assets:
Cash and cash equivalents	$	636,374		$	1,481,530
Investments		-			3,900,000
Accounts receivable, net		1,187,668			1,600,464
Inventory		2,482,239			3,547,099
Prepaid expenses and other assets		169,845			213,222
Total current assets		4,476,126			10,742,315

Other assets:
PokerPro systems, net		2,408,161			3,821,376
Heads-Up Challenge units, net		570,425			-
Property and equipment, net		394,522			599,772
Other assets		433,865			542,214

Total assets	$	8,283,099		$	15,705,677

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	518,476		$	1,590,681
Accrued liabilities		822,784			859,179
Deferred revenue		495,767			194,051
Long-term debt, current portion		26,239			2,889,261
Total current liabilities		1,863,266			5,533,172

Long-term liabilities:
Deferred revenue		106,939			-
Long-term debt		812,396			2,038,635
Total long-term liabilities		919,335			2,038,635

Total liabilities		2,782,601			7,571,807

Commitments and contingencies

Shareholders' equity:
Preferred stock, no par value per share; authorized 5,000,000, none issued and outstanding		-			-
Common stock, no par value per share; authorized 100,000,000 shares, issued and outstanding 14,015,658 and 11,021,429 shares at December 31, 2009 and December 31, 2008, respectively		-			-
Additional paid-in capital		45,500,172			42,459,333
Accumulated deficit		(39,999,674	)		(34,325,463	)
Total shareholders' equity		5,500,498			8,133,870

Total liabilities and shareholders' equity	$	8,283,099		$	15,705,677

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

F-4

POKERTEK, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

					Additional					Total
	Common Stock				Paid-in		Accumulated			Shareholders'
	Shares		Value		Capital		Deficit			Equity
Balance, December 31, 2006		9,472,020	$	-	$	27,956,685	$	(13,837,074	)	$	14,119,611

Net proceeds from private placement of common stock		1,444,444		-		12,507,578		-			12,507,578
Stock options exercised		18,000		-		66,608		-			66,608
Share-based compensation		-		-		822,349		-			822,349
Net loss		-		-		-		(12,849,616	)		(12,849,616	)
Balance, December 31, 2007		10,934,464		-		41,353,220		(26,686,690	)		14,666,530

Stock warrants exercised		86,965		-		-		-			-
Share-based compensation		-		-		1,106,113		-			1,106,113
Net loss		-		-		-		(7,638,773	)		(7,638,773	)
Balance, December 31, 2008		11,021,429		-		42,459,333		(34,325,463	)		8,133,870

Net proceeds from private placement of common stock		686,090		-		500,000		-			500,000
Stock issued as payment for inventory		685,000		-		588,250		-			588,250
Conversion of debt to common stock		1,445,784		-		1,200,000		-			1,200,000
Stock issued as payment for interest		56,086		-		43,916		-			43,916
Stock warrants exercised		69,754		-		-		-			-
Share-based compensation		51,515		-		708,673		-			708,673
Net loss		-		-		-		(5,674,211	)		(5,674,211	)
Balance, December 31, 2009		14,015,658	$	-	$	45,500,172	$	(39,999,674	)	$	5,500,498

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

F-5

POKERTEK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2009			2008			2007
Cash flows from operating activities:
Net loss	$	(5,674,211	)	$	(7,638,773	)	$	(12,849,616	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		2,771,889			2,793,225			2,053,345
Amortization		72,162			-			-
Share-based compensation expense		759,673			1,106,113			822,349
Provision for accounts and other receivables		44,440			14,672			47,129
Changes in assets and liabilities:
Accounts and other receivables		368,356			(646,600	)		(743,276	)
Prepaid expenses and other assets		151,726			(47,208	)		(158,373	)
Inventory		1,653,110			(904,618	)		(741,485	)
PokerPro systems		(1,176,137	)		(1,412,707	)		(4,250,373	)
Heads-Up Challenge		(570,425	)		-			-
Accounts payable and accrued expenses		(1,115,684	)		420,385			1,026,289
Deferred revenue		408,655			(205,849	)		399,900
Net cash used in operating activities		(2,306,446	)		(6,521,360	)		(14,394,111	)
Cash flows from investing activities:
Purchases of property and equipment		(49,449	)		(131,713	)		(353,596	)
Sale of investments		3,900,000			2,050,000			28,600,000
Purchase of investments		-			-			(27,000,000	)
Net cash provided by investing activities		3,850,551			1,918,287			1,246,404
Cash flows from financing activities:
Proceeds from long-term debt		-			2,000,000			-
Proceeds from short-term debt		-			3,060,443			-
Repayments of short-term debt		(2,865,357	)		(195,086	)		-
Proceeds from issuance of common stock, net of expenses		500,000			-			12,507,578
Proceeds from common stock options exercised		-			-			66,608
Repayments of capital lease		(23,904	)		(10,734	)		-
Net cash provided by (used in) financing activities		(2,389,261	)		4,854,623			12,574,186
Net increase (decrease) in cash and cash equivalents		(845,156	)		251,550			(573,521	)
Cash and cash equivalents, beginning of year		1,481,530			1,229,980			1,803,501
Cash and cash equivalents, end of period	$	636,374		$	1,481,530		$	1,229,980

Supplemental Disclosure of Cash Flow Information
Cash paid for:
Interest	$	191,718		$	265,375		$	4,450
Income taxes	$	123,205		$	242,337		$	-

Non-cash transactions:
Issuance of common shares in satisfaction of long-term debt	$	1,200,000		$	-		$	-
Issuance of common shares as payment for inventory	$	588,250		$	-		$	-
Issuance of common shares as payment of interest	$	43,916		$	-		$	-
Capital lease obligation	$	-		$	73,273		$	-

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

F-6

POKERTEK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009

Note 1. Nature of Business and Significant Accounting Policies

Nature of Business

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

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

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

Basis of Presentation and Principles of Consolidation

These consolidated financial statements include the accounts of PokerTek, Inc. and its consolidated subsidiaries. They have been prepared by the Company in accordance with accounting principles generally accepted in the United States. The financial statements of the Company’s foreign subsidiary are measured using the U.S. dollar as the functional currency. All significant intercompany transactions and accounts have been eliminated in consolidation.

Significant Accounting Policies

Accounting estimates: The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue recognition: The Company recognizes revenue as it is earned in accordance with generally accepted accounting principles. If multiple product deliverables are included under a sale or license agreement, the Company allocates revenue to each product based upon their respective fair values in relation to the total contract value and defers revenue recognition on those deliverables that have not met all requirements of revenue recognition.

Revenues from product sales, including sales of casino products to Aristocrat International Pty. Limited (“Aristocrat”), the Company’s international distributor for PokerPro gaming products (through January 15, 2010) and a significant shareholder, are recognized when all of the following have occurred:

●	Persuasive evidence of an arrangement exists;

●	The fee is fixed or determinable;

●	Delivery has occurred;

●	Collectibility is reasonably assured; and

●	Title and risk of loss have passed to the customer.

In many cases, arrangements include recurring fees based on either a fixed monthly fee or a pre-determined percentage of the amount the casino or card club charges for each hand of poker (the “rake”). In some cases, the Company may also charge separately for installation, training and post contract customer support (“PCS”). Where the Company is responsible for performing initial installation and training, all revenue is deferred until such time as those services have been rendered. Following installation, license and service fees are recognized when persuasive evidence of an arrangement exists, services have been rendered, the price is fixed and determinable and collectability is reasonably assured. This normally occurs on a monthly basis as the amounts contractually due are computed and invoiced, PCS is delivered and all other revenue recognition criteria are satisfied.

F-7

In cases where upfront fees are charged upon delivery of hardware and the Company is responsible for delivering other services such as maintenance and support following installation, the delivery of hardware is generally not considered a separate deliverable and the upfront fees are recognized ratably.

Cash and cash equivalents: The Company considers all cash accounts and highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

Investments in Auction Rate Securities (“ARS”): The Company accounts for its auction rate securities at fair value.

Concentrations of credit risk: Financial instruments that subject the Company to credit risk primarily consist of cash and cash equivalents, marketable securities and accounts receivables. The Company’s credit risk is managed by investing primarily in high-quality money market instruments and accounts guaranteed by the U.S. government and its agencies.

Receivables and allowance for doubtful accounts: The Company monitors its exposure for credit losses on its customer receivable balances and the credit worthiness of its customers on an ongoing basis and records related allowances for doubtful accounts. Allowances are estimated based upon specific customer balances, where a risk of default has been identified, and also include a provision for non-customer specific defaults based upon historical experience. As of December 31, 2009 and December 31, 2008, the Company recorded an allowance for doubtful accounts of $157,170 and $81,403, respectively. If circumstances related to specific customers change, estimates of the recoverability of receivables could also change.

