**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**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 July 1, 2007** |
| ** **                                       |
| **OR**                                           |
| ** **                                       |
| **o**                                            | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For thetransition period from                                  to**

**CommissionFile No. 0-24993**

**WPTENTERPRISES, INC.**

(Exact name of registrantas specified in its charter)

| **Delaware**                                                     |   | **77-0639000**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction  of incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                             |   |                                  |
| **5700  Wilshire Boulevard**                                     |   | ** **                            |
| **Suite  350**                                                   |   | ** **                            |
| **Los  Angeles, California**                                     |   | **90036**                             |
| (Address of  principal executive offices)                        |   | (Zip Code)                            |
|                                                             |   |                                  |
| **(323) 330-9900**                                          |
| (Registrant’s  telephone number, including area code)       |

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past90 days. 

| Yes x | No o |
|-------|------|

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2 ofthe Exchange Act.
| Large accelerated filer o | Accelerated  filer x | Non-accelerated  filer o |
|---------------------------|----------------------|--------------------------|

 

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

As of August 7, 2007 there were 20,491,993 shares ofCommon Stock, $0.001 par value per share, outstanding.

 

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**WPTENTERPRISES, INC.**

**INDEX**
|            | **Page of**  |
|------------|--------------|
| ** ** | **Form 10Q** |
| PART I.    |         | FINANCIAL INFORMATION |   |
|       |
|       |         | ITEM 1. |   | FINANCIAL STATEMENTS |   |
|       |         |   |   |   |   |
|       |         |   |   | Condensed Consolidated  Balance Sheets as of July 1, 2007 (unaudited) and December 31, 2006 | 3 |
|       |         |   |   |   |   |
|       |         |   |   | Unaudited Condensed  Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss)  for the three and six months ended July 1, 2007 and July 2, 2006 | 4 |
|       |         |   |   |   |   |
|       |         |   |   | Unaudited  Condensed Consolidated Statements of Stockholders’ Equity for the six months  ended July 1, 2007 and July 2, 2006 | 5 |
|       |         |   |   |   |   |
|       |         |   |   | Unaudited  Condensed Consolidated Statements of Cash Flows for the six months ended July  1, 2007 and July 2, 2006 | 6 |
|       |         |   |   |   |   |
|       |         |   |   | Notes to  Unaudited Condensed Consolidated Financial Statements | 7 |
|       |         |   |   |   |   |
|       |         | ITEM 2. |   | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 12 |
|       |         |   |   |   |   |
|       |         | ITEM 3. |   | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 21 |
|       |         |   |   |   |   |
|       |         | ITEM 4. |   | CONTROLS AND  PROCEDURES | 21 |
|       |         |   |   |   |   |
| PART II.   |         | OTHER INFORMATION |   |
|       |
|       |         | ITEM 1. |   | LEGAL PROCEEDINGS | 22 |
|       |
|       |         | ITEM  1A. |   | RISK  FACTORS | 22 |
|       |
|       |         | ITEM 4. |   | Submission of Matters To a Vote Of Security Holders | 24 |
|       |
|       |         | ITEM  6. |   | EXHIBITS | 24 |
|       |
| SIGNATURES | 25           |

 

2

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**Part I. Financial Information**

