**Table of Contents**

** **

 

** **

**UNITED STATES**SECURITIES AND EXCHANGECOMMISSION

**Washington, D.C. 20549**

** **

**FORM 10-Q**

** **

| **(Mark  One)**                                         |
|---------------------------------------------------------|
| ** **                                              |   |
| **x**                                                   | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                    |
| **For the quarterly period ended March 29,  2009** |
|                                                    |
| **OR**                                                  |
| ** **                                              |
| **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 No. 0-50848**

** **

**WPT ENTERPRISES, INC.**

(Exactname of registrant as specified in its charter)

 

| **Delaware**                                | ** ** | **77-0639000**      |
|---------------------------------------------|------------|---------------------|
| (State or other jurisdiction                |       | (I.R.S. Employer    |
| of incorporation or organization)           |       | Identification No.) |
|                                        |       |                |
| **5700 Wilshire Boulevard, Suite 350** | ** ** | ** **          |
| **Los Angeles, California**                 | ** ** | **90036**           |
| (Address of principal executive offices)    |       | (Zip Code)          |

 

Registrant’stelephone number, including area code:**(323) 330-9900**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes x   No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). Yes o   No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

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

 

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

 

As of May 6, 2009there were 20,603,333 shares of Common Stock, $0.001 par value per share,outstanding.

 

 

 

----

Tableof Contents

 

**WPT ENTERPRISES, INC.**

 

**INDEX**

 
| ** **    | ** **            | ** **                                                                                                                                          | **Page of**   |
|---------------|-----------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|
| ** **    | ** **            | ** **                                                                                                                                          | **Form 10-Q** |
| PART I.  | FINANCIAL INFORMATION |                                                                                                                                                |               |
|          |                  |                                                                                                                                                |               |   |
|          | ITEM 1.               | FINANCIAL STATEMENTS                                                                                                                                |               |   |
|          |                  |                                                                                                                                                |               |   |
|          |                  | Unaudited  Condensed Consolidated Balance Sheets as of March 29, 2009 and  December 28, 2008                                              |               | 1 |
|          |                  |                                                                                                                                                |               |   |
|          |                  | Unaudited  Condensed Consolidated Statements of Loss and Comprehensive Loss for the  three months ended March 29, 2009 and March 30, 2008 |               | 2 |
|          |                  |                                                                                                                                                |               |   |
|          |                  | Unaudited  Condensed Consolidated Statements of Cash Flows for the three months ended  March 29, 2009 and March 30, 2008                  |               | 3 |
|          |                  |                                                                                                                                                |               |   |
|          |                  | Notes to Unaudited Condensed Consolidated Financial  Statements                                                                                     |               | 4 |
|          |                  |                                                                                                                                                |               |   |
|          | ITEM 2.               | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                                         |               | 11 |
|          |                  |                                                                                                                                                |               |   |
|          | ITEM 3.               | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                                         |               | 16 |
|          |                  |                                                                                                                                                |               |   |
|          | ITEM 4.               | CONTROLS AND  PROCEDURES                                                                                                                            |               | 16 |
|          |                  |                                                                                                                                                |               |   |
| PART II. | OTHER INFORMATION     |                                                                                                                                                |               |
|          |                  |                                                                                                                                                |               |   |
|          | ITEM 1.               | LEGAL PROCEEDINGS                                                                                                                                   |               | 17 |
|          |                  |                                                                                                                                                |               |   |
|          | ITEM 1A.              | RISK FACTORS                                                                                                                                        |               | 17 |
|          |                  |                                                                                                                                                |               |   |
|          | ITEM 6.               | EXHIBITS                                                                                                                                            |               | 19 |
|          |                  |                                                                                                                                                |               |   |
| SIGNATURES    |                  | 20                                                                                                                                                  |

 

----

Table ofContents

 

**PART 1 – FINANCIALINFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS**

 

**WPT ENTERPRISES, INC.**

**Condensed Consolidated BalanceSheets**

(Unaudited)

 
| ** **                                                                                                                | ** ** | **March 29, 2009**                                       | ** ** | **December 28, 2008** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                | ** ** | **(In thousands, except par value data)** | ** ** |
| **Assets**                                                                                                                |       |                                                               |       |                            |       |
| Current assets:                                                                                                           |       |                                                               |       |                            |       |
| Cash and cash equivalents                                                                                                 |       | $                                                                  | 14,244     |                            | $          | 11,497 |   |
| Investments in debt securities                                                                                            |       | 2,084                                                              |       | 2,088                           |       |
| Accounts receivable, net of allowances of $397 and $158                                                                   |       | 1,858                                                              |       | 2,099                           |       |
| Deferred television costs                                                                                                 |       | 1,727                                                              |       | 2,285                           |       |
| Other                                                                                                                     |       | 456                                                                |       | 666                             |       |
| Current assets of discontinued operations                                                                                 |       | 72                                                                 |       | 401                             |       |
|                                                                                                                      |       | 20,441                                                             |       | 19,036                          |       |
|                                                                                                                      |       |                                                               |       |                            |       |
| Investments in debt securities and put rights                                                                             |       | 3,900                                                              |       | 3,900                           |       |
| Property and equipment, net                                                                                               |       | 1,136                                                              |       | 1,293                           |       |
| Investment in Cecure Gaming                                                                                               |       | —                                                             |       | 1,000                           |       |
| Other                                                                                                                     |       | 537                                                                |       | 537                             |       |
| Long-term assets of discontinued operations                                                                               |       | —                                                             |       | 115                             |       |
|                                                                                                                      |       | $                                                                  | 26,014     |                            | $          | 25,881 |   |
|                                                                                                                      |       |                                                               |       |                            |       |
| **Liabilities and Stockholders’ Equity**                                                                             |       |                                                               |       |                            |       |
| Current liabilities:                                                                                                      |       |                                                               |       |                            |       |
| Accounts payable                                                                                                          |       | $                                                                  | 441        |                            | $          | 487 |   |
| Accrued payroll and related                                                                                               |       | 299                                                                |       | 269                             |       |
| Operating lease reserve                                                                                                   |       | 411                                                                |       | 456                             |       |
| Other accrued expenses                                                                                                    |       | 553                                                                |       | 693                             |       |
| Line of credit                                                                                                            |       | 2,651                                                              |       | —                          |       |
| Deferred revenue                                                                                                          |       | 947                                                                |       | 1,913                           |       |
| Current liabilities of discontinued operations                                                                            |       | 100                                                                |       | —                          |       |
|                                                                                                                      |       | 5,402                                                              |       | 3,818                           |       |
|                                                                                                                      |       |                                                               |       |                            |       |
| Commitments and Contingencies                                                                                             |       |                                                               |       |                            |       |
|                                                                                                                      |       |                                                               |       |                            |       |
| Stockholders’ equity:                                                                                                |       |                                                               |       |                            |       |
| Preferred stock, $0.001 par value; authorized 20,000 shares; none  issued or outstanding                                  |       | —                                                             |       | —                          |       |
| Common stock, $0.001 par value; authorized 100,000 shares; 20,603 and  20,492 shares issued and outstanding, respectively |       | 21                                                                 |       | 20                              |       |
| Additional paid-in capital                                                                                                |       | 44,621                                                             |       | 44,561                          |       |
| Deficit                                                                                                                   |       | (24,026                                                            | )          | (22,521                         | )          |
| Accumulated other comprehensive gain (loss)                                                                               |       | (4                                                                 | )          | 3                               |       |
|                                                                                                                      |       | 20,612                                                             |       | 22,063                          |       |
|                                                                                                                      |       | $                                                                  | 26,014     |                            | $          | 25,881 |   |

 

Seenotes to unaudited condensed consolidated financial statements.

 

1

----

Table ofContents

 

**WPT ENTERPRISES, INC.**

**CondensedConsolidated Statements of Loss and Comprehensive Loss**

(Unaudited)

 
| ** **                                                                                        | ** ** | **Three months ended**                                   | ** ** |
|---------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                                                        | ** ** | **March 29, 2009**                                       | ** ** | **March 30, 2008** | ** ** |
| ** **                                                                                        | ** ** | **(In thousands, except per share data)** | ** ** |
| **Revenues:**                                                                                     |       |                                                               |       |   |   |
| Television                                                                                        |       | $                                                                  | 3,565      |   | $ | 3,600 |   |
| Product licensing                                                                                 |       | 678                                                                |       | 687 |   |
| Online gaming                                                                                     |       | 136                                                                |       | 247 |   |
| Event hosting and sponsorship fees                                                                |       | 573                                                                |       | 327 |   |
| Other                                                                                             |       | 575                                                                |       | 101 |   |
|                                                                                              |       | 5,527                                                              |       | 4,962 |   |
|                                                                                              |       |                                                               |       |   |   |
| **Cost of revenues**                                                                              |       | 2,065                                                              |       | 2,670 |   |
| Gross profit                                                                                      |       | 3,462                                                              |       | 2,292 |   |
|                                                                                              |       |                                                               |       |   |   |
| **Selling, general and administrative expense**                                                   |       | 3,183                                                              |       | 4,956 |   |
| **Asset impairment**                                                                              |       | 1,000                                                              |       | — |   |
| Loss from operations                                                                              |       | (721                                                               | )          | (2,664 | ) |
|                                                                                              |       |                                                               |       |   |   |
| **Other income:**                                                                                 |       |                                                               |       |   |   |
| Gain on sale of investment                                                                        |       | —                                                             |       | 11 |   |
| Interest, net                                                                                     |       | 71                                                                 |       | 353 |   |
| Loss from continuing operations before income taxes                                               |       | (650                                                               | )          | (2,300 | ) |
|                                                                                              |       |                                                               |       |   |   |
| **Income taxes**                                                                                  |       | 129                                                                |       | — |   |
| Loss from continuing operations                                                                   |       | (521                                                               | )          | (2,300 | ) |
|                                                                                              |       |                                                               |       |   |   |
| **Loss from discontinued operations, net of income  taxes (including $211 for shutdown in 2009)** |       | (984                                                               | )          | (528 | ) |
| **Net loss**                                                                                      |       | (1,505                                                             | )          | (2,828 | ) |
|                                                                                              |       |                                                               |       |   |   |
| Unrealized loss on securities                                                                     |       | (7                                                                 | )          | (1,085 | ) |
|                                                                                              |       |                                                               |       |   |   |
| **Comprehensive loss**                                                                            |       | $                                                                  | (1,512     | ) | $ | (3,913 | ) |
|                                                                                              |       |                                                               |       |   |   |
| Loss per common share from continuing operations - basic and diluted                              |       | $                                                                  | (0.02      | ) | $ | (0.11 | ) |
| Loss per common share from discontinued operations - basic and  diluted                           |       | (0.05                                                              | )          | (0.03 | ) |
| **Net loss per common share - basic and diluted**                                                 |       | $                                                                  | (0.07      | ) | $ | (0.14 | ) |
|                                                                                              |       |                                                               |       |   |   |
| **Weighted-average common shares outstanding -  basic and diluted**                               |       | 20,603                                                             |       | 20,603 |   |

 

Seenotes to unaudited condensed consolidated financial statements.