Deferred licensing fees: Deferred licensing fees consist of amounts paid to various regulatory agencies. As approvals are obtained, the Company begins expensing the fees over the estimated term of the license. Deferred licensing fees are included in other assets on the consolidated balance sheets.

Patents. Legal fees and application costs related to the Company’s patent application process are expensed as incurred. There is a high degree of uncertainty in the outcome of approval for any of the Company’s patents.

Research and development: Research and development costs are charged to expense when incurred and are included in the consolidated statements of operations, except when certain qualifying expenses are capitalized. Capitalization of development costs of software products begins once the technological feasibility of the product is established. Capitalization ceases when such software is ready for general release, at which time amortization of the capitalized costs begins. As of December 31, 2009 and 2008, no amounts had been capitalized as technological feasibility is generally established at or near the time of general release. Research and development costs include salaries, benefits, travel and other internal costs allocated to software and hardware development efforts, as well as purchased components, engineering services and other third-party costs.

Advertising: Advertising and promotional costs are expensed as incurred. Advertising costs for the years ended December 31, 2009, 2008 and 2007 were $10,897, $41,859, and $129,625, respectively.

Inventories : Inventories are stated at the lower of cost or market, where cost is determined on a first-in, first-out basis. Inventories also include parts from PokerPro systems that have been used at customer sites and returned for refurbishment and subsequent redeployment with customers. Those inventory items are stated at the lower of cost or market, where cost is determined based on the undepreciated cost of the returned items. We regularly review inventory for slow moving, obsolete and excess characteristics and evaluate whether inventory is stated at the lower of cost or net realizable value.

PokerPro systems, Heads-Up Challenge units and property and equipment: PokerPro systems and Heads-Up Challenge units represent equipment owned by PokerTek. The majority of this equipment is operated at customer sites pursuant to contractual license agreements. PokerPro systems may also include equipment used by the Company for demonstration or testing purposes.

PokerPro systems and Heads-Up Challenge units are transferred from the Company’s respective inventory accounts to the PokerPro systems and Heads-Up Challenge units accounts at the time the units are fully assembled, configured, tested and otherwise ready for use by a customer. Because the configuration of each PokerPro system is unique to the specific customer environment in which it is being placed, the final steps to configure and test the unit generally occur immediately prior to shipment. Depreciation expense for PokerPro systems begins in the month of transfer of each PokerPro system from the Company’s inventory account to the PokerPro systems account.

F-8

PokerPro systems, Heads-Up Challenge units and property and equipment are stated at cost, less accumulated depreciation. The Company includes an allocation of direct labor, indirect labor and overhead for each PokerPro system. Costs not clearly related to the procurement, manufacture and implementation are expensed as incurred. As PokerPro systems are returned from customer sites, the hardware components are dismantled and transferred to inventory at depreciated cost, and all labor, overhead and installation costs capitalized in connection with the original installation are expensed immediately. As the systems are returned to the Company’s warehouse, the various hardware components are individually taken apart, inspected, tested, thoroughly cleaned and refurbished with new components as needed for redeployment. Unusable parts are scrapped. Refurbished systems are transferred from inventory to the PokerPro systems account and depreciated over their estimated useful life in a manner consistent with new PokerPro systems described above. In addition, when the Company’s products have been delivered but the revenue associated with the arrangement has been deferred, the Company transfers the balance from inventory to PokerPro systems. This balance is then charged to customer revenue as the related deferred revenue is recognized.

Depreciation is computed using the straight-line method over the estimated useful life of the asset. Estimated useful lives are generally three years for PokerPro systems and Heads-Up Challenge units and five years for internal-use equipment and office furniture. Leasehold improvements are amortized over the shorter of the term of the lease or the useful life of the improvement. Expenditures for maintenance and repairs are expensed as incurred.

The Company evaluates property and equipment for impairment as an event occurs or circumstances change that would more likely than not reduce the fair value of the property and equipment below the carrying amount. If the carrying amount of property and equipment is not recoverable from its undiscounted cash flows, then the Company would recognize an impairment loss for the difference between the carrying amount and the current fair value. Further, the Company evaluates the remaining useful lives of property and equipment at each reporting period to determine whether events and circumstances warrant a revision to the remaining depreciation periods.

Offering costs: Offering costs incurred in connection with the Company’s equity offerings, consisting principally of legal, accounting and underwriting fees, have been charged to additional paid in capital. As of December 31, 2009, approximately $3.2 million of offering costs on a cumulative basis had been incurred. During 2009, no additional offering costs were incurred.

Income taxes: The Company accounts for income taxes and uncertain tax positions in accordance with generally accepted accounting principles. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.

The accounting for income taxes involves significant judgments and estimates and deals with complex tax regulations. The recoverability of certain deferred tax assets is based in part on estimates of future income and the timing of temporary differences (see Note 12 – “Income Taxes”).

Effective January 2007, the Company adopted the Financial Accounting Standards Board’s guidance on accounting for uncertainty in income taxes which requires a company to evaluate whether the tax position will more likely than not be sustained upon examination by the appropriate taxing authority. It also provides guidance on how a company should measure the amount of benefit that the company is to recognize in its financial statements. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company's policy is to include interest and penalties recognized in conjunction with uncertain tax positions as a component of income tax expense. No interest or penalties were recognized to date as the amounts did not result in a reduction of income taxes previously payable by the Company.

Earnings (loss) per share: The Company computes earnings (loss) per share in accordance with generally accepted accounting principles which require presentation of both basic and diluted earnings per share (“EPS”) on the face of the statement of operations. Basic EPS is computed by dividing net income (loss) available to common shareholders by the weighted-average number of shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted to common stock. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all potential dilutive shares due to their anti-dilutive effect.

Share-based compensation: The Company values its stock options issued based upon the Black-Scholes option pricing model and recognizes the compensation over the period in which the options vest. There are inherent estimates made by management regarding the calculation of stock option expense, including volatility, expected life and forfeiture rate (see Note 11 – “Shareholders’ Equity – Stock Incentive Plan”).

F-9

For stock options issued subsequent to January 1, 2006, the Company recognizes compensation expense for options that vest over time using the straight-line attribution approach. For time-based options issued prior to January 1, 2006, the Company continues to use the graded attribution approach. For performance-based options issued to third parties, compensation expense is determined at each reporting date in accordance with the fair value method. Until the measurement date is reached, the total amount of compensation expense remains uncertain. Compensation expense is recorded based on the fair value of the award at the reporting date and then revalued, or the total compensation is recalculated, based on the current fair value at each subsequent reporting date.

Warrants: The Company evaluates its outstanding warrants at issuance and at each quarter end. As a result of its evaluation and analysis, management determined that its warrants should be classified as equity instruments in the accompanying consolidated balance sheets.

Fair Value of Financial Instruments. Under generally accepted accounting principles, fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The fair value hierarchy for measurement and disclosure of the fair value for financial instruments is as follows: Level 1 inputs as quoted prices in active markets for identical assets or liabilities; Level 2 inputs as observable inputs other than Level 1 prices, such as quoted market prices for similar assets or liabilities or other inputs that are observable or can be corroborated by market data; and Level 3 inputs as unobservable inputs that are supported by little or no market activity and that are financial instruments whose value is determined using pricing models or instruments for which the determination of fair value requires significant management judgment or estimation.

The fair value of financial assets and liabilities is determined at each balance sheet date and future declines in market conditions, the future performance of the underlying investments or new information could affect the recorded values of the Company’s investments.

Subsequent Events – Management has evaluated all events and transactions that occurred from January 1, 2010 through the date these consolidated financial statements were issued, for subsequent events requiring recognition or disclosure in the financial statements. There were no material subsequent events required to be recognized or disclosed in the financial statements.

Reclassifications: Certain reclassifications of previously reported balances have been made to conform with the current presentation. These reclassifications primarily were to present revenues by segment and to present gross profit on the face of the statements of operations. In connection with the presentation of gross profit, certain costs which had previously been classified as selling, general and administrative were reclassified to cost of revenue. Management believes that the reclassifications improve the usefulness of the financial information for the reader and are consistent with the manner in which financial information is reviewed by management for internal decision making. Such reclassifications had no impact on previously reported net loss or shareholders’ equity.

Recent Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (“FASB”) issued guidance which amended the accounting requirements regarding revenue recognition for software. The objective of this update is to address the accounting for revenue arrangements that contain tangible products and software. This guidance is effective for fiscal years beginning on or after June 15, 2010 and allows for either prospective or retrospective application, with early adoption permitted. Management is currently evaluating the impact that adoption of this guidance will have on the Company’s consolidated financial statements.

In October 2009, the FASB issued guidance which amended the accounting requirements regarding revenue recognition. The objective of this update is to address the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. This guidance is effective for fiscal years beginning on or after June 15, 2010 and allows for either prospective or retrospective application, with early adoption permitted. Management is currently evaluating the impact that adoption of this guidance will have on the Company’s consolidated financial statements.