** **

**ITEM1. FINANCIAL STATEMENTS**

** **

**WPT ENTERPRISES, INC.**

**CondensedConsolidated Balance Sheets**
| ** **                                                                                                                 | ** ** | **July 1, 2007** | ** ** | **December 31, 2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                 | ** ** | **(unaudited)**            | ** ** | ** **                      | ** ** |
| ** **                                                                                                                 | ** ** | **(In thousands)**    | ** ** |
| **Assets**                                                                                                                 |       |                       |       |                            |       |
| Current assets:                                                                                                            |       |                       |       |                            |       |
| Cash and cash  equivalents                                                                                                 |       | $                          | 1,544      |                            | $          | 8,360 |   |
| Investments in  marketable securities                                                                                      |       | 33,012                     |       | 31,263                          |       |
| Accounts  receivable, net of allowances of $18                                                                             |       | 3,141                      |       | 2,353                           |       |
| Deferred  television costs                                                                                                 |       | 953                        |       | 1,722                           |       |
| Other                                                                                                                      |       | 624                        |       | 735                             |       |
|                                                                                                                       |       | 39,274                     |       | 44,433                          |       |
|                                                                                                                       |       |                       |       |                            |       |
| Property and equipment,  net                                                                                               |       | 1,537                      |       | 3,375                           |       |
| Restricted cash                                                                                                            |       | 347                        |       | 453                             |       |
| Investments                                                                                                                |       | 2,923                      |       | 2,923                           |       |
| Other                                                                                                                      |       | 156                        |       | 156                             |       |
|                                                                                                                       |       | 44,237                     |       | $                               | 51,340     |   |
|                                                                                                                       |       |                       |       |                            |       |
| **Liabilities and Stockholders’  Equity**                                                                             |       |                       |       |                            |       |
| Current liabilities:                                                                                                       |       |                       |       |                            |       |
| Accounts payable                                                                                                           |       | $                          | 1,060      |                            | $          | 674 |   |
| Accrued payroll  and related                                                                                               |       | 940                        |       | 1,205                           |       |
| Other accrued  expenses                                                                                                    |       | 789                        |       | 1,076                           |       |
| Deferred revenue                                                                                                           |       | 2,557                      |       | 4,740                           |       |
| Income taxes  payable                                                                                                      |       | 1                          |       | 394                             |       |
|                                                                                                                       |       | 5,347                      |       | 8,089                           |       |
|                                                                                                                       |       |                       |       |                            |       |
| **Commitments and Contingencies**                                                                                          |       |                       |       |                            |       |
|                                                                                                                       |       |                       |       |                            |       |
| Stockholders’ equity:                                                                                                 |       |                       |       |                            |       |
| Preferred stock,  $0.001 par value; authorized 20,000 shares; none issued and outstanding                                  |       | —                     |       | —                          |       |
| Common stock,  $0.001 par value; authorized 100,000 shares; 20,492 and 20,378 shares issued  and outstanding, respectively |       | 20                         |       | 20                              |       |
| Additional  paid-in capital                                                                                                |       | 42,970                     |       | 41,719                          |       |
| Retained  earnings (deficit)                                                                                               |       | (4,058                     | )          | 1,561                           |       |
| Accumulated  other comprehensive loss                                                                                      |       | (42                        | )          | (49                             | )          |
|                                                                                                                       |       | 38,890                     |       | 43,251                          |       |
|                                                                                                                       |       | $                          | 44,237     |                            | $          | 51,340 |   |

 