 

2

----

Table ofContents

 

**WPT ENTERPRISES, INC.**

**Condensed Consolidated Statementsof Cash Flows**

(Unaudited)

 
| ** **                                                                                                          | ** ** | **Three months ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                          | ** ** | **March 29, 2009**     | ** ** | **March 30, 2008** | ** ** |
| ** **                                                                                                          | ** ** | **(In thousands)**          | ** ** |
| **Operating Activities:**                                                                                           |       |                             |       |   |   |
| Net loss                                                                                                            |       | $                                | (1,505     | ) | $ | (2,828 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in)  operating activities of continuing operations: |       |                             |       |   |   |
| Loss from discontinued operations                                                                                   |       | 984                              |       | 528 |   |
| Depreciation and amortization                                                                                       |       | 194                              |       | 157 |   |
| Share-based compensation                                                                                            |       | 60                               |       | 314 |   |
| Asset impairment                                                                                                    |       | 1,000                            |       | — |   |
| Loss on sale of assets                                                                                              |       | 22                               |       | — |   |
| Change in value of put rights                                                                                       |       | 211                              |       | — |   |
| Bad debt provision                                                                                                  |       | 239                              |       | — |   |
| Increase in operating (assets) and liabilities:                                                                     |       |                             |       |   |   |
| Accounts receivable                                                                                                 |       | 2                                |       | 953 |   |
| Deferred television costs                                                                                           |       | 558                              |       | 171 |   |
| Other                                                                                                               |       | 207                              |       | 76 |   |
| Accounts payable                                                                                                    |       | (46                              | )          | 111 |   |
| Accrued expenses                                                                                                    |       | (155                             | )          | (727 | ) |
| Deferred revenue                                                                                                    |       | (966                             | )          | (886 | ) |
| Net cash provided by (used in) operating activities of continuing  operations                                       |       | 805                              |       | (2,131 | ) |
| Net cash used in operating activities of discontinued operations                                                    |       | (440                             | )          | (558 | ) |
| Net cash provided by (used in) operating activities                                                                 |       | 365                              |       | (2,689 | ) |
|                                                                                                                |       |                             |       |   |   |
| **Investing Activities:**                                                                                           |       |                             |       |   |   |
| Purchase of property and equipment                                                                                  |       | (59                              | )          | (225 | ) |
| Change in value of ARS portfolio                                                                                    |       | (211                             | )          | — |   |
| Purchases of available for sale debt securities                                                                     |       | —                           |       | (11,187 | ) |
| Sales/redemptions of available for sale debt securities                                                             |       | —                           |       | 15,376 |   |
| Net cash provided by (used in) investing activities of continuing  operations                                       |       | (270                             | )          | 3,964 |   |
| Net cash used in investing activities of discontinued operations                                                    |       | —                           |       | (100 | ) |
| Net cash provided by (used in) investing activities                                                                 |       | (270                             | )          | 3,864 |   |
|                                                                                                                |       |                             |       |   |   |
| **Financing Activities:**                                                                                           |       |                             |       |   |   |
| Borrowing under line of credit                                                                                      |       | 2,661                            |       | — |   |
| Repayments under line of credit                                                                                     |       | (10                              | )          | — |   |
| Proceeds from exercise of stock options                                                                             |       | 1                                |       | — |   |
| Net cash provided by financing activities                                                                           |       | 2,652                            |       | — |   |
|                                                                                                                |       |                             |       |   |   |
| **Net increase in cash and cash equivalents**                                                                       |       | 2,747                            |       | 1,175 |   |
| Cash and cash equivalents at beginning of period                                                                    |       | 11,497                           |       | 3,852 |   |
| Cash and cash equivalents at end of period                                                                          |       | $                                | 14,244     |   | $ | 5,027 |   |
|                                                                                                                |       |                             |       |   |   |
| **Supplemental Cash Flow Information:**                                                                             |       |                             |       |   |   |
| Cash paid for interest                                                                                              |       | $                                | 2          |   | $ | — |   |

 

Seenotes to unaudited condensed consolidated financial statements.

 

3

----

Table ofContents

 

**WPT ENTERPRISES, INC.**

Notes to Unaudited CondensedConsolidated Financial Statements

 

**1.BUSINESS AND BASIS OF PRESENTATION**

 

These condensed consolidatedfinancial statements have been prepared by management of WPT Enterprises, Inc.(the “Company”) pursuant to the rules and regulations of the Securitiesand Exchange Commission applicable to interim financial information.Accordingly, certain information normally included in annual financialstatements prepared in accordance with accounting principles generally acceptedin the United States of America has been condensed or omitted. For furtherinformation, please refer to the annual audited financial statements of theCompany, and the related notes, included in the Company’s Annual Report on Form 10-Kfor the fiscal year ended December 28, 2008, from which the information asof that date is derived.

 

In the opinion ofmanagement, all adjustments considered necessary for a fair presentation havebeen included. The results for the current interim periods are not necessarilyindicative of the results to be expected for the full year. The accounting estimates that requirethe most significant, difficult and subjective judgments include:

 

·                  the valuation of investments in debtinstruments and put rights;

·                  the valuation of non-marketable equityinvestments;

·                  the determination of current and deferredincome taxes;

·                  the ultimate amount of estimatedtelevision revenues and costs;

·                  the recognition of revenues; and

·                  the valuation of share-basedcompensation.

 

TheGame Show Network (“GSN”) licensed Season Six of the World Poker Tour (“WPT”)and represented 0% and 42% of the Company’s total revenue for the three monthsended March 29, 2009 and March 30, 2008, respectively. Fox Sports Net(“FSN”) is broadcasting Season Seven of the WPT television series in 2009 andFullTiltPoker.net is the sponsor of the television series in the U.S. andMexico. FullTiltPoker.net represented 27% and 0% of the Company’s total revenuefor the three months ended March 29, 2009 and March 30, 2008,respectively. Party Gaming Plc (“Party Gaming”) is one international sponsor ofthe Season One of the Professional Poker Tour (“PPT”) and Seasons Four throughSix of the WPT. Party Gaming represented 27% and 15% of the Company’s totalrevenue for the three months ended March 29, 2009 and March 30, 2008.

 

Includedin accounts receivable at March 29, 2009 are amounts billed to PartyGaming and Hands-On Mobile that are 57% and 18% of the total balance,respectively. Included in accounts receivable at December 28, 2008 areamounts billed to FullTiltPoker.net, Party Gaming and Hands-On Mobile that are39%, 24% and 15% of the total balance, respectively.

 

**2.RECENT ACCOUNTING PRONOUNCEMENTS**

 

In February 2008, the FASB issued FSP 157-1, *Application of FASB Statement No. 157 to FASB Statement No. 13and Other Accounting Pronouncements That Address Fair Value Measurements forPurposes of Lease Classification or Measurement under Statement 13*and FSP 157-2, *Effective Date of FASB Statement No. 157*.FSP 157-1 amends SFAS 157 to remove certain leasing transactions from itsscope, and was effective upon initial adoption of SFAS 157. FSP 157-2delays the effective date of SFAS 157 for all non-financial assets andnon-financial liabilities, except for items that are recognized or disclosed atfair value in the financial statements on a recurring basis (at least annually)until the first quarter of 2009. FSP 157-2 was adopted in the first quarter of2009 and the new accounting standard did not have a significant impact on theconsolidated financial statements.

 

In April 2009, the FASB issued FSP 157-4 *Determining Fair Value When the Volume and Level of Activity for theAsset or Liability Have Significantly Decreased and Identifying TransactionsThat are Not Orderly*. FSP 157-4 provides guidance in the applicationof SFAS 157 when the volume and level of activity for an asset orliability have significantly decreased and when circumstances indicate that atransaction is not orderly. In April, the FASB also issued FSP 115-2 and FSP124-2 *Recognition and Presentation ofOther-Than-Temporary-Impairments*. FSP 115-2 and FSP 124-2 amend theother-than-temporary impairment guidance for debt securities and thepresentation and disclosure requirements of other-than-temporary impairments ofdebt and equity securities. These accounting changes are effective in theCompany’s second quarter. The Company does not currently expect theseaccounting changes will have a material impact on the consolidated financialstatements.