In August 2009, the FASB issued guidance on measuring liabilities at fair value. The guidance addresses restrictions on the transfer of a liability and clarifies how the price of a traded debt security should be considered in estimating the fair value of the issuer’s liability. The guidance is effective for our fourth quarter period beginning October 1, 2009. The adoption and application of this guidance did not have any effect on the Company's results of operations, financial condition, or cash flows.

In June 2009, the FASB adopted the FASB Accounting Standards Codification as the single source of authoritative non-governmental GAAP. This codification supersedes all previously issued accounting pronouncements and consolidates technical accounting literature. This codification was effective for interim and annual reporting periods ending after September 15, 2009. The adoption and application the FASB codification did not have any effect on the Company's results of operations, financial condition, or cash flows. References to superceded accounting pronouncements have been replaced with references to the Codification sections and/or plain English explanations.

F-10

In May 2009, the FASB issued authoritative guidance on the accounting for and disclosure of events that occur after the balance sheet date. This guidance was effective for interim and annual financial periods ending after June 15, 2009. This guidance was amended in February 2010. It requires public reporting companies to evaluate subsequent events through the date that the financial statements are issued. The adoption did not impact our consolidated financial position, results of operations or cash flows.

In April 2009, the FASB issued guidance requiring disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements, as well as disclosures in summarized financial information at interim reporting periods. This statement was effective for interim reporting periods ending after June 15, 2009, and its adoption did not have a material effect on the Company’s results of operations, financial condition or cash flows.

Note 2. Operations and Liquidity Management.

Historically, the Company has incurred net losses and used cash from financing activities to fund its operations. During 2009, the Company reduced its operating expenses in order to improve its operating results and use of cash. The Company also renewed its credit facility, closed a private placement transaction and entered into several other transactions to improve its liquidity. As of December 31, 2009, the Company’s cash balance was approximately $0.6 million and its availability from its credit line was approximately $0.8 million. Cash used in operations for the year ended December 31, 2009 was approximately $(2.3) million. The level of additional cash needed to fund operations and the Company’s ability to conduct its business for the next year is influenced primarily by the following factors:

Gaming:

●	The pace of growth and the related spending on market penetration, regulatory efforts and related investments in inventory.

●	The successful transition to a heavier mix of recurring revenue, which generates less upfront cash compared to selling directly to an international distributor but still requires significant investments in inventory.

Amusement:

●	The pace of growth and the related spending on investments in inventory and existing purchase commitments.

●	The successful transition of its domestic business to a recurring revenue licensing business and balancing that business with product sales internationally to generate cash flow.

Corporate:

●	Management’s ability to control operating expenses as the business grows internationally and becomes more geographically diverse.

●	Management’s ability to negotiate favorable payment terms with our customers and vendors.

●	Management’s ability to access the capital markets and maintain availability under its credit line.

●	The impact of the economy or other factors on customers and suppliers, including the impact on demand for the Company’s products and customers’ ability to pay on a timely basis.

Management’s operating plan for 2010 is to balance revenue growth with operating expense control and working capital management while carefully monitoring the impact of growth on cash needs and cash balances. Should it become necessary, management plans to reduce expenditures related to inventory procurement and decrease variable operating expenses. In addition, management may also seek to raise additional capital or expand its credit facilities to bolster liquidity and to accelerate business growth during 2010.

Note 3. Investments in Auction Rate Securities (“ARS”)

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

On January 5, 2009, the Company exercised its rights under the UBS Rights Offering to sell the ARS investments to UBS at par. As a result, the Company received $3.9 million from the sale of the ARS investments, liquidated its outstanding UBS Credit Facility in the amount of $2.9 million, which resulted in $1.0 million in net proceeds to the Company. Since the investments were redeemed at par, there was no realized gain or loss associated with this transaction. The Company has no remaining ARS investments and the UBS Credit Facility has been terminated.

F-11

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

	Level 3 Auction Rate Securities			Level 3 Rights Option			Level 3 Total

Balance at December 31, 2007	$	-		$	-		$	-
Sales, net		-			-			-
Transfers to Level 3		3,275,710			624,290			3,900,000
Included in accumulated other comprehensive loss		-			-			-

Balance at December 31, 2008	$	3,275,710		$	624,290		$	3,900,000
Sales, net		(3,275,710	)		(624,290	)		(3,900,000	)
Transfers to Level 3		-			-			-
Included in accumulated other comprehensive loss		-			-			-
Balance at December 31, 2009	$	-		$	-		$	-

Note 4. Inventory

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

	December 31,			December 31,
	2009			2008

Raw materials and components		2,141,139		$	1,341,933
PokerPro systems in process	$	458,078			611,974
Finished goods	$	241,858			1,859,515
Reserve	$	(358,836	)		(266,323	)
Inventory, net	$	2,482,239		$	3,547,099

Note 5. Prepaid Expenses and Other Assets

Prepaid expenses and other assets at December 31, 2009 and 2008 consist of the following:

	December 31,		December 31,
	2009		2008

Prepaid expenses	$	103,053	$	162,249
Other		66,792		50,973
Prepaid expenses and other assets	$	169,845	$	213,222

Deferred licensing fees, net	$	364,482	$	488,280
Other		69,383		53,934
Other assets	$	433,865	$	542,214

F-12

Note 6. PokerPro Systems and Heads-Up Challenge units

PokerPro systems and Heads-Up Challenge units at December 31, 2009 and 2008 consist of the following:

	December 31,			December 31,
	2009			2008

PokerPro systems	$	7,831,243		$	8,749,414
Less: accumulated depreciation		(5,423,082	)		(4,928,038	)
PokerPro systems, net	$	2,408,161		$	3,821,376


Heads-Up Challenge units	$	622,263		$	-
Less: accumulated depreciation		(51,838	)		-
Heads-Up Challenge units, net	$	570,425		$	-

Note 7. Property and Equipment

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

	December 31,			December 31,
	2009			2008

Equipment		759,764			722,027
Leasehold improvements		199,948			189,917
Capitalized software		157,067			155,387
		1,116,779			1,067,331
Less: accumulated depreciation		(722,257	)		(467,559	)
Property and equipment, net		394,522			599,772

Capitalized software consists of purchased software, consulting and capitalized internal costs related to the purchase and implementation of a new internal-use enterprise resource management system. Accumulated depreciation on capitalized software at December 31, 2009 was $61,024 and $8,668 at December 31, 2008. The software portion of this systems investment was financed through a capital lease obligation (see Note 9, Debt).

Note 8. Accrued Liabilities

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

	December 31,		December 31,
	2009		2008

Accrued professional fees	$	179,968	$	117,167
Other liabilities and customer deposits		642,816		742,012
Accrued liabilities	$	822,784	$	859,179

F-13

Note 9. Debt

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

	December 31,		December 31,
	2009		2008

SVB Credit Facility	$	-	$	-
UBS Credit Facility		-		2,865,357
Founders' Loan		800,000		2,000,000
Capital lease obligation		38,635		62,539
Total debt		838,635		4,927,896
Current portion of debt		26,239		2,889,261
Long-term portion of debt	$	812,396	$	2,038,635

SVB Credit Facility : The Company maintains a credit facility with Silicon Valley Bank to support the Company’s working capital needs (the “SVB Credit Facility”). On July 23, 2009, the Company entered into amendments to the SVB Credit Facility, which extended the maturity date for the facility to July 23, 2010, adjusted the facility amount to have a Facility Limit of $2.5 million with maximum advances determined based on the composition of our eligible accounts receivable and inventory balances and modified certain other provisions of the facility. The SVB Credit Facility has a one-year term and bears interest at an annual rate equal to the greater of 6.5% or prime plus 2.0%.

Based on the Company’s accounts receivable and inventory levels on December 31, 2009, as of such date availability was approximately $0.8 million with no borrowings outstanding. The SVB Credit Facility includes covenants requiring the achievement of specified financial ratios and thresholds and contains other terms and conditions customary for this type of credit facility. As of December 31, 2009, the Company was in compliance with these covenants. The SVB Credit Facility is collateralized by security interests in substantially all of the assets of the Company and is senior to the Founders’ Loan.

As of December 31, 2009, there were no amounts drawn under the SVB Credit Facility.

UBS Credit Facility: On August 13, 2008, the Company entered into a Credit Line Agreement (the “Line of Credit”) with UBS Bank USA for a demand revolving line of credit with respect to the Company’s ARS held in an account with UBS. On January 5, 2009, the Company exercised its rights under the UBS Rights Offering to sell the ARS investments to UBS at par.

As a result, the Company liquidated its outstanding UBS Credit Facility in the amount of $2.9 million. The Company has no remaining ARS investments, and the UBS Credit Facility has been terminated.