See notes to condensedconsolidated financial statements

3

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**WPT ENTERPRISES, INC.**

**Condensed Consolidated Statements ofEarnings (Loss) andComprehensive Earnings (Loss)**

**(unaudited)**
| ** **                                                    | ** ** | **Three months ended**                                   | ** ** | **Six months ended** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                    | ** ** | **July 1, 2007**                                         | ** ** | **July 2, 2006**     | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** |
| ** **                                                    | ** ** | **(In thousands, except per share data)** | ** ** |
| **Revenues:**                                                 |       |                                                               |       |                           |       |   |   |   |   |
| License fees:                                                 |       |                                                               |       |                           |       |   |   |   |   |
| Domestic television                                           |       | $                                                                  | 4,306      |                           | $          | 7,259 |   | $ | 6,708 |   | $ | 10,304 |   |
| International television                                      |       | 765                                                                |       | 661                            |       | 1,220 |   | 1,568 |   |
| Product licensing                                             |       | 979                                                                |       | 804                            |       | 1,859 |   | 1,517 |   |
|                                                          |       | 6,050                                                              |       | 8,724                          |       | 9,787 |   | 13,389 |   |
|                                                          |       |                                                               |       |                           |       |   |   |   |   |
| Online gaming                                                 |       | 260                                                                |       | 821                            |       | 810 |   | 1,732 |   |
| Event hosting and sponsorship fees                            |       | 1,357                                                              |       | 1,412                          |       | 1,482 |   | 2,209 |   |
| Other                                                         |       | 53                                                                 |       | 72                             |       | 133 |   | 152 |   |
|                                                          |       | 7,720                                                              |       | 11,029                         |       | 12,212 |   | 17,482 |   |
|                                                          |       |                                                               |       |                           |       |   |   |   |   |
| **Cost of  revenues**                                         |       | 3,087                                                              |       | 4,176                          |       | 5,239 |   | 6,596 |   |
|                                                          |       |                                                               |       |                           |       |   |   |   |   |
| **Gross  profit**                                             |       | 4,633                                                              |       | 6,853                          |       | 6,973 |   | 10,886 |   |
|                                                          |       |                                                               |       |                           |       |   |   |   |   |
| **Selling,  general and administrative expense**              |       | 5,950                                                              |       | 4,361                          |       | 11,233 |   | 9,509 |   |
| **Loss on  abandonment of online gaming assets**              |       | 2,270                                                              |       | —                         |       | 2,270 |   | — |   |
|                                                          |       |                                                               |       |                           |       |   |   |   |   |
| **Earnings  (loss) from operations**                          |       | (3,587                                                             | )          | 2,492                          |       | (6,530 | ) | 1,377 |   |
|                                                          |       |                                                               |       |                           |       |   |   |   |   |
| **Other  income:**                                            |       |                                                               |       |                           |       |   |   |   |   |
| Gain on sale of investment                                    |       | —                                                             |       | —                         |       | — |   | 5,675 |   |
| Interest                                                      |       | 248                                                                |       | 419                            |       | 911 |   | 744 |   |
| **Earnings  (loss) before income taxes**                      |       | (3,339                                                             | )          | 2,911                          |       | (5,619 | ) | 7,796 |   |
|                                                          |       |                                                               |       |                           |       |   |   |   |   |
| **Income  taxes**                                             |       | —                                                             |       | 344                            |       | — |   | 1,639 |   |
|                                                          |       |                                                               |       |                           |       |   |   |   |   |
| **Net  earnings (loss)**                                      |       | (3,339                                                             | )          | 2,567                          |       | (5,619 | ) | 6,157 |   |
| ** **                                                    |       |                                                               |       |                           |       |   |   |   |   |
| **Unrealized  gains (loss) on securities**                    |       | (16                                                                | )          | (840                           | )          | 7 |   | (411 | ) |
| ** **                                                    |       |                                                               |       |                           |       |   |   |   |   |
| **Comprehensive  earnings (loss)**                            |       | $                                                                  | (3,355     | )                              | $          | 1,727 |   | $ | (5,612 | ) | $ | 5,746 |   |
|                                                          |       |                                                               |       |                           |       |   |   |   |   |
| **Net  earnings (loss) per common share - basic and diluted** |       | $                                                                  | (0.16      | )                              | $          | 0.12 |   | $ | (0.27 | ) | $ | 0.30 |   |
|                                                          |       |                                                               |       |                           |       |   |   |   |   |
| **Weighted-average  common shares outstanding - basic**       |       | 20,603                                                             |       | 20,603                         |       | 20,603 |   | 20,310 |   |
|                                                          |       |                                                               |       |                           |       |   |   |   |   |
| Dilutive effect  of common stock equivalents                  |       | —                                                             |       | —                         |       | — |   | 2 |   |
|                                                          |       |                                                               |       |                           |       |   |   |   |   |
| **Weighted-average common shares  outstanding - diluted**     |       | 20,603                                                             |       | 20,603                         |       | 20,603 |   | 20,312 |   |

 