 

In December 2007, the FASB issued SFAS 141(Revised 2007), *Business Combinations.* SFAS 141(R) significantlychanges the accounting for business combinations and is now required for allbusiness combinations. SFAS 141(R) results in the expensing of certaincosts that were previously capitalized under prior accounting standards. In April 2009,the FASB issued FSP 141(R)-1, *Accounting for Assets andLiabilities Assumed in a Business Combination That Arise from Contingencies*.FSP 141(R)-1 amends and clarifies SFAS 141(R) in the recognition,measurement and disclosure of assets and liabilities arising from contingenciesin a business combination. FSP 141(R)-1 is now required for all businesscombinations.

 

4

----

Tableof Contents

 

**WPT ENTERPRISES, INC.**

Notes to Unaudited Condensed Consolidated Financial Statements

 

In December 2007, the FASB issued SFAS 160, *Noncontrolling Interests in**Consolidated Financial Statements – an Amendment ofARB No. 51* which establishes accounting and reporting standardsfor the noncontrolling or minority interest in a subsidiary and for thedeconsolidation of a subsidiary. Among the effects of SFAS 160 is the exclusionfrom net income (loss) of the noncontrolling or minority interest therein andthe relocation of such noncontrolling or minority interest to the stockholders’equity section of the balance sheet. SFAS 160 was adopted in the first quarterof 2009 and the new accounting standard did not have a significant impact onthe consolidated financial statements.

 

In March 2008, the FASB issued SFAS 161, *Disclosures About Derivative Instruments and Hedging Activities – anamendment of FASB Statement No. 133*. SFAS 161 expands thedisclosure requirements in SFAS 133, *Accounting for DerivativeInstruments and Hedging Activities*, regarding derivative instrumentsand hedging activities. SFAS 161 was adopted in the first quarter of 2009 andthe new accounting standard did not have a significant impact on theconsolidated financial statements.

 

**3. INVESTMENTS IN DEBT SECURITIESAND PUT RIGHTS**

 
| As of March 29,  2009, investments in debt securities and put rights consist of the following  (in thousands): |
|---------------------------------------------------------------------------------------------------------------------|

 
| ** **                                                                  | ** ** | **Cost**   | ** ** | **Unrealized  Gains/(Losses)** | ** ** | **Fair Value** | ** ** |
|-----------------------------------------------------------------------------|------------|------------|------------|--------------------------------|------------|---------------------|------------|
| **Maturity less than 1 year  (all available for sale)** | ** ** | ** ** | ** ** | ** **                     | ** ** | ** **          | ** ** |
| Short-term municipal bonds                                                  |       | $          | 800        |                           | $          | 2                   |       | $ | 802 |   |
| Corporate preferred securities                                              |       | 1,000      |       | (6                             | )          | 994                 |       |
| Certificates of deposit                                                     |       | 288        |       | —                         |       | 288                 |       |
|                                                                        |       | $          | 2,088      |                           | $          | (4                  | )          | $ | 2,084 |   |

 
| ** **                                                                   | ** ** | **Cost** | ** ** | **Realized  Gains/(Losses)** | ** ** | **Fair Value** | ** ** |
|------------------------------------------------------------------------------|------------|----------|------------|------------------------------|------------|---------------------|------------|
| **Maturity 1 year  to 5 years (all trading securities)** |       |     |       |                         |       |                |       |
| Auction rate securities                                                      |       | $        | 3,295      |                         | $          | 211                 |       | $ | 3,506 |   |
| Put rights                                                                   |       | 605      |       | (211                         | )          | 394                 |       |
|                                                                         |       | $        | 3,900      |                         | $          | —              |       | $ | 3,900 |   |

 

Investments in debt securities that are classified asavailable for sale or trading securities are the only assets or liabilitiesthat the Company is required to measure at their estimated fair value on arecurring basis. The estimated fair value is determined using inputs from amongthe three levels of the fair value hierarchy set forth in SFAS 157 as follows:

 

Level 1 inputs –Unadjusted quoted prices in active markets for identical assets or liabilities,which prices are available at the measurement date.

 

Level 2 inputs – Include quoted prices for similarassets and liabilities in active markets, quoted prices for identical orsimilar assets and liabilities in markets that are not active, inputs otherthan quoted prices that are observable for the asset or liability (*i.e.*, interest rates, yield curves, *etc.*)and inputs that are derived principally from or corroborated by observablemarket data by correlation or other means (market corroborated inputs).

 

Level 3 inputs – Unobservable inputs that reflectmanagement’s estimates about the assumptions that market participants would usein pricing the asset or liability. Management develops these inputs based onthe best information available, including internally-developed data.

 

In estimating fair value, the Company utilizesvaluation techniques that maximize the use of observable inputs and minimizethe use of unobservable inputs to the extent possible. None of the Company’sfinancial instruments are measured based on Level 2 inputs.

 

5

----

Tableof Contents

 

**WPT ENTERPRISES, INC.**

Notes to Unaudited Condensed Consolidated Financial Statements

 

As of March 29, 2009, financial assets that arecarried at fair value consist of the following (in thousands):

 
| **Description**                      | ** ** | **Level 1** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
|--------------------------------------|------------|------------------|------------|------------------|------------|-----------|------------|
| Cash and cash equivalents            |       | $                | 14,244     |             | $          | —    |       | $ | 14,244 |   |
| Short-term municipal bonds           |       | 802              |       | —           |       | 802       |       |
| Corporate preferred securities       |       | 994              |       | —           |       | 994       |       |
| Certificates of deposit              |       | 288              |       | —           |       | 288       |       |
| Auction rate securities              |       | —           |       | 3,506            |       | 3,506     |       |
| Put rights                           |       | —           |       | 394              |       | 394       |       |
| Total assets at estimated fair value |       | $                | 16,328     |             | $          | 3,900     |       | $ | 20,228 |   |

 

For financial assets thatutilize Level 1 inputs, the Company utilizes direct observable price quotes inactive markets for identical assets. Due to the lack of observable marketquotes on the Company’s auction rate securities (“ARS”) portfolio and relatedput rights, the Company utilizes valuation models that rely exclusively onLevel 3 inputs including those that are based on management’s estimates ofexpected cash flow streams and collateral values, default risk underlying thesecurity, long term broker credit rating, discount rates and overall capitalmarket liquidity. The valuation of the Company’s ARS portfolio and related putrights is subject to uncertainties that are difficult to predict. Factors thatmay affect the estimated fair value include changes to credit ratings of ARS aswell as to the assets collateralizing the securities, rates of default of theunderlying assets and collateral value, broker default risk, discount rates,and evolving market conditions affecting the liquidity of ARS.

 

The following table summarizes activity in the Company’sARS portfolio and Put Rights (in thousands):

 
| **Description**                                         | ** ** | **ARS** | ** ** | **Put Rights** | ** ** | **Total** | ** ** |
|---------------------------------------------------------|------------|---------|------------|---------------------|------------|-----------|------------|
| Balance – December 28, 2008                   |       | $       | 3,295      |                | $          | 605       |       | $ | 3,900 |   |
| Change in value of put rights, included in  earnings    |       | —  |       | (211                | )          | (211      | )          |
| Change in value of ARS portfolio, included in  earnings |       | 211     |       | —              |       | 211       |       |
| Settlements, net of purchases                           |       | —  |       | —              |       | —    |       |
| Balance – March 29, 2009                      |       | $       | 3,506      |                | $          | 394       |       | $ | 3,900 |   |

 

In November 2008, the Company accepted an offerfrom UBS AG (“UBS”), that created new rights and obligations related to the ARSportfolio (the “Put Rights”). The Put Rights permit the Company to require UBSto purchase the ARS at par value, at any time during the period of June 30,2010 through July 2, 2012. UBS also has the right, in its discretion, topurchase or sell the ARS at any time until July 2, 2012, so long as parvalue is received. The Company expects to sell the ARS under the Put Rights.However, if the Put Rights are not exercised before July 2, 2012 they willexpire and UBS will have no further obligation to buy the ARS.

 

UBS’s obligations under the Put Rights are not securedby its assets and do not require UBS to obtain any financing to support itsperformance obligations under the Put Rights. UBS has disclaimed any assurancethat it will have sufficient financial resources to satisfy its obligationsunder the Put Rights and UBS’s obligations are not guaranteed by any otherparty.

 

The Put Rights represent an asset that is separatefrom the ARS. The Company initially recorded $605,000 as the fair value of thePut Rights asset in interest income. The Company also elected to measure thePut Rights at fair value under SFAS 159, which permits an entity to elect thefair value option for recognized financial assets. As a result, unrealizedgains and losses are included in interest income and the Company reduced thevalue of the Put Right by $211,000 for the three months ended March 29,2009. The Company did not elect the fair value option for its other financialassets and liabilities.

 

In connection with the acceptance of the UBS offer in November 2008,the Company transferred the ARS from investments available-for-sale to tradingsecurities in accordance with SFAS 115. The transfer to trading securitiesreflects management’s intent to exercise the Put Rights during the period June 30,2010 to July 3, 2012. Prior to the agreement with UBS, the Company’sintent was to hold the ARS until the market recovered. At the time of transfer,the $605,000 unrealized loss on ARS was included in accumulated other comprehensivegain (loss). Upon transfer to trading securities, the Company recognized a$605,000 reduction in interest income. Unrealized gains and losses are includedin interest income and the Company increased the estimated value of the ARSportfolio by $211,000 for the three months ended March 29, 2009. Prior toaccepting the UBS offer, the ARS were recorded as investmentsavailable-for-sale.

 

6

----

Table ofContents

 

**WPT ENTERPRISES, INC.**

Notes to Unaudited Condensed Consolidated Financial Statements

 

UBS provided the Companywith a line of credit, secured by ARS held by UBS, equal to 75% of theestimated fair value of the ARS held by UBS. The Company borrowed $2,661,000under the line of credit from UBS in February 2009. Interest is charged atthe lower of 30-day LIBOR plus 150 to 275 basis points or the actual interestearned by the ARS. The line of credit is due upon demand. At March, 29, 2009,$2,651,000 was outstanding under the line of credit.