Founders’ Loan: The Company entered into a loan agreement with Lyle A. Berman, James T. Crawford, Arthur L. Lomax and Gehrig H. White on March 24, 2008. Messrs. Crawford, Lomax and White are the founders of the Company. Each of the lenders is also a member of our board of directors, with Mr. Berman serving as Chairman and Mr. White serving as Vice Chairman. The $2.0 million loan originally called for cash interest at 13% with all unpaid principal and interest payable on March 24, 2010.

On July 9, 2009, the Founders’ Loan was amended to provide that monthly interest payments may be made, at the election of the holder, in our common stock at a 13% annual interest rate pursuant to a formula or cash at a 9% annual interest rate. In addition, the maturity date of the loan was extended to March 21, 2012.

On September 10, 2009, the Company entered into an agreement with Lyle A. Berman, James T. Crawford and Arthur L. Lomax to convert an aggregate $1.2 million principal amount of the loans into common stock. Gehrig H. White and Arthur L. Lomax continue to hold $500,000 and $300,000 principal amounts, respectively, of the loans.

As of December 31, 2009, the carrying value of the Founders’ Loan was $0.8 million and its fair value was approximately $0.8 million.

F-14

Capital Lease Obligation: During 2008, the Company entered into capital lease obligations totaling $73,273 to finance the purchase of a new internal-use ERP system. These capital lease obligations bear interest at an annual rate of 9.4% and have a term of 36 months, resulting in monthly payments of $2,396. At the end of the lease term, the Company has the option to purchase the software for $101. The net book value of the assets under lease at December 31, 2009 was $96,044. Related depreciation expense recognized for the years ended December 31, 2009 and 2008 was $51,784 and $8,668, respectively, resulting in accumulated depreciation of $61,024.

Note 10. Employee Benefit Plan

The Company has established a salary deferral plan under Section 401(k) of the Internal Revenue Code covering substantially all employees. The plan allows eligible employees to defer 3% to 5% of their annual compensation. The Company matches the contributions equal to 100% on the first 3% of the deferral and 50% on the deferral from 3% to 5%. For the years ended December 31, 2009, 2008 and 2007 the Company’s contributions were $68,146, $134,478 and $110,473, respectively.

Note 11. Shareholders’ Equity

Common and Preferred Stock

Common Stock: There are 100,000,000 authorized shares of the Company’s common stock of which 14,015,658 and 11,021,429 were outstanding as of December 31, 2009 and December 31, 2008, respectively.

On April 23, 2007, the Company entered into a Securities Purchase Agreement, pursuant to which the Company issued and sold an aggregate of 1,444,444 shares of common stock in a private placement to certain investors for a purchase price of $9.00 per share. The private placement, which was completed on April 26, 2007, resulted in gross proceeds of approximately $13.0 million and net proceeds of approximately $12.5 million after fees and expenses associated with the private placement including a cash placement-agent fee.

On August 13, 2009, the Company entered into a Stock Purchase Agreement with ICP Electronics, Inc. pursuant to which we agreed to sell 565,000 shares of common stock to ICP Electronics. The shares of common stock that were sold were valued at a price of $0.85 per share and were exchanged with ICP Electronics for 191 Heads-Up Challenge units for immediate delivery. As of October 9, 2009, the Company sold an additional 120,000 shares of common stock to ICP Electronics pursuant to the Stock Purchase Agreement dated October 9, 2009. The shares were valued at a price of $0.90 per share and were exchanged with ICP Electronics in payment for products and services. The shares were sold in reliance upon exemptions from registration under the Securities Act of 1933, as amended, pursuant to Section 4(6) and Regulation S. As of November 13, 2009, ICP Electronics owns 685,000, or 4.89%, of our outstanding shares.

On August 28, 2009, the Company completed a private placement for $500,000, issuing 686,090 shares. Lyle A. Berman, our Chairman, invested $250,000 to purchase 328,947 shares at $0.76, the consolidated closing bid price immediately preceding the transaction. A second investor invested $250,000 to purchase 357,143 shares at $0.70. The shares were sold in reliance upon exemptions from registration under the Securities Act of 1933, as amended, pursuant to Section 4(6) and Regulation 506 under the Securities Act.

On September 10, 2009, the Company entered into binding agreements with three debt holders to convert an aggregate of $1.2 million principal amount of loans into 1,445,784 shares of common stock, at a conversion price of $0.83 per share, which represented the consolidated closing bid price on the NASDAQ Capital Markets exchange as of the close of the trading day immediately preceding these transactions. Lyle A. Berman, James T. Crawford and Arthur L. Lomax, all members of our Board of Directors, agreed to participate in the debt conversion. Mr. Berman converted $500,000, Mr. Crawford converted $500,000 and Mr. Lomax converted $200,000 of outstanding loan principal to common stock, in a transaction that was exempt from the registration requirements of the Securities Act of 1933, as amended (the “Act”), pursuant to Section 3(a)(9) and Section 4(6) of the Act.

On October 15, 2009, the Company issued 51,515 shares of common stock at a price of $0.99 per share to the members of our Board of Directors for payment of board compensation for the third quarter of 2009. The number of shares was determined by dividing board compensation by the average closing price on the NASDAQ Capital Market for the 10 business days preceding the end of the quarterly period. Had the calculated average price per share been less than $0.71, the shares would have been issued at $0.71 per share, the closing bid price on the effective date of the Board Member Agreements. The calculation of the average price per share was structured to comply with NASDAQ’s equity compensation rules which limit stock issuances to insiders at less than fair market value.

F-15

Preferred Stock: There are 5,000,000 authorized shares of preferred stock, none of which are outstanding as of December 31, 2009 and December 31, 2008.

Warrants

As part of the April 2007 private placement, the Company issued each Investor a warrant (the “Warrants”) to acquire additional shares of the Company’s common stock (together, the “Warrant Shares”). The Warrants, which expire on April 26, 2012, were convertible into an aggregate of 505,555 Warrant Shares at an exercise price of $10.80 per Warrant Share. The Warrants contain customary anti-dilution provisions and certain demand and participatory registration rights. The Warrants also include a “cashless” exercise provision entitling the Investors to convert the Warrants into shares of the Company’s common stock.

On November 24, 2008, the Company entered into agreements (the “Warrant Modification Agreements”) with each of the holders of the Warrants. Pursuant to the Warrant Modification Agreements, the Company and each of the Warrant holders agreed to amend the Warrants so that (1) the Original Exercise Price would be reduced to $0.50 per share (the “New Exercise Price”), and (2) the proportionate anti-dilution adjustment to increase the number of shares of the Company’s common stock issuable upon exercise of the Warrants under certain circumstances would be eliminated in all cases except upon payment of stock dividends, or subdivision or combination of shares (such as through stock splits or reverse stock splits). The New Exercise Price was reached through independent negotiation with the holders of the Warrants in consideration of the elimination of the Proportionate Share Increase and not in any manner as an indication of the perceived value of the Company’s common stock.

Following the modification of the Warrants, 318,719 were redeemed, resulting in the issuance of 156,719 shares of common stock, and reducing the number of Warrants outstanding to 186,836 as of December 31, 2009.

Stock Incentive Plans

The Company’s shareholders have approved stock incentive plans, including the 2009 Stock Incentive Plan adopted at the 2009 Annual Shareholder’s Meeting, authorizing the issuance of stock option, restricted stock and other forms of equity compensation. At December 31, 2009 and December 31, 2008, options to purchase 2,078,300 and 2,023,263 shares of common stock, respectively, were outstanding and held by certain directors, officers, employees and independent contractors of the Company. Pursuant to the approved stock incentive plans 1,015,950 shares remained available for grant as of December 31, 2009.

On September 22, 2009, the Company entered into agreements with ten option holders, including directors, officers, employees and consultants of the Company, to issue 832,000 new incentive stock options and contemporaneously cancel an equal amount of outstanding incentive stock options held by the option holders. The new options which were issued have an exercise price of $0.81 per share of common stock, vest over a period of three years and have an expiration date of September 11, 2019.

The exchange transaction was a negotiated one and was approved in principle by the Company's shareholders at their 2009 Annual meeting. The Company's offer was made on September 11, 2009, with the exercise price based on the closing bid price on that date. The option holders were given the opportunity to evaluate the offer and to accept it effective September 22, 2009. The new incentive options were issued in reliance upon an exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended, on the basis that the transactions represented an exchange of securities with the Company's existing security holders. Total incremental estimated compensation cost related to the exchanged stock options was $177,393 and is included in share-based compensation expense in the consolidated statements of operations.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. Options granted under the plans generally vest over periods ranging from date of grant to four years and expire in ten years. Principal assumptions are as follows: (a) expected future volatility for the Company's stock price is based on a combination of the Company’s historical volatility and observed volatility rates of other companies in the gaming industry, (b) expected term is based on historical exercise data and forfeitures, (c) the forfeiture rate is derived from an expectation of future forfeitures and (d) the risk-free rate is the rate on U.S. Treasury securities with a maturity equal to, or closest to, the expected life of the options.