See notes to condensedconsolidated financial statements

4

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**WPTENTERPRISES, INC.**

**Condensed Consolidated Statements of Stockholders’ Equity**

**SixMonths ended July 1, 2007 and July 2, 2006**

**(unaudited)**
| ** **                                     | ** ** | **Common Stock** | ** ** | **Additional  Paid-in** | ** ** | **Retained  Earnings** | ** ** | **Deferred**  | ** ** | **Accumlated  Other  Comprehensive** | ** ** | ** **          | ** ** |
|------------------------------------------------|------------|-----------------------|------------|-------------------------|------------|------------------------|------------|---------------|------------|--------------------------------------|------------|---------------------|------------|
| ** **                                     | ** ** | **Shares**            | ** ** | **Dollars**             | ** ** | **Capital**            | ** ** | **(Deficit)** | ** ** | **Compensation**                     | ** ** | **Earnings/(Loss)** | ** ** | **Total** | ** ** |
| ** **                                     | ** ** | ** **            | ** ** | ** **              | ** ** | ** **             | ** ** | ** **    | ** ** | **(in thousands)**              | ** ** | ** **          | ** ** | ** ** | ** ** |
| **2007**                                       | ** ** | ** **            | ** ** | ** **              | ** ** | ** **             | ** ** | ** **    | ** ** | ** **                           | ** ** | ** **          | ** ** | ** ** | ** ** | ** ** |
| **BALANCES  AT JANUARY 1, 2007**               | ** ** | **20,378**            | ** ** | **$**                   | **20**     | ** **             | **$**      | **41,719**    | ** ** | **$**                                | **1,561**  | ** **          | **$**      | **—** | ** ** | **$** | **(49** | **)** | **$** | **43,251** | ** ** |
| Common stock issued                            |       | 114                   |       |                    |       | 1                      |       |          |       |                                 |       |                |       | 1 |   |
| Share-based compensation                       |       |                  |       |                    |       | 1,250                  |       |          |       |                                 |       |                |       | 1,250 |   |
| Other comprehensive earnings                   |       |                  |       |                    |       |                   |       |          |       |                                 |       | 7                   |       | 7 |   |
| Net loss                                       |       |                  |       |                    |       |                   |       | (5,619        | )          |                                 |       |                |       | (5,619 | ) |
| **BALANCES  AT JULY 1, 2007**                  | ** ** | **20,492**            | ** ** | **$**                   | **20**     | ** **             | **$**      | **42,970**    | ** ** | **$**                                | **(4,058** | **)**               | **$**      | **—** | ** ** | **$** | **(42** | **)** | **$** | **38,890** | ** ** |
| ** **                                     | ** ** | ** **            | ** ** | ** **              | ** ** | ** **             | ** ** | ** **    | ** ** | ** **                           | ** ** | ** **          | ** ** | ** ** | ** ** |
| **2006**                                       | ** ** | ** **            | ** ** | ** **              | ** ** | ** **             | ** ** | ** **    | ** ** | ** **                           | ** ** | ** **          | ** ** | ** ** | ** ** | ** ** |
| **BALANCES  AT JANUARY 2, 2006**               | ** ** | **20,158**            | ** ** | **$**                   | **20**     | ** **             | **$**      | **34,113**    | ** ** | **$**                                | **(6,208** | **)**               | **$**      | **(1** | **)** | **$** | **10,449** | ** ** | **$** | **38,373** | ** ** |
| Reduction of deferred compensation             |       |                  |       |                    |       |                   |       |          |       | 1                                    |       |                |       | 1 |   |
| Common stock issued                            |       | 220                   |       |                    |       | 1                      |       |          |       |                                 |       |                |       | 1 |   |
| Share-based compensation                       |       |                  |       |                    |       | 2,409                  |       |          |       |                                 |       |                |       | 2,409 |   |
| Income tax benefit from stock option exercises |       |                  |       |                    |       | 1,457                  |       |          |       |                                 |       |                |       | 1,457 |   |
| Realized gain on sale of investment            |       |                  |       |                    |       |                   |       |          |       |                                 |       | (5,675              | )          | (5,675 | ) |
| Other comprehensive loss                       |       |                  |       |                    |       |                   |       |          |       |                                 |       | (411                | )          | (411 | ) |
| Net earnings                                   |       |                  |       |                    |       |                   |       | 6,157         |       |                                 |       |                |       | 6,157 |   |
| **BALANCES  AT JULY 2, 2006**                  | ** ** | **20,378**            | ** ** | **$**                   | **20**     | ** **             | **$**      | **37,980**    | ** ** | **$**                                | **(51**    | **)**               | **$**      | **—** | ** ** | **$** | **4,363** | ** ** | **$** | **42,312** | ** ** |
|                                                |            |                       |            |                         |            |                        |            |               |            |                                      |            |                     |            |  |  |  |  |  |  |  |  |  |  |