 

**4. ASSET IMPAIRMENT**

** **

In 2006, the Company paid $2,923,000 for an interest(currently 8%) in Cecure Gaming, LLC, a developer and operator of mobile phonecasino games. The Company recorded a $1,923,000 impairment charge in the thirdquarter of 2008 related to difficulties Cecure was having in obtaining workingcapital to finance its business development that resulted in a significantreduction in staffing. Cecure’s financing difficulties have continued into 2009and the Company recorded an additional $1,000,000 impairment charge in thefirst quarter of 2009. This investment was measured at implied fair value resulting in another-than-temporary impairment charge. The implied fair value measurement was calculatedusing financial metrics and ratios of comparable public companies and wasmeasured using Level 3 inputs, as the Company used unobservable inputs andsignificant management judgment to value this investment due to the absence ofquoted market prices, inherent lack of liquidity, and the long-term nature ofthis investment.

 

**5.SHARE-BASED COMPENSATION**

 

Share-based compensation expense was $60,000 and$314,000 for the three months ended March 29, 2009 and March 30,2008, respectively.

 

The Company uses theBlack-Scholes option-pricing model to estimate the fair value and compensationcost associated with employee incentive stock options which requires theconsideration of historical employee exercise behavior data and the use of anumber of assumptions including volatility of the Company’s stock price, theweighted-average risk-free interest rate, and the weighted-average expectedlife of the options.

 

The following valuesrepresent the average per grant assumptions used to value options granted duringthe three months ended March 29, 2009 and March 30, 2008. There havebeen no significant changes to the assumptions thus far in 2009 and none areexpected during the remainder of 2009.

 
| **Key valuation assumptions** | ** ** | **Three months ended  March 29, 2009** | ** ** | **Three months ended  March 30, 2008 (*)** | ** ** |
|-----------------------------------------|------------|------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| Risk-free interest rate                 |       | 2.06                                                       | %          | None                                                                |       |
| Expected term                           |       | 6.25  years                                                |       | None                                                                |       |
| Expected dividend yield                 |       | 0                                                          | %          | None                                                                |       |
| Expected volatility                     |       | 87.27                                                      | %          | None                                                                |       |
| Forfeiture rate                         |       | 0                                                          | %          | None                                                                |       |
| Weighted-average fair value             |       | $                                                          | 0.19       |                                                                | None       |   |
|                                         |            |                                                            |            |                                                                     |            |  |

 

----

(*) There were no stockoption grants in the first quarter of 2008.

 

The following tablesummarizes stock option activity during the three months ended March 29,2009:

 
| ** **                        | ** ** | ** **      | ** ** | **Number of Common Shares** | ** ** |
|-----------------------------------|------------|-----------------|------------|--------------------------------------------|------------|
| ** **                        | ** ** | **Options**     | ** ** | ** **                                 | ** ** | **Available** | ** ** | **Weighted-avg.** | ** ** |
| ** **                        | ** ** | **outstanding** | ** ** | **Exercisable**                            | ** ** | **for grant** | ** ** | **exercise price** | ** ** |
| Balance at December 28, 2008 |       | 2,314,589       |       | 1,106,921                                  |       | 873,418 |   | $ | 3.83 |   |
| Granted                           |       | 505,000         |       | —                                     |       | (505,000 | ) | 0.49 |   |
| Forfeited/canceled/exchanged      |       | (1,182,666      | )          | —                                     |       | 1,182,666 |   | 5.69 |   |
| Exercised                         |       | (111,340        | )          | —                                     |       | — |   | 0.0049 |   |
| Balance at March 29, 2009    |       | 1,525,583       |       | 179,914                                    |       | 1,551,084 |   | $ | 1.56 |   |

 

7

----

Table ofContents

 

**WPT ENTERPRISES, INC.**

Notes to Unaudited Condensed Consolidated Financial Statements

 

The following tablesummarizes significant ranges of outstanding and exercisable options as of March  29,2009**:**

 
| ** **                              | ** **              | **Options outstanding** | ** ** | **Options exercisable**                          | ** ** |
|-----------------------------------------|-------------------------|------------------------------|------------|-------------------------------------------------------|------------|
| ** **                              | ** **              | ** **                   | ** ** | **Weighted-avg.**                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Range of  exercise prices** | ** **              | **Number  outstanding**      | ** ** | **remaining  contractual  life (in years)** | ** ** | **Weighted-avg.  exercise  price** | ** ** | **Aggregate  intrinsic  value** | ** ** | **Number  exercisable** | ** ** | **Weighted-avg.  exercise  price** | ** ** | **Aggregate  intrinsic  value** | ** ** |
| $                                       | 0.37 — 1.87   |                         | 1,271,583  |                                                  | 9.76       |   | $ | 0.53 |   | $ | 68,820 |   | 10,081 |   | $ | 1.87 |   | $ | — |   |
| $                                       | 4.26 — 8.00   |                         | 241,000    |                                                  | 6.60       |   | 6.28 |   | — |   | 156,833 |   | 6.86 |   | — |   |
| $                                       | 14.51 — 19.50 |                         | 13,000     |                                                  | 5.70       |   | 14.89 |   | — |   | 13,000 |   | 14.89 |   | — |   |
|                                    |                    | 1,525,583                    |       | 9.22                                                  |       | $ | 1.56 |   | $ | 68,820 |   | 179,914 |   | $ | 7.16 |   | $ | — |   |

 

The aggregate intrinsic valuein the preceding table****representsthe total pre-tax intrinsic value, based on the Company’s closing stock priceof $0.55 on March 29, 2009, which would have been received by the optionholders had they exercised their options as of that date. As of March 29,2009, there were no exercisable “in-the-money” stock options. The totalintrinsic value of options exercised during the three months ended March 29,2009 was $44,000.

 

Asof March 29, 2009, total unrecognized compensation cost related tononvested options was $741,000, which is expected to be recognized over thenext 34 months on a weighted-average basis.

 

In a negotiated transaction, the Company exchangedoutstanding stock options held by the Company’s President and Chief ExecutiveOfficer for new stock options in February 2009. The new stock options havea four year vesting period and one quarter of the stock options vest annuallyon January 1 of each year. In this exchange, the Company cancelled 600,000stock options and issued 500,000 stock options. Total incremental estimatedcompensation cost related to the exchanged stock options was $94,000.

 

**6.DISCONTINUED WPT CHINA OPERATIONS**

 

In January 2009, theCompany began searching for a strategic partner to invest in the WPT Chinabusiness. The cash needs to support the growth in this business are greaterthan the Company is willing to expend. In March 2009, the Company shutdown the operations of WPT China while continuing to look for a strategicpartner to acquire the WPT China assets. The financial results of WPT Chinahave been reclassified as discontinued operations.

 

The Company expects toincur approximately $350,000 of costs to shutdown the WPT China business,consisting of $20,000 of employee severance, $224,000 of contract terminationcosts and $106,000 of software write down costs. During the three months ended March 29,2009, the Company incurred $211,000 of these costs consisting of $19,000 ofemployee severance, $86,000 of contract termination costs and $106,000 ofsoftware write down costs. The Company expects to incur the remaining $139,000of these costs in the three months ended June 28, 2009.

 

Summarized operating results information for the WPTChina business is as follows (in thousands):

 
| ** **                        | ** ** | **Three months ended** | ** ** |
|-----------------------------------|------------|----------------------------------|------------|
| ** **                        | ** ** | **March 29,  2009**         | ** ** | **March 30,  2008** | ** ** |
| Revenues                          |       | $                                | —     |   | $ | — |   |
| Loss before income taxes          |       | (1,018                           | )          | (528 | ) |
| Income taxes                      |       | 34                               |       | — |   |
| Loss from discontinued operations |       | (984                             | )          | (528 | ) |
|                                   |            |                                  |            |  |  |  |  |

 

Summarized balance sheetinformation for the WPT China business is as follows (in thousands):

 
| ** **                               | ** ** | **March 29,  2009** | ** ** | **December 28,  2008** | ** ** |
|------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Cash and cash equivalents |       | $                        | 62         |                        | $          | 168 |   |
| Other current assets                     |       | 10                       |       | 233                         |       |
| Property and equipment, net              |       | —                   |       | 115                         |       |
| Current liabilities                      |       | 100                      |       | —                      |       |
|                                          |            |                          |            |                             |            |  |  |

 

**7. INCOME TAXES**

 

The Company expects to pay federal alternative minimum taxon the utilization of net operating losses in 2009 and California income taxesdue to the suspension of the availability of net operating losses in 2009. TheCompany utilizes net operating losses from operations before utilizing netoperating losses generated from the exercise of stock options. The 

 

8

----

Table of Contents

 

**WPT ENTERPRISES, INC.**

Notes to Unaudited Condensed Consolidated FinancialStatements

 

income tax benefit for the threemonths ended March 29, 2009 is based on the estimated effective income taxrate for 2009. There was no income tax benefit for the three months ended March 30,2008 due to the net loss for the period. Based on the Company’s relatively limited and volatileearnings history, the Company recordeda full valuation allowance for the net deferred tax assets as managementcurrently believes it is more likely than not that deferred tax assets will notbe realized in the foreseeable future.