F-16

The amount of related expense calculated using the Black-Scholes option pricing model and recognized in 2009, 2008 and 2007 was $657,673, $1,106,113 and $822,349, respectively.

	2009	2008	2007
Expected Volatility	92% - 162%	45% - 111%	45%
Expected Dividends	0	0	0
Expected Term	6 yrs	6 yrs	5 - 6 yrs
Risk-free Rate	1.82% - 2.71%	1.52% - 3.49%	3.49% - 4.92%

A summary of option activity and changes during the year for the year ended December 31, 2009 is as follows:

				Weighted Average
	Shares			Exercise Price		Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2008		2,023,263		$	8.06
Granted		1,563,500			0.81
Exercised		-			-
Forfeited		(1,508,464	)		8.23
Expired		-			-
Outstanding at December 31, 2009		2,078,299		$	2.48		8.9	$	(3,719,692	)

Exercisable at December 31, 2009		410,088		$	7.48		6.1	$	(2,783,389	)

The weighted-average grant-date fair value of options granted during the years 2009, 2008 and 2007 was $0.62, $1.43 and $4.68, respectively. The total intrinsic value of options exercised during the years ended December 31, 2009, 2008 and 2007 were $0, $0 and $114,138, respectively.

A summary of the status of non-vested shares as of December 31, 2009, and changes during the year ended December 31, 2009 is presented below:

	Shares			Weighted Average Grant Date FV
Balance at December 31, 2008		795,462		3.52
Granted		1,563,500		0.62
Forfeited		(484,888	)	3.93
Vested		(205,863	)	3.12
Balance at December 31, 2009		1,668,211		0.70

As of December 31, 2009, there was $1,081,299 of total unrecognized compensation cost related to non-vested options. This cost is expected to be recognized over a weighted-average period of 23.26 months.

The total fair value of options vested during the years ended December 31, 2009, 2008 and 2007 was $786,703, $1,197,370 and $912,879, respectively.

F-17

Note 12. Income Taxes

The total income tax expense (benefit) provided on pretax income and its significant components were as follows:

	2009		2008		2007
Current tax expense:
Federal	$	-	$	-	$	-
State		-		-		-
Foreign		107,865		262,905		-
		107,865		262,905		-
Deferred tax expense (benefit):
Federal		-		-		-
State		-		-		-
Foreign		-		-		-
		-		-		-
Total income tax expense (benefit):
Federal		-		-		-
State		-		-		-
Foreign		107,865		262,905		-
	$	107,865	$	262,905	$	-

A reconciliation of the statutory federal income tax expense (benefit) at 34% to loss before income taxes and the actual income tax expense (benefit) is as follows:

	2009			2008			2007
Federal statutory income tax benefit	$	(1,929,231	)	$	(2,507,795	)	$	(4,368,870	)
Increases (reductions) in taxes due to:
Nondeductible stock-based compensation		245,448			357,614			230,415
State taxes, net of federal benefit		(41,858	)		(59,450	)		(220,264	)
Research & experimentation credits		-			-			(73,171	)
Increase in valuation allowance		1,794,584			2,102,751			4,234,797
FIN 48 and other		(68,943	)		106,880			202,115
Prior year true-up		-			-			(5,022	)
Foreign income tax		107,865			262,905			-
Income tax expense	$	107,865		$	262,905		$	-

F-18

Deferred income taxes result from temporary differences between the reporting of amounts for financial statement purposes and income tax purposes. The net deferred tax assets and liabilities included in the consolidated financial statements include the following amounts:

	2009			2008
Deferred tax asset:
Start-up costs capitalization	$	119,762		$	137,681
Loss carryforwards		10,175,520			8,964,573
Depreciation		2,253,669			1,733,491
Tax credit carryforwards		370,770			286,244
Share-based compensation expense		169,945			156,904
Accounts receivable		55,898			-
Inventory		-			32,094
Other		1,094			30,430
		13,146,658			11,341,417

Deferred tax liability:
Accounts receivable		-			(31,045	)
Inventory		(66,877	)		-
Prepaid expenses		(15,239	)		(40,413	)
		(82,116	)		(71,458	)

		13,064,542			11,269,959
Less valuation allowance		(13,064,542	)		(11,269,959	)
Net deferred tax asset	$	-		$	-

As of December 31, 2009 and December 31, 2008, the Company has federal net operating loss carryforwards of approximately $27,638,000 and $24,427,000, respectively, North Carolina net economic loss carryforwards of approximately $12,270,000 and $11,311,000, respectively and California net operating losses in the amounts of approximately $490,000 and $431,000, respectively. Included in the federal net operating loss carryforward is a deduction for the exercise of nonqualified stock options. However, the net operating loss attributable to the excess of the tax deduction for the exercised nonqualified stock options over the cumulative deduction recorded in the consolidated financial statements is not recorded as a deferred tax asset. The benefit of the excess deduction of $37,000 will be recorded to additional paid in capital when the Company realizes a reduction in its current taxes payable. These carryforwards can be used to offset taxable income in future years, which expire through 2028. The Company also has research and experimentation tax credit carryforwards for federal of approximately $419,000. These credit carryforwards may be used to offset federal income taxes in future years through their expiration in 2027.

The Company records a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has assessed its earnings history and anticipated earnings, the expiration date of the carryforwards and other factors and has determined that valuation allowances should be established against the deferred tax assets as of December 31, 2009 and 2008. The change in the valuation allowance of $1,794,583 for the year ended December 31, 2009 was due to the increase in net deferred tax assets, principally driven by increases in deferred tax assets related to depreciation of PokerPro systems, and loss carryforwards.

The following table summarizes the changes to the amount of unrecognized tax benefits for the years ended December 31, 2009 and 2008:

	2009			2008
Unrecognized tax benefits at January 1	$	537,706		$	191,896

Gross increases—tax positions in prior period		-			191,896
Gross decreases—tax positions in prior period		(118,799	)		-
Gross increases—tax positions in current period		-			153,914
Gross decreases—tax positions in current period		-			-
Settlements		-			-

Unrecognized tax benefits at December 31	$	418,907		$	537,706

F-19

The Company files U.S. federal, U.S. state and Canadian tax returns. 2005 through 2009 tax years remain subject to examination by the IRS for U.S. federal tax purposes, as do U.S. state tax returns by the appropriate state taxing authorities and the Canadian tax returns by Revenue Canada.

The utilization of the Company's net operating losses may be subject to a substantial limitation should a change of ownership occur or have occurred, as defined under Section 382 of the Internal Revenue Code and similar state provisions. Such limitation could result in the expiration of the net operating loss carryforwards before their utilization. Currently, a valuation allowance equal to the total deferred tax assets has been established. As such, any limitation resulting from the expiration of the net operating loss carryforwards would be immaterial to the Company's financial condition or results of operations. Prior to any potential utilization, the Company does plan to undertake a detailed study in order to determine any potential § 382 limitations. The Company is unable to fully estimate the impact of any such § 382 limitations nor has it undertaken the steps necessary to fully estimate the potential benefits that may be available to it from the utilization of net operating losses in future periods.

Note 13. Related Party Transactions

Transactions with Aristocrat

During 2006, Aristocrat International Pty. Limited and its affiliates (“Aristocrat”) purchased shares of the Company’s common stock. Aristocrat is a wholly owned subsidiary and affiliate of Aristocrat Leisure Limited, a leading global provider of gaming solutions that focuses primarily on video slot machines, progressive systems and casino management systems. As of December 31, 2009 Aristocrat owned 12.9% of the Company’s common stock.

The Company’s distribution agreement provided Aristocrat with the sole and exclusive right to globally (excluding the United States and Canada) distribute, market, enter into license agreements and, under certain circumstances, manufacture the PokerPro system. Aristocrat purchased PokerPro systems manufactured by the Company and paid the Company a portion of the license fees received from each customer in connection with Aristocrat’s licensing of the PokerPro system. License fees and equipment sales to Aristocrat of $487,795 and $250,787, respectively, were recorded in 2009, while $608,724 and $3,777,862, respectively, were recorded during 2008. As of December 31, 2009 and 2008, accounts receivable balances totaling $150,448 and $114,053, respectively, were due from Aristocrat and included in the accompanying Consolidated Balance Sheets.

Subsequent to December 31, 2009, the Company terminated its exclusive distribution agreement with Aristocrat. See Note 16 of this report.

Transactions with ICP Electronics, Inc.

The Company purchased products and services from ICP Electronics, Inc., a Taiwan corporation (“ICP Electronics”) of $872,449 for the year ended 2009. As of December 31, 2009, ICP Electronics had an accounts payable balance of $626 due from the Company which has been paid subsequent to quarter end. As of December 31, 2009, the Company has contractual obligations with ICP Electronics totaling $835,539, which is included in the Company’s contractual obligation table in Item 2 of this report.