 

See notes to condensedconsolidated financial statements

5

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**WPTENTERPRISES, INC.**

**CondensedConsolidated Statements of Cash Flows**

**(unaudited)**
| ** **                                                            | ** ** | **Six months ended** | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                            | ** ** | **July 1, 2007**     | ** ** | **July 2, 2006** | ** ** |
| ** **                                                            | ** ** | **(In thousands)**        | ** ** |
|                                                                  | ** ** | ** **                     |       |   |   |
| **OPERATING  ACTIVITIES:**                                            |       |                           |       |   |   |
| Net earnings (loss)                                                   |       | $                              | (5,619     | ) | $ | 6,157 |   |
| Adjustments to reconcile net earnings (loss) to net  cash             |       |                           |       |   |   |
| provided by (used in) operating activities:                           |       |                           |       |   |   |
| Depreciation                                                          |       | 361                            |       | 255 |   |
| Share-based compensation                                              |       | 1,259                          |       | 2,293 |   |
| Realized gain on sale of investment                                   |       | —                         |       | (5,675 | ) |
| Income taxes                                                          |       | —                         |       | 1,457 |   |
| Loss on disposal of online gaming assets                              |       | 2,270                          |       | — |   |
| Increase in operating (assets) liabilities:                           |       |                           |       |   |   |
| Accounts receivable                                                   |       | (788                           | )          | 1,151 |   |
| Income taxes payable                                                  |       | (393                           | )          | — |   |
| Deferred television costs                                             |       | 760                            |       | 904 |   |
| Other                                                                 |       | (129                           | )          | 159 |   |
| Accounts payable                                                      |       | 386                            |       | (710 | ) |
| Accrued expenses                                                      |       | (596                           | )          | 810 |   |
| Deferred revenue                                                      |       | (2,183                         | )          | (1,799 | ) |
| Net cash  provided by (used in) operating activities                  |       | (4,672                         | )          | 5,002 |   |
|                                                                  |       |                           |       |   |   |
| **INVESTING  ACTIVITIES:**                                            |       |                           |       |   |   |
| Purchase of property and equipment                                    |       | (509                           | )          | (1,836 | ) |
| Purchases of short-term investments in marketable  securities         |       | (34,297                        | )          | (24,981 | ) |
| Sales/redemptions of short-term investments in  marketable securities |       | 32,555                         |       | 21,172 |   |
| Proceeds from sale of investment                                      |       | —                         |       | 5,686 |   |
| Net cash  provided by (used in) investing activities                  |       | (2,251                         | )          | 41 |   |
|                                                                  |       |                           |       |   |   |
| **FINANCING  ACTIVITIES:**                                            |       |                           |       |   |   |
| Decrease (increase) in restricted cash                                |       | 106                            |       | (196 | ) |
| Proceeds from stock option exercises                                  |       | 1                              |       | 1 |   |
| Net cash  provided by (used in) financing activities                  |       | 107                            |       | (195 | ) |
|                                                                  |       |                           |       |   |   |
| Net increase  (decrease) in cash and cash equivalents                 |       | $                              | (6,816     | ) | $ | 4,848 |   |
| Cash and cash  equivalents - beginning of period                      |       | 8,360                          |       | 1,737 |   |
| **Cash and cash equivalents - end  of period**                        |       | $                              | 1,544      |   | $ | 6,585 |   |