 

**8. NETLOSS PER COMMON SHARE**

 

Basic net loss per commonshare is calculated by dividing net loss by the weighted-average number ofcommon shares outstanding during the period. Shares for certain stock optionsgranted to Company employees are included in the computation after the optionshave vested when the shares are issuable for minimal cash consideration inrelation to the fair value of the options. Diluted earnings per common share iscalculated by adjusting weighted-average outstanding shares, assuming theconversion of all potentially dilutive stock options and awards (common stockequivalents). However, common stock equivalents are not included in thecalculation of diluted earnings per share for loss periods because the effectis anti-dilutive. There were 21,000 and 0 common stock equivalents for thethree months ended March 29, 2009 and March 30, 2008. The Company also excluded 1,784,000 and2,837,000 of weighted average outstanding stock options for the three monthsended March 29, 2009 and March 30, 2008, respectively, from thecalculation of diluted net loss per common share because the exercise prices ofthese stock options were greater than the average market value of the Company’scommon stock. These stock options could be included in the calculation in thefuture if the average market value of the Company’s common stock exceeds theexercise price of these stock options.

 

**9.CONTINGENCIES**

 

The Company is involved invarious inquiries, administrative proceedings and litigation relating tomatters arising in the normal course of business. The Company is not currentlya defendant in any material litigation and is not aware of any threatenedlitigation that could have a material effect on the Company. Management is notable to estimate the minimum loss to be incurred, if any, as a result of thefinal outcome of these matters but believes they are not likely to have amaterial adverse effect upon the Company’s financial position or results ofoperations and, accordingly, no provision for loss has been recorded.

 

**10. SEGMENTINFORMATION**

 

The operating segmentsreported below are the segments of the Company for which separate financialinformation is available and for which operating results are evaluated by thechief operating decision maker in deciding how to allocate resources and inassessing performance.

 

**Three months ended March 29,2009 (in thousands):**

 
| ** **                        | ** ** | **WPT**     | ** ** | **WPT Online** | ** ** | **WPT Global** | ** ** | ** **    | ** ** | ** **    | ** ** |
|-----------------------------------|------------|-------------|------------|---------------------|------------|---------------------|------------|---------------|------------|---------------|------------|
| ** **                        | ** ** | **Studios** | ** ** | **Gaming**          | ** ** | **Non-gaming**      | ** ** | **Marketing** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
| Revenues:                         |       |        |       |                |       |                |       |          |       |          |       |   |   |
| Television                        |       | $           | 3,565      |                | $          | —              |       | $             | —     |          | $          | — |   | $ | — |   | $ | 3,565 |   |
| Product licensing                 |       | —      |       | —              |       | —              |       | 678           |       | —        |       | 678 |   |
| Online gaming                     |       | —      |       | 136                 |       | —              |       | —        |       | —        |       | 136 |   |
| Event hosting and sponsorship     |       | 350         |       | —              |       | —              |       | 223           |       | —        |       | 573 |   |
| Other                             |       | —      |       | —              |       | 544                 |       | 31            |       | —        |       | 575 |   |
|                              |       | 3,915       |       | 136                 |       | 544                 |       | 932           |       | —        |       | 5,527 |   |
| Cost of revenues                  |       | 1,689       |       | —              |       | 297                 |       | 79            |       | —        |       | 2,065 |   |
| Gross profit                      |       | 2,226       |       | 136                 |       | 247                 |       | 853           |       | —        |       | 3,462 |   |
| Total assets (1)                  |       | 3,089       |       | 60                  |       | 782                 |       | 560           |       | 21,451        |       | 25,942 |   |
| Depreciation and amortization (1) |       | 75          |       | —              |       | 73                  |       | —        |       | 46            |       | 194 |   |
|                                   |            |             |            |                     |            |                     |            |               |            |               |            |  |  |  |  |  |  |  |  |

 

----

(1)         The total excludes $72 of total assetsand $8 of depreciation and amortization for discontinued WPT China operations.

 

Revenues attributed to domestic and internationaloperations were $3.3 million and $2.2 million, respectively.

 

9

----

Tableof Contents

 

**WPT ENTERPRISES, INC.**

Notes to UnauditedCondensed Consolidated Financial Statements

 

**Three months ended March 30,2008 (in thousands):**

 
| ** **                        | ** ** | **WPT**     | ** ** | **WPT Online** | ** ** | **WPT Global** | ** ** | ** **    | ** ** | ** **    | ** ** |
|-----------------------------------|------------|-------------|------------|---------------------|------------|---------------------|------------|---------------|------------|---------------|------------|
| ** **                        | ** ** | **Studios** | ** ** | **Gaming**          | ** ** | **Non-gaming**      | ** ** | **Marketing** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
| Revenues:                         |       |        |       |                |       |                |       |          |       |          |       |   |   |
| Television                        |       | $           | 3,600      |                | $          | —              |       | $             | —     |          | $          | — |   | $ | — |   | $ | 3,600 |   |
| Product licensing                 |       | —      |       | —              |       | —              |       | 687           |       | —        |       | 687 |   |
| Online gaming                     |       | —      |       | 247                 |       | —              |       | —        |       | —        |       | 247 |   |
| Event hosting and sponsorship     |       | 100         |       | —              |       | —              |       | 227           |       | —        |       | 327 |   |
| Other                             |       | —      |       | —              |       | 35                  |       | 66            |       | —        |       | 101 |   |
|                              |       | 3,700       |       | 247                 |       | 35                  |       | 980           |       | —        |       | 4,962 |   |
| Cost of revenues                  |       | 2,371       |       | 181                 |       | 30                  |       | 88            |       | —        |       | 2,670 |   |
| Gross profit                      |       | 1,329       |       | 66                  |       | 5                   |       | 892           |       | —        |       | 2,292 |   |
| Total assets (1)                  |       | 3,151       |       | 373                 |       | 560                 |       | 829           |       | 31,435        |       | 36,348 |   |
| Depreciation and amortization (1) |       | 65          |       | 1                   |       | 11                  |       | —        |       | 80            |       | 157 |   |
|                                   |            |             |            |                     |            |                     |            |               |            |               |            |  |  |  |  |  |  |  |  |

 

----

(1)         The total excludes $248 of total assetsand $8 of depreciation and amortization for discontinued WPT China operations.

 

Revenuesattributed to domestic and international operations were $3.2 million and $1.8million, respectively.

 

10

----

Table ofContents

 

**ITEM 2.****                ****MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS**

 

**Business Overview**

 

We create internationallybranded entertainment and consumer products driven by the development,production and marketing of televised programming based on gaming themes. Ourcurrent season of the World Poker Tour®,or WPT® television series - Season Seven, based on aseries of high-stakes poker tournaments, currently airs on Fox Sports Net inthe United States, and has been licensed for broadcast globally. In January 2008,we launched ClubWPT.com, an innovative subscription-based online poker clubtargeted to the estimated 60 million poker players in the United States, whichis currently offered in 38 states. Through November 2008, we offered areal-money online gaming website which prohibited wagers from players in theU.S. and other restricted jurisdictions. We also license our brand to companiesin the business of poker equipment and instruction, apparel, publishing,electronic and wireless entertainment, DVD/home entertainment, casino games andgiftware and are engaged in the sale of corporate sponsorships. Through March 2009,we developed and marketed online and mobile games supporting the WPT ChinaNational Traktor Poker TourTM.

 

We operate through four business segments, WPTStudios, WPT Online, WPT Global Marketing and WPT China, described in greaterdetail below:

 

*WPT Studios*, ourmulti-media entertainment division, generates revenue through domestic andinternational television licensing, domestic and international televisionsponsorship, as well as host fees from casinos and card rooms that host ourtelevised events.

 

*WPT Online*includes the online poker club ClubWPT.com that generates revenue fromsubscriptions, our international poker and casino real money gaming websiteswhich were terminated in November 2008 and an online merchandise store.

 

*WPT Global Marketing* includes branded consumerproducts, sponsorships and event management. Branded consumer products generaterevenue from the licensing of our brand to companies seeking to use the WorldPoker Tour brand and logo in the retail sales of their consumer products.Sponsorship and event management generates revenue through corporatesponsorship and management of televised and live events.

 

*WPT China* produced third-party branding at WPT ChinaNational Traktor Poker Tour events, licensed the television broadcast of theWPT China National Traktor Poker Tour and marketed the popular Chinese nationalcard game “Tuo La Ji” or “Traktor Poker”TM in online and mobile games. In January 2009,the Company began searching for a strategic partner to invest in the WPT Chinabusiness. The cash needs to support the growth in this business are greaterthan the Company is willing to expend. In March 2009, the Company decidedto shut down the operations of WPT China while continuing to look for astrategic partner to acquire the WPT China assets. The historical results ofWPT China have been reclassified as a discontinued operation.