ICP Electronics is the holder of 4.89% of the issued and outstanding shares of Common Stock of the Company following a stock purchase transaction whereby the Company issued 565,000 shares of Common Stock in exchange for inventory valued at $480,250 based on a share price of $0.85 per share, which was the closing bid price on the day preceding the transaction. In connection with the stock purchase, the Company agreed to schedule its remaining purchase commitment with 24 monthly payments of $39,389 starting October 2009, with such payments being made in exchange for title to additional inventory. As of October 9, 2009, the Company agreed to sell 120,000 shares of its common stock to ICP Electronics pursuant to the Stock Purchase Agreement dated July 31, 2009. The shares were valued at a price of $0.90 per share and were exchanged with ICP Electronics in payment for products and services.

Transactions with Lyle A. Berman

On September 3, 2009, Lyle A. Berman, Chairman of PokerTek’s Board of Directors, participated in a private placement of the Company’s Common Stock. Mr. Berman invested $250,000 to purchase 328,947 shares at $0.76, the consolidated closing bid price immediately preceding the transaction.

F-20

Office Lease

The Company currently leases its office and manufacturing facility from an entity owned and controlled by the Company’s President and Vice Chairman of the Board of Directors. The entity purchased the building while the Company was already a tenant. The lease terms were negotiated and are consistent with the rent paid by other tenants in the building. Rent expense recorded for the leased space for the years ended December 31, 2009, 2008 and 2007 was $188,900, $219,600 and $160,766, respectively.

Founders’ Loan

The Company entered into a loan agreement with Lyle A. Berman, James T. Crawford, Arthur L. Lomax and Gehrig H. White on March 24, 2008. Messrs. Crawford, Lomax and White are the founders of the Company. Each of the lenders is also a member of our board of directors, with Mr. Berman serving as Chairman and Mr. White serving as Vice Chairman. The $2.0 million loan originally called for cash interest at 13% with all unpaid principal and interest payable on March 24, 2010.

The loan contains no restrictive covenants and, following the conversion described above, is collateralized by security interests in 62 PokerPro systems. Such interests have been subordinated to the SVB Credit Facility. During 2009, the Company made $150,012 in aggregate interest payments in cash and issued 56,086 shares of stock in payment of interest. 1,445,784 shares were issued to certain of the lenders in connection with the conversion of $1.2 million of the outstanding debt balance.

Note 14. Commitments and Contingencies

Leases

The Company leases its corporate office and manufacturing facility under a lease agreement with a term of four years. The lease requires the Company to pay insurance and maintenance. This facility is approximately 14,400 square feet and is located in Matthews, North Carolina. This facility is leased by an entity owned and controlled by the Company’s President and Vice Chairman of the Board of Directors (see Note 13 – “Related Party Transactions”).

The Company also leases certain equipment under lease agreements with terms up to three years and a storage facility with a one-year term.

The following is a schedule by year of the future minimum lease payments due under agreements with terms extending beyond one year:

Year Ending December 31,	Amount
2010	$	181,840
2011		97,600
Thereafter		-
	$	279,440

Rent expense for the years ended December 31, 2009, 2008 and 2007 was $232,921, $261,688 and $192,636, respectively.

Employment Agreements

The Company has entered into employment agreements with certain officers that include commitments related to base salaries and certain benefits. These agreements have terms of two years.

F-21

Reviews and Audits by Regulatory Authorities

The Company’s operations are subject to a number of regulatory authorities, including various gaming regulators, the Internal Revenue Service, and other state and local authorities. From time to time, the Company is notified by such authorities of reviews or audits they wish to conduct. The Company may be subject to other income, property, sales and use or franchise tax audits in the normal course of business.

Indemnification

The Company has entered into indemnification agreements with the members of its Board and corporate officers, which provides for indemnification for related expenses including attorneys’ fees, judgments, fines and settlement amounts incurred in any action or proceeding.

The Company also indemnifies its casino customers from any claims or suits brought by a third party alleging infringement of a United States patent, copyright or mask work right. The Company agrees to pay all costs and damages, provided the customer provides prompt written notice of any claim.

Legal Proceedings

The Company is subject to claims and assertions in the ordinary course of business. Legal matters are inherently unpredictable, and the Company's assessments may change based on future unknown or unexpected events.

On August 21, 2009, a complaint was filed against the Company in the United States District Court for the District of Nevada by Marvin Roy Feldman. The plaintiff is seeking unspecified monetary damages related to the Company's distribution of PokerPro in Mexico. Prior to filing the complaint, the plaintiff provided correspondence to the Company requesting $250,000 or four PokerPro tables as compensation. While litigation is inherently unpredictable and subject to judicial and other risks beyond our control, we estimate the potential cost of this matter to range between $0 and $250,000. We believe that we have several meritorious defenses to these claims, and we intend to defend ourselves vigorously.

Note 15. Segment Information

The Company reports segment information based on the “management approach.” The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments.

The Company’s business is organized and reported in two segments, Gaming and Amusement, which are described in Note 1 – “Nature of Business and Significant Accounting Policies.” The Company evaluates the performance of its two segments primarily based on revenues and gross margin. The accounting policies of the segments are the same as those described in the "Summary of Significant Accounting Policies."

F-22

The table below presents information about reported segments for the years ending December 31:

	Gaming		Amusement			Corporate and Other		Total

2009

Revenue	$	5,413,822	$	1,278,526		$	-	$	6,692,348
Cost of revenue		3,015,451		1,194,870			-		4,210,321
Gross profit		2,398,371		83,656			-		2,482,027
Depreciation and amortization		2,537,514		114,421			192,116		2,844,051
Capital expenditures		-		37,738			11,711		49,449
Assets at December 31, 2009		5,392,785		1,906,962			983,352		8,283,099

2008

Revenue	$	9,668,656	$	4,756,068		$	-	$	14,424,724
Cost of revenue		5,699,962		3,373,551			-		9,073,513
Gross profit		3,968,694		1,382,517			-		5,351,211
Depreciation and amortization		2,582,965		56,217			154,043		2,793,225
Capital expenditures		-		39,420			92,293		131,713
Assets at December 31, 2008		7,349,974		2,537,691			5,818,012		15,705,677

2007

Revenue	$	3,807,244	$	197,447		$	-	$	4,004,691
Cost of revenue		3,314,603		277,412			-		3,592,015
Gross profit		492,641		(79,965	)		-		412,676
Depreciation and amortization		1,908,628		23,531			121,186		2,053,345
Capital expenditures		-		248,217			105,379		353,596
Assets at December 31, 2007		8,107,046		1,444,591			7,544,268		17,095,905

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

REVENUE BY GEOGRAPHIC AREA

Revenues by geographic area are determined based on the location of our customers. For fiscal 2009, 2008 and 2007, revenues from customers outside the United States accounted for 31%, 63% and 44% of consolidated revenue, respectively. The following is revenues and long-lived assets by geographic area as of and for the years ended December 31:

	2009		2008		2007
Revenue:
United States	$	4,585,793	$	5,299,984	$	2,235,738
Europe		582,577		3,173,800		452,969
Canada		999,111		3,054,253		43,000
Australia		387,326		2,678,414		1,155,180
Other International		137,541		218,273		117,804
	$	6,692,348	$	14,424,724	$	4,004,691

F-23

	2009		2008		2007
Long-lived assets, end of year
United States	$	2,175,112	$	3,513,275	$	4,216,568
Mexico		983,961		-		-
Canada		490,933		1,231,518		1,506,245
Other		156,967		218,569		250,896
	$	3,806,973	$	4,963,362	$	5,973,709

Note 16. Subsequent Events

International Distribution – On January 15, 2010, the Company terminated its Exclusive Distribution Agreement with Aristocrat.

The Company agreed to assume responsibility for (and take title to) certain PokerPro tables currently installed at specified customer locations. In return for transfer of these tables, the Company agreed to relieve Aristocrat of all responsibility and related costs to service, support, maintain, replace and repair those tables.

In addition, the Company entered into an Equipment Purchase Arrangement to purchase inventory held by Aristocrat on terms favorable to the Company. The Equipment Purchase Arrangement provides that the purchase price for the purchased equipment will be paid as the purchased equipment is deployed and revenues are received by the Company. As revenues are received on a cash basis, the payment to Aristocrat will be calculated as 20% of the gross revenue attributable to each table, up to a specified cap.