 

See notes to condensedconsolidated financial statements

6

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**WPTENTERPRISES, INC.Notes to Unaudited Condensed Consolidated Financial Statements**

**1. BASISOF PRESENTATION**

These condensedconsolidated financial statements have been prepared by the Company pursuant tothe rules and regulations of the Securities and Exchange Commission (the “SEC”)applicable to interim financial information. Accordingly, certain informationnormally included in the annual financial statements prepared in accordancewith accounting principles generally accepted in the United States of Americahas been condensed or omitted.  Forfurther information, please refer to the annual audited financial statements ofthe Company, and the related notes, included in the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2006, previously filed withthe SEC, from which the information as of that date is derived.

In the opinion of management, all adjustmentsconsidered necessary for a fair presentation have been included. The resultsfor the current interim period are not necessarily indicative of the results tobe expected for the full year.

Certain minorreclassifications to amounts previously reported have been made to conform tothe current period presentation. These reclassifications had no effect on netearnings (loss) or stockholders’ equity as previously presented.

**2. EARNINGS (LOSS) PER SHARE**

Basicearnings (loss) per common share is calculated by dividing net earnings (loss)by the weighted-average number of common shares outstanding during the period.Shares for certain stock options granted to employees and consultants of theCompany are included in the computation after the options have vested when theshares are issuable for relatively minimal cash consideration in relation tothe fair value of the options (Note 3). Diluted earnings per common share iscalculated by adjusting weighted-average outstanding shares, assumingconversion of all potentially dilutive stock options and awards (common stockequivalents). However, common stock equivalents are not considered in thecalculation for loss periods because to do so would be anti-dilutive.

**3. SHARE-BASED COMPENSATION**

The Company usesthe Black-Scholes option-pricing model to estimate the fair value andcompensation cost associated with employee incentive stock options inaccordance with SFAS 123(R).  The basesfor the key assumptions included in the model are as follows:

·                  Expectedvolatility — As the Company has a relatively short operating history and nodefinitive peer or peer groups, expected volatility was based on historicalvolatility of the Company’s stock since it began trading in August 2004.

·                  Forfeiturerate — The Company uses historical data to estimate employee departure behaviorin estimating future forfeitures.

·                  Expectedterm — Due to the Company’s limited operating history including stock optionexercises and forfeitures, the Company calculated expected term using the “SimplifiedMethod” in accordance with SAB 107.

·                  Riskfree interest rate - For periods within the expected term of the share option,risk free interest rate is based on the U.S. Treasury yield curve in effect atthe time of grant.

Following is asummary of the assumptions used to estimate the weighted-average fair value ofthe stock options granted during the periods presented using the Black-Scholes option-pricingmodel:

7

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| ** **                   | ** ** | **Three months ended  July 1, 2007** | ** ** | **Three months ended  July 2, 2006** | ** ** | **Six months ended  July 1, 2007** | ** ** | **Six months ended  July 2, 2006** | ** ** |
|------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| Risk free  interest rate     |       | 4.84                                                     | %          | 5.06                                                     | %          | 4.65                                                   | %          | 4.68                                                   | %          |
| Expected term                |       | 6 years                                                  |       | 6.5 years                                                |       | 6 years                                                |       | 6.5 years                                              |       |
| Expected  dividend yield     |       | 0                                                        | %          | 0                                                        | %          | 0                                                      | %          | 0                                                      | %          |
| Expected volatility          |       | 72.22                                                    | %          | 78.91                                                    | %          | 73.03                                                  | %          | 81.57                                                  | %          |
| Forfeiture rate              |       | 12.99                                                    | %          | 4.13                                                     | %          | 12.99                                                  | %          | 4.13                                                   | %          |
| Weighted-average  fair value |       | $                                                        | 3.06       |                                                     | $          | 3.80                                                   |       | $                                                      | 3.17       |   | $ | 4.24 |   |
|                              |            |                                                          |            |                                                          |            |                                                        |            |                                                        |            |  |  |  |  |