 

**Results of Operations**

 

**Three Months Ended March 29,2009 Compared to the Three Months Ended March 30, 2008**

 

Thefollowing table sets forth revenue and cost of revenue information for our threecontinuing business segments (amounts in thousands):

 
| ** **                    | ** ** | **Three months ended**  | ** ** |
|-------------------------------|------------|-------------------------|------------|
| ** **                    | ** ** | **March 29, 2009** | ** ** | **% of  Revenues** | ** ** | **March 30, 2008** | ** ** | **% of  Revenues** | ** ** |
| WPT Studios:                  |       |                    |       |   |   |   |   |   |   |
| Domestic sponsorship          |       | $                       | 1,500      |   | 38 | % | $ | — |   | — | % |
| Domestic license              |       | —                  |       | — | % | 2,100 |   | 57 | % |
| International sponsorship     |       | 1,484                   |       | 38 | % | 730 |   | 20 | % |
| International license         |       | 581                     |       | 15 | % | 770 |   | 21 | % |
| Event hosting and sponsorship |       | 350                     |       | 9 | % | 100 |   | 2 | % |
|                          |       | 3,915                   |       | 100 | % | 3,700 |   | 100 | % |
| Cost of revenues              |       | 1,689                   |       | 43 | % | 2,371 |   | 64 | % |
| Gross profit                  |       | $                       | 2,226      |   | 57 | % | $ | 1,329 |   | 36 | % |

 

11

----

Table ofContents

 
| ** **                    | ** ** | **Three months ended**  | ** ** |
|-------------------------------|------------|-------------------------|------------|
| ** **                    | ** ** | **March 29, 2009** | ** ** | **% of  Revenues** | ** ** | **March 30, 2008** | ** ** | **% of  Revenues** | ** ** |
| WPT Online:                   |       |                    |       |   |   |   |   |   |   |
| Online gaming                 |       | $                       | 136        |   | 20 | % | $ | 247 |   | 88 | % |
| Non-gaming                    |       | 544                     |       | 80 | % | 35 |   | 12 | % |
|                          |       | 680                     |       | 100 | % | 282 |   | 100 | % |
| Cost of revenues              |       | 297                     |       | 44 | % | 211 |   | 75 | % |
| Gross profit                  |       | $                       | 383        |   | 56 | % | $ | 71 |   | 25 | % |
|                          |       |                    |       |   |   |   |   |   |   |
| WPT Global Marketing:         |       |                    |       |   |   |   |   |   |   |
| Product licensing             |       | $                       | 678        |   | 73 | % | $ | 687 |   | 70 | % |
| Event hosting and sponsorship |       | 223                     |       | 24 | % | 227 |   | 23 | % |
| Other                         |       | 31                      |       | 3 | % | 66 |   | 7 | % |
|                          |       | 932                     |       | 100 | % | 980 |   | 100 | % |
| Cost of revenues              |       | 79                      |       | 8 | % | 88 |   | 9 | % |
| Gross profit                  |       | $                       | 853        |   | 92 | % | $ | 892 |   | 91 | % |

 

***WPT Studios. ***Combined domestic and foreign televisionrevenues decreased $35,000 to $3,565,000 in 2009, from $3,600,000 in 2008.Domestic television revenues decreased $600,000 and international televisionrevenues increased $565,000 in 2009 compared to 2008. The sponsorship feesreceived per episode in 2009 for Season Seven of the WPT television series werelower than the license fees received for Season Six in 2008. The sponsorshipfee per one-hour episode for Season Seven was $125,000 compared to a licensefee of $300,000 per two-hour episode for Season Six. In 2009, we aired 13one-hour episodes of Season Seven compared to the delivery of seven two-hourepisodes of Season Six in 2008. International television licensing revenuesdecreased $189,000 in 2009 compared to 2008 as a result of fewer internationalterritories accepting license arrangements and the substitution of sponsorshiparrangements for license arrangements in many territories. Internationaltelevision sponsorship revenues increased $754,000 in 2009 compared to 2008 aswe had greater distribution of Seasons Four, Five and Six of the WPT televisionseries and PPT Season One in territories covered by the Party Gamingsponsorship contract. WPT television series hosting fees increased by $250,000in 2009 because 13 episodes of Season Seven aired in 2009 compared to oneepisode of Season Six that aired in 2008.

 

In thefirst quarter of 2009, our sources of revenue changed from primarilylicensed-based revenues from the sale of our programming to television networksto primarily sponsorship-based revenues. Sponsors pay to appear in the show andtelevision networks air the program for free or we pay a fee to televisionnetworks to air the program. In addition, in recent television seasons, foreigntelevision revenues increased and domestic television revenues decreased. Weexpect these two trends to continue in 2009.

 

Televisioncost of revenues decreased $682,000 in 2009compared to 2008 due to higher gross margins for Season Seven of the WPTtelevision series compared to Season Six and lower revenues in 2009 compared to2008. Television gross profit margins were 57% in 2009 compared to 36% in 2008.

 

***WPT Online. ***Online revenues increased $398,000 to$680,000 in 2009, from $282,000 in 2008. Online gaming revenues decreased$111,000 between years. In 2009, our online gaming revenues were derived fromaffiliate revenues whereas in 2008 our online gaming revenues were derived fromthe WPT-branded online gaming website. In November, 2008, we terminated theWPT-branded online gaming website. Affiliate revenues in 2009 had no costof revenues whereas the WPT-branded online gaming website had $181,000 of costof revenues in 2008.

 

Non-gaming revenues increased $509,000 between years due to increasedmembership in ClubWPT.com which was launched in the first quarter of 2008.ClubWPT.com cost of revenues increased $280,000 to $292,000 in 2009 from$12,000 in 2008 due to increased revenues. ClubWPT.com gross profit marginsincreased to 45% in 2009 from 37% in 2008. As total membership increased, werealized improved gross profit margins from economies of scale.

 

***WPT Global Marketing. ***Global marketing revenues decreased$48,000 to $932,000 in 2009, from $980,000 in 2008. Product licensing, eventhosting and sponsorship revenues were similar between years. A decrease inlicensing revenues from one significant licensee was offset by an increase inlicensing revenues from another significant licensee. Other global marketingrevenues decreased $35,000 in 2009 compared to 2008 due to the expiration of aDVD distributor agreement in 2008. Global marketing gross profit marginsincreased to 92% in 2009 from 91% in 2008.

 

12

----

Tableof Contents

 

Thefollowing table sets forth selling, general and administrative expenseinformation for our three continuing business segments (amounts in thousands):

 
| ** **                          | ** ** | **Three months ended**  | ** **  | ** **              | ** ** |
|-------------------------------------|------------|-------------------------|-------------|-------------------------|------------|
| ** **                          | ** ** | **March 29, 2009** | ** **  | **March 30, 2008** | ** ** | **% Change** | ** ** |
| Operational expenses                |       | $                       | 151         |                    | $          | 456 |   | (67 | )% |
| Selling and marketing expenses      |       | 795                     |        | 1,172                   |       | (32 | )% |
| General and administrative expenses |       | 2,237                   |        | 3,328                   |       | (33 | )% |
|                                |       | $                       |  3,183 |                    | $          | 4,956 |   | (36 | )% |

 

***Selling,General and Administrative Expense. ***Selling,general and administrative expense decreased $1,773,000 to $3,183,000 in 2009, from$4,956,000 in 2008. Selling, general and administrative expense consists ofoperational costs to manage websites and software, sales and marketing expensesand general administrative expenses.

 

Operationalexpenses decreased $305,000 in 2009. Costs associated with our domestic websitedecreased $105,000 in 2009 due to lower maintenance costs. Costs associatedwith our WPT-branded online gaming website decreased $194,000 in 2009 becausewe terminated our WPT-branded online gaming website in the fourth quarter of2008.

 

Salesand marketing expenses decreased $377,000 in 2009. Costs decreased primarilydue to the shutdown of our WPT-branded online gaming website. In the first halfof 2008, we heavily marketed our WPT-branded online gaming website and costsassociated with advertising, promotions and affiliates for online gamingdecreased $531,000 in 2009. In 2009, costs associated with our sponsorship ofthe Amateur Poker League decreased $88,000. Other sponsorship costs increased$235,000 in 2009 due to the termination of our spokesperson contract withAntonio Esfandiari.

 

Generaladministrative expenses decreased $1,091,000 in 2009. The decrease wasprimarily due to personnel reductions in 2008 that resulted in $905,000 inlower payroll and related costs in 2009. Legal expense decreased $218,000 in2009 as litigation was settled in the second quarter of 2008. Offsetting theselower 2009 costs was $260,000 of higher bad debt expense from the third partysystem provider for ClubWPT.

 

***Asset Impairment. ***We recorded an impairment charge against ourinvestment in Cecure Gaming in the third quarter of 2008 due to difficultiesCecure Gaming was having in obtaining working capital to finance their businessdevelopment over the next several years that resulted in a significantreduction in staffing. Financing difficulties continued into 2009 and we recorded an additional $1,000,000impairment charge in the three months ended March 29, 2009. Thisinvestment was measured at implied fair value resulting in an other-than-temporaryimpairment charge.

 

***Other Income.***  Net interestincome decreased $282,000 in 2009 compared to 2008, primarily due to lowerinterest rates and lower balances of investments in cash equivalents and debtsecurities. We recorded a $211,000 increase in interest income in 2009 inmarking our ARS portfolio to fair value and a corresponding decrease ininterest income in marking to fair value the rights that our broker gave us tocompel them to repurchase our auction rate securities.

 

***Income Taxes. ***The Companyexpects to pay federal alternative minimum tax on the utilization of netoperating losses in 2009 and California income taxes due to the suspension ofthe availability of net operating losses in 2009. The income tax benefit forthe three months ended March 29, 2009 is based on the estimated effectiveincome tax rate for 2009. There was no income tax benefit for the three monthsended March 30, 2008 due to the net loss for the period.

 

13

----

Table ofContents

 

Thefollowing table sets forth selling, general and administrative expenseinformation for our discontinued business segment (amounts in thousands):

 
| ** **                          | ** ** | **Three months ended**  | ** **  | ** **              | ** ** |
|-------------------------------------|------------|-------------------------|-------------|-------------------------|------------|
| ** **                          | ** ** | **March 29, 2009** | ** **  | **March 30, 2008** | ** ** | **% Change** | ** ** |
| Operational expenses                |       | $                       | 57          |                    | $          | 25 |   | 128 | % |
| Selling and marketing expenses      |       | 247                     |        | 132                     |       | 87 | % |
| General and administrative expenses |       | 503                     |        | 371                     |       | 36 | % |
| Shut down provision                 |       | 211                     |        | —                  |       | — | % |
|                                |       | $                       |  1,018 |                    | $          | 528 |   | 93 | % |

 

***DiscontinuedWPT China Operations. ***In January 2009,the Company began searching for a strategic partner to invest in the WPT Chinabusiness. The cash needs to support the growth in this business are greaterthan the Company is willing to expend. In March 2009, the Company shutdown the operations of WPT China while continuing to look for a strategicpartner to acquire the WPT China assets.