On March 23, 2010, the Company received a letter from NASDAQ’s Listing Qualifications Department, dated March 16, 2010, which stated that the Staff had made a determination that the Company’s common stock would be delisted from The NASDAQ Capital Market. The determination was based on the fact that the bid price of the Company’s common stock had not closed above $1.00 for a consecutive period of ten days during the preceding 180 days. The Company has appealed the Staff’s determination to a Hearing Panel and will present its plan to regain compliance, which may include a reverse stock split and other discussion of events that will enable it to regain compliance within a time period granted by the Hearing Panel. Such time period may last up to an additional 180 days. Pending its appeal, the Company’s common stock will continue to be listed on The NASDAQ Capital Market.

F-24

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

	Balance at Beginning of Period		Additions Charged to Costs and Expenses		Charged to Other Accounts		Deductions (Chargeoffs)		Balance at End of Period

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Year ended December 31, 2009	$	81,403	$	44,440	$	31,327	$	-	$	157,170
Year ended December 31, 2008		21,062		14,672		45,669		-		81,403
Year ended December 31, 2007		19,301		47,129		-		45,368		21,062

INVENTORY RESERVE

Year ended December 31, 2009	$	266,323	$	92,513	$	-	$	-	$	358,836
Year ended December 31, 2008		69,442		196,881		-		-		266,323
Year ended December 31, 2007		-		69,442		-		-		69,442

S-1

EXHIBIT INDEX

Exhibit No.	Description

2.1	Plan of Merger of PokerTek, LLC with and into PokerTek, Inc. (f/k/a National Card Club Corporation), dated July 27, 2004 (incorporated by reference to Exhibit 2.1 to our Registration Statement on Form S-1 filed on August 4, 2005 (No. 333-127181)).

3.1	Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to our Registration Statement on Form S-1 filed on August 4, 2005 (No. 333-127181)).

3.2	Bylaws (as amended and restated through July 29, 2005) (incorporated by reference to Exhibit 3.2 to our Registration Statement on Form S-1 filed on August 4, 2005 (No. 333-127181)).

4.1	Specimen Common Stock certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 2 to our Registration Statement on Form S-1 filed on October 5, 2005 (No. 333-127181)).

4.2	Securities Purchase Agreement by and among PokerTek, Inc. and the investors listed on the Schedule of Buyers attached thereto, dated as of April 23, 2007 (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on April 27, 2007).

4.3	Form of Warrant to Purchase Common Stock (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed on April 27, 2007).

4.4	Registration Rights Agreement, by and among PokerTek, Inc. and the Buyers listed therein, dated as of April 26, 2007 (incorporated by reference to Exhibit 4.3 to our Current Report on Form 8-K filed on April 27, 2007).

10.1	Option Agreement between World Poker Tour, LLC and PokerTek, Inc. (as successor to PokerTek, LLC), dated April 7, 2004 (incorporated by reference to Exhibit 10.1 to our Registration Statement on Form S-1 filed on August 4, 2005 (No. 333-127181)).

10.2	Amendment to Option Agreement between World Poker Tour, LLC and PokerTek, Inc. (as successor to PokerTek, LLC), dated as of June 10, 2004 (incorporated by reference to Exhibit 10.2 to our Registration Statement on Form S-1 filed on August 4, 2005 (No. 333-127181)).

10.3	Amendment Two to Option Agreement between PokerTek, Inc. and WPT Enterprises, Inc., dated as of April 23, 2007 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on May 14, 2007).

10.4	Non-Exclusive Software License Agreement between PokerTek, Inc. and Standing Stone Gaming, LLC, dated as of January 26, 2005 (incorporated by reference to Exhibit 10.3 to our Registration Statement on Form S-1 filed on August 4, 2005 (No. 333-127181)).

10.5	Office/Warehouse Lease Agreement between PokerTek, Inc. and AdBel, Ltd., dated March 28, 2005 (incorporated by reference to Exhibit 10.4 to our Registration Statement on Form S-1 filed on August 4, 2005 (No. 333-127181)).

10.6	Trademark Assignment Agreement among PokerTek, Inc., James T. Crawford and Gehrig H. White, effective July 13, 2005 (incorporated by reference to Exhibit 10.5 to our Registration Statement on Form S-1 filed on August 4, 2005 (No. 333-127181)).

10.7	PokerTek, Inc. 2007 Stock Incentive Plan (incorporated by reference to Exhibit 99 to our Registration Statement on Form S-8 filed on June 6, 2007 (No. 333-143552)).*

10.8	Form of Employee Incentive Stock Option Agreement for PokerTek, Inc. 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to our Form 10-Q for the quarterly period ending June 30, 2007 filed on August 14, 2007).*

Exhibit No.	Description
10.9	Form of Employee Nonqualified Stock Option Agreement for PokerTek, Inc. 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to our Form 10-Q for the quarterly period ending June 30, 2007 filed on August 14, 2007).*

10.10	Form of Director Nonqualified Stock Option Agreement for PokerTek, Inc. 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.5 to our Form 10-Q for the quarterly period ending June 30, 2007 filed on August 14, 2007).*

10.11	Form of Independent Contractor Nonqualified Stock Option Agreement for PokerTek, Inc. 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.6 to our Form 10-Q for the quarterly period ending June 30, 2007 filed on August 14, 2007).*

10.12	Form of Restricted Stock Award Agreement for PokerTek, Inc. 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.7 to our Form 10-Q for the quarterly period ending June 30, 2007 filed on August 14, 2007).*

10.13	PokerTek, Inc. 2005 Stock Incentive Plan (incorporated by reference to Exhibit 10.6 to our Registration Statement on Form S-1 filed on August 4, 2005 (No. 333-127181)).*

10.14	Form of Stock Option Agreement for PokerTek, Inc. 2005 Stock Incentive Plan (incorporated by reference to Exhibit 10.7 to Amendment No. 1 to our Registration Statement on Form S-1 filed on September 13, 2005 (No. 333-127181)).*

10.15	Form of Non-Employee Director Stock Option Agreement for PokerTek, Inc. 2005 Stock Incentive Plan (incorporated by reference to Exhibit 99.2 to our Current Report on Form 8-K filed on March 6, 2006).*

10.16	PokerTek, Inc. 2004 Stock Incentive Plan (as amended and restated through July 29, 2005) (incorporated by reference to Exhibit 10.8 to our Registration Statement on Form S-1 filed on August 4, 2005 (No. 333-127181)).*

10.17	Form of Stock Option Agreement for 2004 Stock Incentive Plan (incorporated by reference to Exhibit 10.9 to our Registration Statement on Form S-1 filed on August 4, 2005 (No. 333-127181)).*

10.18	Employment Agreement by and between PokerTek, Inc. and Christopher J.C. Halligan, dated January 17, 2008 (incorporated by reference to Exhibit 10.18 to our Form 10-K for the fiscal year ended December 31, 2007 filed on March 31, 2008).*

10.19	Employment Agreement by and between PokerTek, Inc. and Mark D. Roberson, dated January 17, 2008 (incorporated by reference to Exhibit 10.19 to our Form 10-K for the fiscal year ended December 31, 2007 filed on March 31, 2008)..*

10.20	Key Employee Agreement between PokerTek, Inc. and Hal J. Shinn, dated as of August 9, 2004 (incorporated by reference to Exhibit 10.12 to our Registration Statement on Form S-1 filed on August 4, 2005 (No. 333-127181)).*

10.21	Amendment to Key Employee Agreement between PokerTek, Inc. and Hal J. Shinn, effective as of July 1, 2005 (incorporated by reference to Exhibit 10.13 to our Registration Statement on Form S-1 filed on August 4, 2005 (No. 333-127181)).*

10.22	Extension to Key Employee Agreement between PokerTek, Inc. and Hal J. Shinn, effective as of August 9, 2006 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on April 13, 2007).*

10.23	Indemnification Agreement between PokerTek, Inc. and Lyle A. Berman, effective as of January 31, 2005 (incorporated by reference to Exhibit 10.14 to our Registration Statement on Form S-1 filed on August 4, 2005 (No. 333-127181)).*

10.24	Board Member Agreement between PokerTek, Inc. and Lyle A. Berman, dated January 31, 2005 (incorporated by reference to Exhibit 10.20 on our Form 10-K for the fiscal year ended December 31, 2005 filed on March 16, 2006).*

10.25	Board Member Agreement between PokerTek, Inc. and Joseph J. Lahti, dated March 2, 2006 (incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K filed on March 6, 2006).*

Exhibit No.	Description
10.26	Form of Subscription Agreement for PokerTek, Inc. (incorporated by reference to Exhibit 10.16 to our Registration Statement on Form S-1 filed on August 4, 2005 (No. 333-127181)).

10.27	Form of Warrant Agreement between PokerTek, Inc. and Feltl and Company (incorporated by reference to Exhibit A to Exhibit 1.1 to Amendment No. 1 to our Registration Statement on Form S-1 filed on September 13, 2005 (No. 333-127181)).