 

The table below summarizes share-based compensationexpense, net of tax, related to employee stock options under SFAS 123(R), whichwas allocated as follows (in thousands):
|                                                            | ** ** | **Three months ended  July 1, 2007** | ** ** | **Three months ended  July 2, 2006** | ** ** | **Six months ended  July 1, 2007** | ** ** | **Six months ended  July 2, 2006** | ** ** |
|------------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| Total cost of  share-based payment plans                   |       | $                                                        | 662        |                                                     | $          | 678                                                    |       | $                                                      | 1,250      |   | $ | 2,280 |   |
| Amounts  capitalized in deferred television costs          |       | 1                                                        |       | —                                                   |       | 1                                                      |       | —                                                 |       |
| Amounts charged  against income, before income tax benefit |       | $                                                        | 661        |                                                     | $          | 678                                                    |       | $                                                      | 1,249      |   | $ | 2,280 |   |
|                                                       |       |                                                     |       |                                                     |       |                                                   |       |                                                   |       |

 

No income taxbenefit was recognized in the statement of earnings (loss) for share-basedcompensation arrangements for the six months ended July 1, 2007 and July 2,2006.  Management assessed the likelihoodthat the deferred tax assets relating to future tax deductions from share-basedcompensation will be recovered from future taxable income and determined that avaluation allowance is necessary, to the extent that management currentlybelieves it is more likely than not that tax benefits will not be realized.Management’s determination is based primarily on historical earningsvolatility, and the Company’s relatively short operating history and expectedtaxable losses for fiscal 2007.

The following tablesummarizes stock option activity through the six months ended July 1, 2007 andJuly 2, 2006:
| ** **                         | ** ** | ** **               | ** ** | **Number of Common Shares** | ** ** |
|------------------------------------|------------|--------------------------|------------|--------------------------------------------|------------|
| ** **                         | ** ** | **Options  outstanding** | ** ** | **Exercisable**                            | ** ** | **Available  for grant** | ** ** | **Weighted-avg.  exercise  price** | ** ** |
| **2007**                           | ** ** |                     |       |                                       |       |   |   |   |   |   |
| **Balance  at January 1, 2007**    |       | 2,318,166                |       | 1,050,200                                  |       | 983,501 |   | $ | 6.76 |   |
|                               |       |                     |       |                                       |       |   |   |   |   |
| Granted                            |       | 287,000                  |       |                                       |       | (287,000 | ) | $ | 4.80 |   |
| Forfeited  /cancelled/expired      |       | (90,466                  | )          |                                       |       | 90,466 |   | $ | 8.49 |   |
| **Balance  at April 1, 2007** |       | 2,514,700                |       | 1,010,533                                  |       | 786,967 |   | $ | 6.47 |   |
|                               |       |                     |       |                                       |       |   |   |   |   |
| Granted                            |       | 182,000                  |       |                                       |       | (182,000 | ) | $ | 4.53 |   |
| Forfeited  /cancelled/expired      |       | (85,667                  | )          |                                       |       | 85,667 |   | $ | 5.25 |   |
| Exercised                          |       | (113,660                 | )          |                                       |       |   |   | $ | 0.0049 |   |
| **Balance  at July 1, 2007**  |       | 2,497,373                |       | 912,139                                    |       | 690,634 |   | $ | 6.67 |   |
| ** **                         |       |                     |       |                                       |       |   |   |   |   |
| **2006**                           | ** ** |                     |       |                                       |       |   |   |   |   |   |
| **Balance  at January 2, 2006**    |       | 2,158,000                |       | 620,333                                    |       | 283,667 |   | $ | 7.14 |   |
|                               |       |                     |       |                                       |       |   |   |   |   |
| Granted                            |       | 219,000                  |       |                                       |       | (219,000 | ) | $ | 6.20 |   |
| Forfeited  /cancelled/expired      |       | (159,333                 | )          |                                       |       | 159,333 |   | $ | 8.13 |   |
| Exercised                          |       | (115,000                 | )          |                                       |       |   |   | $ | 0.0049 |   |
| **Balance  at April 2, 2006** |       | 2,102,667                |       | 785,500                                    |       | 224,000 |   | $ | 7.36 |   |
|                               |       |                     |       |                                       |       |   |   |   |   |
| Authorized                         |       |                     |       |                                       |       | 1,080,000 |   |   |   |
|                               |       |                     |       |                                       |       |   |   |   |   |
| Granted                            |       | 109,500                  |       |                                       |       | (109,500 | ) | $ | 5.18 |   |
| Forfeited  /cancelled/expired      |       | (153,501                 | )          |                                       |       | 153,501 |   | $ | 10.07 |   |
| Exercised                          |       | (105,000                 | )          |                                       |       |   |   | $ | 0.0049 |   |
| **Balance at July 2, 2006**   |       | 1,953,666                |       | 619,333                                    |       | 1,348,001 |   | $ | 7.42 |   |