 

Weincurred $807,000 in 2009 and $528,000 in 2008 of selling, general andadministrative expenses. Higher 2009 expenses resulted from $135,000 of higherpayroll costs and $96,000 of higher Traktor Poker Tour fees. We also incurred$211,000 in costs in 2009 to shut down the WPT China operations. We expect toincur approximately $139,000 in the second quarter of 2009 to complete the shutdown of operations.

 

**Business Outlook**

 

For the second quarterand full year 2009, we expect:

 

·                    FSN to air 26 all-newepisodes of Season Seven of the WPT television series: 13 episodes aired in thefirst quarter, and eleven episodes will air in the second quarter and twoepisodes will air in the third quarter.

 

·                    To recognize foreignsponsorship revenues for Season Seven of the WPT television series beginning inthe fourth quarter. Foreign sponsorship revenues for Season One of the PPTtelevision series and Seasons Four through Six of the WPT television serieswill also be recognized in 2009.

 

·                    To complete production ofSeason Seven of the WPT television series and begin production of Season Eight.Season Eight production costs should be lower than Season Seven productioncosts.

 

·                    Lower general andadministrative expenses compared to the same period in 2008.

 

·                    Lower selling and marketingcosts compared to the same period in 2008.

 

·                    To incur approximately$139,000 of additional costs to shut down the operations of WPT China in thesecond quarter of 2009.

 

**Liquidity and Capital Resources**

 

During the three monthended March 29, 2009, cash and cash equivalents and investments in debtsecurities and put rights increased $2.7 million to a combined balance of $20.2million. We borrowed $2.7 million from the broker that holds our ARS portfolioand this source of cash was the reason for the increase in cash and investmentbalances. Cash flows from operating activities of continuing operations were$805,000 in 2009 compared to ($2,131,000) in 2008. Increases in revenues andreductions in production costs and selling, general and administrative expensesin 2009 were the primary reasons for the improvement between years. Ourprincipal operating cash requirements consist of payroll and benefits, officeleases, television production, professional and consulting fees, businessinsurance and sales and marketing costs. Cash flows from investing activitiesdecreased to ($270,000) in 2009 from $3,864,000 in 2008. The decrease wascaused by fewer net redemptions of investments in 2009. Cash flows fromfinancing activities increased to $2,652,000 from none in 2008. The 2009 cashflows were from the draw down of the line of credit in February 2009.

 

We intend to use fundscurrently on hand for working capital and capital expenditures associated withthe expansion of the WPT television series, ClubWPT and WPT Global Marketing,and for general corporate purposes. We anticipate our overall selling, generaland administrative expenses will decrease in future periods. We eliminatedsales and marketing expenditures related to our online gaming website and WPTChina and we significantly reduced payroll and related costs in 2008. We expectto continue to benefit from these cost reductions throughout the remainder of2009.

 

As of March 29,2009, we had $3.9 million invested in ARS and rights to put the ARS back to thebroker that sold them to us. Historically, ARS have been liquid with interestrates resetting every 7 to 35 days by an auction process. However, beginning inFebruary 2008, auctions for ARS held by us failed as a result of liquidityissues experienced in the global credit and capital markets. An auction failuremeans that the amount of securities submitted for sale exceeds the amount ofpurchase 

 

14

----

Table of Contents

 

orders and the partieswishing to sell the securities are instead required to hold the investmentuntil a successful auction is completed. The ARS continue to pay interest inaccordance with the terms of the underlying security; however, liquidity willcontinue to be limited until there is a successful auction or until such timeas other markets for ARS develop.

 

We entered into anagreement with the broker that holds our ARS that requires the broker to buythe ARS from us at par during the period June 30, 2010 to July 2,2012. We are required to sell the ARS to the broker prior to that period ifthey decide to buy the ARS at par value for any reason. The broker provided uswith a line of credit, secured by ARS held by that broker, equal to 75% of thefair value of the ARS held by that broker. We borrowed $2,661,000 under theline of credit agreement in February 2009. At March, 29, 2009, $2,651,000 was outstanding under the line of credit.

 

We expect that cash, cashequivalents, investments in debt securities and put rights and borrowings onthe credit line secured by our ARS portfolio will be sufficient to fund ourworking capital and capital expenditure requirements for the next twelve monthseven considering the current liquidity issues with the ARS.General economic and capital market conditions are rapidly changing, areunpredictable and the impact on our business is not within our control. If weneed to raise working capital, we may need to seek to sell additional equitysecurities, issue debt or convertible securities or seek to obtain creditfacilities through financial institutions, the availability of which is highlyuncertain.

 

**ContractualObligations, Commitments and Off-balance Sheet Arrangements**

 

The table below sets forth our contractual obligations asof March 29, 2009 (in thousands):

 
| ** **                       | ** ** | **Payments due by period (in thousands)** | ** ** |
|----------------------------------|------------|--------------------------------------------------------------------|------------|
| **Contractual obligations** | ** ** | **Total**                                                          | ** ** | **Year 1** | ** ** | **Years 2-3** | ** ** | **Years 4-5** | ** ** | **Years 6  and Beyond** | ** ** |
| Operating leases (1)             |       | $                                                                  | 2,019      |   | $ | 908 |   | $ | 1,111 |   | $ | — |   | $ | — |   |
| Purchase obligations             |       | 385                                                                |       | 297 |   | 88 |   | — |   | — |   |
|                             |       | $                                                                  | 2,404      |   | $ | 1,205 |   | $ | 1,199 |   | $ | — |   | $ | — |   |

 

----

(1)             Operatinglease obligations include rent payments for our corporate offices pursuant totwo lease agreements. For the first lease, monthly lease payments areapproximately $42,000 and escalate to approximately $45,000 over the remaininglease term. For the second lease, monthly lease payments are approximately$31,000 and escalate up to approximately $33,000 over the remaining lease term.The amounts set forth in the table above include monthly lease payments throughJune 2011.

 

We have no off-balancesheet arrangements that have or are reasonably likely to have a current orfuture material effect on our financial condition, changes in financialcondition, revenues or expenses, results of operations, liquidity, capitalexpenditures or capital resources.

 

**NasdaqStock Market Listing Compliance**

 

On August 14, 2008,the Nasdaq Stock Market notified us that we were not in compliance with theminimum stock listing price requirements of Nasdaq Marketplace Rule 4450(a)(5) asa result of the closing bid price for the Company’s common stock being below$1.00 for 30 consecutive business days. This notification has no effect on thelisting of the Company’s common stock at this time. The Nasdaq Marketplace Rules providethe Company with 180 calendar days to regain compliance, which will require thebid price of the Company’s common stock to remain above $1.00 for a minimum of10 consecutive business days.

 

On October 16, 2008,Nasdaq announced the suspension of the enforcement of the rules requiringa minimum $1.00 closing bid price. The term of the suspension was extended byNasdaq on December 19, 2008 and again on March 23, 2009. As a resultof the decision to suspend enforcement of the rules requiring a minimum$1.00 closing bid price through July 19, 2009, Nasdaq has granted theCompany an extension until November 16, 2009 to become in compliance withNasdaq Marketplace Rule 4450(a)(5). The Company will continue to executeits business plan to provide an opportunity to demonstrate value to theinvestment community and regain Nasdaq compliance. In addition, the Board ofDirectors have asked the stockholders for authority to effect a reverse stock splitto regain compliance with the minimum $1.00 closing bid price rule shouldthe Board determine that the reverse stock split is in the best interests ofstockholders.

 

**CriticalAccounting Estimates**

 

The methods,estimates and judgments that we use in applying our accounting policies have asignificant impact on the results that we report in our financial statements.Some of our accounting policies require us to make difficult and subjectivejudgments, often as a result of the need to make estimates regarding mattersthat are inherently uncertain. Management believes that there have been nosignificant changes during the three months ended March 29, 2009 to theitems that we 

 

15

----

Table ofContents

 

disclosed as our criticalaccounting policies and estimates in Management’s Discussion and Analysis ofFinancial Condition and Results of Operations in our Annual Report on Form 10-Kfor the fiscal year ended December 28, 2008.

 

##### **Recently Issued AccountingPronouncements**

#####  

See “Note 2. RecentAccounting Pronouncements” for information about recently issued accountingpronouncements.

 

**PrivateSecurities Litigation Reform Act**

** **

Theforegoing discussion and other statements in this report contain various “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended. Forward-looking statements are based on our current expectations orbeliefs concerning future events. These statements can be identified by the useof terminology such as “anticipate,” “believe,” “estimate,” “expect,” “intend,”“may,” “could,” “possible,” “plan,” “project,” “will,” “forecast” and similarwords or expressions.

 

Forward-lookinginformation involves important risks and uncertainties that could significantlyaffect our anticipated future results and, accordingly, actual results maydiffer materially from those expressed in any forward-looking statement.  Our forward-looking statements generallyrelate to plans for future expansion and other business development activities,expected levels of capital spending, potential sources of future financing andthe possible effects on our business of gaming, tax and other regulation and ofcompetition. Although it is not possible to foresee all of the factors that maycause actual results to differ from our forward-looking statements, see “Part II— Other Information, Item 1A. Risk Factors” and the risk factors described inour Form 10-K for the year ended December 28, 2008 for risk factorsthat may impact our forward-looking statements.

 

**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK**

 

Our financial instrumentsinclude cash and cash equivalents, short-term municipal bonds, corporatepreferred securities, certificates of deposit and ARS, including related putrights. Our main investment objectives are the preservation of investmentcapital and the maximization of after-tax returns on our investment portfolio.Consequently, we invest with only high-credit-quality issuers and limit theamount of credit exposure to any one issuer. We do not use derivativeinstruments for speculative or investment purposes.