10.28	PokerPro Software Licensing Agreement between PokerTek, Inc. and Seminole Tribe of Florida, dated September 1, 2005 (incorporated by reference to Exhibit 10.19 to Amendment No. 2 to our Registration Statement on Form S-1 filed on October 5, 2005 (No. 333-127181)).

10.29	Distribution Agreement between PokerTek, Inc. and Aristocrat International Pty. Limited and its Affiliates, dated January 20, 2006 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on January 26, 2006).

10.30	Client’s Agreement by and between PokerTek, Inc. and UBS Financial Services, Inc., entered into on March 19, 2008 (incorporated by reference to Exhibit 10.3 to our Form 10-Q for the quarterly period ended March 31, 2008 filed on May 15, 2008).

10.31	Note Purchase Agreement by and between PokerTek, Inc. and Lyle A. Berman, James T. Crawford, Arthur L. Lomax and Gehrig H. White, dated March 24, 2008 (incorporated by reference to Exhibit 10.4 to our Form 10-Q for the quarterly ended March 31, 2008 filed on May 15, 2008).

10.32	Loan and Security Agreement, effective July 25, 2008, between PokerTek, Inc. and Silicon Valley Bank (incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarterly period ended June 30, 2008 filed August 14, 2008).

10.33	Export-Import Bank Loan and Security Agreement, dated July 25, 2008, between PokerTek, Inc. and Silicon Valley Bank (incorporated by reference to Exhibit 10.2 to our Form 10-Q for the quarterly period ended June 30, 2008 filed August 14, 2008).

10.34	Borrower Agreement, dated July 25, 2008, made and entered into by PokerTek, Inc. in favor of the Export-Import Bank of the United States and Silicon Valley Bank (incorporated by reference to Exhibit 10.3 to our Form 10-Q for the quarterly period ended June 30, 2008 filed on August 14, 2008).

10.35	Credit Line Agreement between PokerTek, Inc. and UBS Bank USA, dated August 13, 2008 (incorporated by reference to Exhibit 10.4 to our Form 10-Q for the quarterly period ended September 30, 2008 filed on November 13, 2008).

10.36	(a) UBS Offer relating to Auction Rate Securities; (b) PokerTek, Inc. Acceptance Form (incorporated by reference to Exhibit 10.5 to our Form 10-Q for the quarterly period ended September 30, 2008 filed on November 13, 2008).

10.37	Letter Agreement, dated November 17, 2008 and accepted by PokerTek, Inc. on November 24, 2008, between PokerTek, Inc. and each of Janus Venture Fund (a series of Janus Investment Fund), Janus US Venture Fund (a series of Janus Capital Funds Plc), and Small Cap Growth Portfolio (a series of Ohio National Fund Inc.) (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on December 2, 2008).

10.38	Letter Agreement, dated November 13, 2008 and accepted by PokerTek, Inc. on November 24, 2008, between PokerTek, Inc. and each of SRB Greenway Capital (QP), L.P., SRB Greenway Capital, L.P. and SRB Greenway Offshore Operating Fund, L.P. (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on December 2, 2008).

10.39	Letter Agreement, dated November 17, 2008 and accepted by PokerTek, Inc. on November 24, 2008, between PokerTek, Inc. and Warrant Strategies Fund, LLC (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on December 2, 2008).

10.40	Distribution Agreement between PokerTek, Inc. and Aristocrat International Pty. Limited and its Affiliates, dated November 24, 2008.

Exhibit No.	Description
10.41	First Amendment to Loan and Security Agreement, dated December 23, 2008, between PokerTek, Inc. and Silicon Valley Bank (incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarterly period ended March 31, 2009 filed on May 14, 2009).

10.42	First Amendment to Export-Import Bank Loan and Security Agreement, dated December 23, 2008, between PokerTek, Inc. and Silicon Valley Bank (incorporated by reference to Exhibit 10.2 to our Form 10-Q for the quarterly period ended March 31, 2009 filed on May 14, 2009).

10.43	Second Amendment to Loan and Security Agreement, dated July 23, 2009, between PokerTek, Inc. and Silicon Valley Bank (incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarterly period ended June 30, 2009 filed on August 14, 2009).

10.44	Second Amendment to Export-Import Bank Loan and Security Agreement, dated July 23, 2009, between PokerTek, Inc. and Silicon Valley Bank (incorporated by reference to Exhibit 10.2 to our Form 10-Q for the quarterly period ended June 30, 2009 filed on August 14, 2009).

10.45	Board Member Agreement, dated July 15, 2009, between PokerTek, Inc. and Lyle A. Berman (incorporated by reference to Exhibit 10.3 to our Form 10-Q for the quarterly period ended June 30, 2009 filed on August 14, 2009).

10.46	Board Member Agreement, dated July 15, 2009, between PokerTek, Inc. and Gehrig H. White (incorporated by reference to Exhibit 10.4 to our Form 10-Q for the quarterly period ended June 30, 2009 filed on August 14, 2009).

10.47	Board Member Agreement, dated July 15, 2009, between PokerTek, Inc. and Joseph J. Lahti (incorporated by reference to Exhibit 10.5 to our Form 10-Q for the quarterly period ended June 30, 2009 filed on August 14, 2009).

10.48	Board Member Agreement, dated July 15, 2009, between PokerTek, Inc. and Arthur L. Lomax (incorporated by reference to Exhibit 10.6 to our Form 10-Q for the quarterly period ended June 30, 2009 filed on August 14, 2009).

10.49	Indemnification Agreement, dated July 15, 2009, between PokerTek, Inc. and Joseph J. Lahti (incorporated by reference to Exhibit 10.7 to our Form 10-Q for the quarterly period ended June 30, 2009 filed on August 14, 2009).

10.50	Indemnification Agreement, dated July 15, 2009, between PokerTek, Inc. and Arthur L. Lomax (incorporated by reference to Exhibit 10.8 to our Form 10-Q for the quarterly period ended June 30, 2009 filed on August 14, 2009).

10.51	Indemnification Agreement, dated July 15, 2009, between PokerTek, Inc. and James T. Crawford (incorporated by reference to Exhibit 10.9 to our Form 10-Q for the quarterly period ended June 30, 2009 filed on August 14, 2009).

10.52	Indemnification Agreement, dated July 15, 2009, between PokerTek, Inc. and Gehrig H. White (incorporated by reference to Exhibit 10.10 to our Form 10-Q for the quarterly period ended June 30, 2009 filed on August 14, 2009).

10.53	Indemnification Agreement, dated July 15, 2009, between PokerTek, Inc. and Mark D. Roberson (incorporated by reference to Exhibit 10.11 to our Form 10-Q for the quarterly period ended June 30, 2009 filed on August 14, 2009).

10.54	Employment Agreement dated July 16, 2009, between PokerTek, Inc. and Mark D. Roberson (incorporated by reference to Exhibit 10.12 to our Form 10-Q for the quarterly period ended June 30, 2009 filed on August 14, 2009).

10.55	Employment Agreement dated July 16, 2009, between PokerTek, Inc. and James T. Crawford (incorporated by reference to Exhibit 10.13 to our Form 10-Q for the quarterly period ended June 30, 2009 filed on August 14, 2009).

10.56	Amendment No. 1 to a $2.0 million Secured Promissory Note between PokerTek, Inc. and Lyle A. Berman, Gehrig H. White, James T. Crawford, and Arthur L. Lomax, effective as of July 9, 2009 (incorporated by reference to Exhibit 10.14 to our Form 10-Q for the quarterly period ended June 30, 2009 filed on August 14, 2009).

10.57	Offer to Exchange Certain Outstanding Stock Options for New Stock Options, dated September 8, 2009 and Election Form (incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarterly period ended September 30, 2009 filed on November 13, 2009).

Exhibit No.	Description
10.58	Amendment No. 2 to Secured Promissory Note and Amendment No. 1 to Note Purchase Agreement and Security Agreement, dated September 10, 2009(incorporated by reference to Exhibit 10.2 to our Form 10-Q for the quarterly period ended September 30, 2009 filed on November 13, 2009).

10.59	Subscription Agreements, dated August 28, 2009, relating to the sale of a total of 686,090 shares of the Registrant's Common Stock (incorporated by reference to Exhibit 10.3 to our Form 10-Q for the quarterly period ended September 30, 2009 filed on November 13, 2009).

10.60	Stock Purchase Agreement between the Registrant and ICP Electronics, Inc., dated August 13, 2009 (incorporated by reference to Exhibit 10.4 to our Form 10-Q for the quarterly period ended September 30, 2009 filed on November 13, 2009).

10.61	PokerTek, Inc. 2009 Stock Incentive Plan (incorporated by reference to Appendix A to our Definitive Schedule 14A filed on August 7, 2009).*

21	List of Subsidiaries.

31.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Compensatory plan or arrangement or management contract

Our SEC file number reference for documents filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended, is 000-51572.

Attached files

POKERTEK, INC. Reports

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