 

Our cash and cashequivalents are not subject to significant interest rate risk due to the shortmaturities of these instruments, or for our ARS portfolio because interestrates reset to market rates frequently. As of March 29, 2009, the carryingvalue of our cash and cash equivalents approximated fair value. We have in thepast and our strategy for the future is to obtain marketable debt securities(principally consisting of government securities, commercial paper and corporatebonds) having a weighted average duration of one year or less. Consequently,such securities would not be subject to significant interest rate risk.

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

**Under the supervision and with the participation of ourmanagement, including our Chief Executive Officer and President, and InterimChief Financial Officer, we conducted an evaluation of our disclosure controlsand procedures, as such term is defined under Rules 13a-15(e) or15d-15(e) promulgated under the Exchange Act, as of the end of the periodcovered by this report. Based on this evaluation, our management has concludedthat our disclosure controls and procedures are effective.**

** **

There have been nosignificant changes (including corrective actions with regard to significantdeficiencies of material weaknesses) in our internal controls or in otherfactors that could significantly affect these controls subsequent to the dateof the evaluation referenced above.

 

16

----

Tableof Contents

 

**PART II – OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

See “Note 9.Contingencies” for information about legal proceedings.

 

**ITEM 1A. RISK FACTORS**

 

Inaddition to the other information set forth in this report, the risk factorsset forth below include any material changes to the risk factors that youshould carefully consider as discussed in Part I, “Item 1A. Risk Factors”in our Annual Report on Form 10-K for the year ended December 28,2008. Additional risks and uncertainties not currently known to us or that wecurrently deem to be immaterial may also materially adversely affect ourbusiness, financial condition and/or operating results.

 

***GSN did not exercise its right to broadcast future seasonsof the WPT and our broadcast agreement with FSN does not provide for anybroadcast fees to be paid to us, which could materially and adversely affectour results of operations.***

 

License fees receivedfrom U.S. broadcasters have been our most significant source of revenue.Although we entered into a distribution agreement with FSN in September 2008to broadcast Season Seven of the WPT television series, the FSN agreement doesnot provide for any license fees to be paid to us for the broadcast rights. Wegenerate fees from sponsors by integrating sponsor logos and other advertisingmaterials into our programs and around the broadcast of the shows. In November 2008,we entered into a sponsorship agreement with FullTiltPoker.net to sponsorSeason Seven of the WPT television series in the U.S. and Mexico. In the firstquarter of 2009, we entered into sponsorship agreements with Poker Stars tosponsor Season Seven in Canada, certain European countries, Mexico and SouthAmerica. There is no assurance that we will be able to find sufficient sponsorsfor Season Seven of the WPT television series that will pay us amountsaggregating the fees paid by GSN and international television sponsors andlicensees for Season Six of the WPT television series. In January 2009, weentered into a distribution agreement with FSN to broadcast Season Eight of theWPT television series. We do not yet have any sponsors for Season Eight. We maybe required to pay the cost to produce Season Eight shows for FSN and dependingon the amount of sponsor revenues we are able to generate, the lack of licensefees in our FSN agreements could have a material adverse effect on ourfinancial condition, results of operations and cash flows.

 

***Our ClubWPT.com business iscurrently heavily dependent upon television as a primary source for thegeneration of new subscribers and we need to find a more cost effectivemarketing tool to generate new subscribers, which if not achieved couldmaterially and adversely affect our results of operations.***

 

We spent $927,000 in thefourth quarter of 2008 and $220,000 in the first quarter of 2009 to produce 13one hour ClubWPT.com television shows to build awareness and drive traffic toour online subscription website ClubWPT.com. We were disappointed with the rateat which we converted ClubWPT.com television viewers to paying subscriptioncustomers at ClubWPT. In order for the ClubWPT business to become a viablebusiness, we need to identify a more cost efficient marketing tool to generatenew subscribers for ClubWPT. The number of paid subscribers at ClubWPTincreased in the first quarter, but we expect the number of paid subscribers todecrease in future quarters due to the lack of spending on marketing for newplayers.

 

***Our reliance onCentaurus Games, LLC as a third party systems provider is subject to systemsecurity risks and business viability risks that could disrupt servicesprovided to ClubWPT.com customers, and any such disruption could reduce ourrevenue, increase our expenses and harm our reputation.***

 

Experienced computerprogrammers and hackers may be able to penetrate Centaurus’ network securityand misappropriate confidential information, create system disruptions or causeshutdowns. In addition, computer programmers and hackers may be able to developand deploy viruses, worms and other malicious software programs that attacktheir products or otherwise exploit security vulnerabilities in their products.As a result, we could lose existing or potential customers. Furthermore, we areCentaurus’ primary source of revenue. If we or other Centaurus customers do notprovide sufficient business to them, they will face significant financialpressures. In the fourth quarter of 2008 and the first quarter of 2009,Centaurus experienced a cash flow shortfall and we agreed to defer the paymentof certain amounts owed by Centaurus to us. It is possible that the deferral ofthe payment of amounts owed by Centaurus to us will continue throughout 2009.If Centaurus is not able to raise additional funding to finance their business,or if we or other Centaurus customers are not able to generate sufficientbusiness for Centaurus, then Centaurus may not be able to continue to be aviable vendor for us. Our efforts to address these risks could result ininterruptions, delays, cessation of service and loss of existing or potentialcustomers that may reduce our revenues, increase our expenses and harm ourreputation.

 

***We may incur additional********impairmentcharges to our auction rate securities portfolio and we are dependent on UBS AGto repurchase these investments from us.***

 

As of March 29,2009, we had $3,900,000 of principal invested in auction rate securities. Thetypes of ARS investments that we own are backed by student loans, areguaranteed under the Federal Family Education Loan Program and are AAA or 

 

17

----

Table of Contents

 

Aaa rated. The estimated fair value of our ARS holdingsat March 29, 2009 was $3,506,000, which reflects a $394,000 impairmentloss.

 

We entered into anagreement with UBS that requires UBS to buy our ARS at par value during theperiod June 30, 2010 to July 2, 2012. We have valued that right at$394,000 at March 29, 2009. We have given UBS the right to sell our ARSbefore that period if they are able to find a buyer that is willing to pay parvalue for our ARS. UBS has provided a $2,661,000 line of credit to us, securedby the ARS held by them, which we drew down in February 2009. At March 29,2009, $2,651,000 was outstanding under the line of credit.

 

UBS’s obligation torepurchase our ARS is not secured by their assets and does not require UBS toobtain any financing to support their performance obligations. UBS hasdisclaimed any assurance that they will have sufficient financial resources tosatisfy their obligations and the obligations are not guaranteed by any otherparty.

 

If uncertainties in thecapital and credit markets continue, these markets deteriorate further or weexperience any ratings downgrades on any ARS investments in our portfolio, wemay need to further impair the value of our ARS portfolio, which couldnegatively affect our financial condition and results of operations. We arealso dependant on UBS to repurchase our ARS portfolio at par value and thatobligation is subject to performance risk on the part of UBS.

 

***Wereceived a Nasdaq staff determination letter on August 14, 2008, notifyingus that we were not in compliance with the minimum stock listing pricerequirements of Nasdaq Marketplace Rule 4450(a)(5) and if we aredelisted from Nasdaq, the price of our common stock could drop.***

 

Under Nasdaq Marketplacerules, if the closing bid price of our common stock is below $1.00 for 30consecutive business days, we could be delisted from the Nasdaq Global Market.Nasdaq Marketplace rules provide the Company with 180 calendar days toregain compliance, which will require the bid price of the Company’s commonstock to remain above $1.00 for a minimum of 10 consecutive business days. Ifwe do not regain compliance with this rule, Nasdaq Staff will provide writtennotification that our securities will be delisted. On October 16, 2008,Nasdaq announced the suspension of the enforcement of rules requiring aminimum $1.00 closing bid price. This term of the suspension was extended byNasdaq on December 19, 2008 and March 23, 2009 and the suspensionwill remain in effect through November 16, 2009. We have until November 16,2009 to become in compliance with Nasdaq Marketplace Rule 4450(a)(5). TheBoard of Directors have asked the stockholders for authority to effect areverse stock split to regain compliance with the minimum $1.00 closing bidprice rule should the Board determine that the reverse stock split is inthe best interests of stockholders.

 

***Due to the international natureof our WPT China business, political or economic changes or other factors couldreduce our future revenue, increase costs and harm our investment in thisbusiness.******We are also dependant on third parties to develop and market ouroperations in China, and we have little control over their day-to-dayoperations and have no way to ensure that we can monetize our China operationseffectively.***

 

InMarch 2009, we decided to shut down the operations of WPT China whilecontinuing to look for a strategic partner to acquire the WPT China assets.These risk factors are now less significant to us due to our reduced businesspresence in China.

 

18

----

Table ofContents

 

**ITEM 6. EXHIBITS**

 
| 31.1   |   | Certification of Chief Executive Officer pursuant to  Securities Exchange Act Rules 13a-15(e) and 15d-15(e) as  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002          |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                           |
| 31.2   |   | Certification of Interim Chief Financial Officer  pursuant to Securities Exchange Act Rules 13a-15(e) and  15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002 |
|   |   |                                                                                                                                                                                                           |
| 32.1   |   | Certification of Chief Executive Officer and Interim  Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002              |

 

19

----

Table ofContents

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report on Form 10-Q to be signed on its behalf by theundersigned, thereunto duly authorized.

 
| Dated: May 6, 2009 | WPT ENTERPRISES, INC.           |
|-------------------------|---------------------------------|
|                    | Registrant                      |
|                    |                            |
|                    |                            |
|                    | /s/ *Steven Lipscomb*           |
|                    | Steven Lipscomb                 |
|                    | Chief Executive Officer         |
|                    |                            |
|                    |                            |
|                    | /s/ *Thomas Flahie*             |
|                    | Thomas Flahie                   |
|                    | Interim Chief Financial Officer |

 

20

----