 

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The followingtable summarizes significant ranges of outstanding and exercisable options asof July 1, 2007**:**
| **Options outstanding**                                                          | ** ** | **Options exercisable** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------------------|------------|
| **Range of  exercise prices**                                               | ** ** | **Number  outstanding**      | ** ** | **Weighted-avg.  remaining  contractual  life** | ** ** | **Weighted-avg.  exercise  price** | ** ** | **Aggregate  intrinsic  value** | ** ** | **Number  exercisable** | ** ** | **Weighted-avg.  price** | ** ** | **Aggregate  intrinsic  value** | ** ** |
| $             0.0049 |       | 111,340                      |       | 4.66 |   | $ | 0.0049 |   | $ | 454,835 |   | 111,340 |   | $ | 0.0049 |   | $ | 454,835 |   |
| $  3.93  —   4.80                                       |       | 824,000                      |       | 9.58 |   | 4.46 |   | 4,800 |   | — |   | — |   | — |   |
| $  5.18  —   9.92                                       |       | 1,325,366                    |       | 7.48 |   | 7.57 |   | — |   | 739,133 |   | 7.88 |   | — |   |
| $11.95 — 14.51                                                              |       | 220,667                      |       | 8.12 |   | 12.19 |   | — |   | 56,000 |   | 12.70 |   | — |   |
| $15.05 — 19.50                                                              |       | 16,000                       |       | 8.10 |   | 15.33 |   | — |   | 5,666 |   | 15.57 |   | — |   |
|                                                                                  |       | 2,497,373                    |       | 8.10 |   | $ | 6.67 |   | $ | 459,635 |   | 912,139 |   | $ | 7.26 |   | $ | 454,835 |   |

 

The aggregateintrinsic value in the preceding table****representsthe total pre-tax intrinsic value, based on the Company’s closing stock priceof $4.09 on June 29, 2007, which would have been received by the option holdershad they exercised their options as of that date.  The total intrinsic value of optionsexercised during the three months ended July 1, 2007 and July 2, 2006 was $0.5million and $0.8 million, respectively. The total intrinsic value of options exercised during the six monthsended July 1, 2007 and July 2, 2006 was $0.5 million and $1.4 million,respectively.

As of July 1, 2007, total compensation cost related tonon-vested share-based options not yet recognized was $3.5 million, which isexpected to be recognized over the next 29 months on a weighted-average basis.

**4. INCOME TAXES**

The incometax provision was $0 and $1.6 million for the first six months of 2007 and2006, respectively, and the effective tax rate for the first six months of 2007and 2006 was approximately 0% and 21%, respectively. Management expects theCompany to generate a net operating loss for 2007, and a valuation allowancehas been recorded for the net deferred tax asset related to the net loss generatedin the first six months of 2007.

Effective for the firstquarter of 2007, the Company adopted Financial Accounting Standards BoardInterpretation 48, *Accounting forUncertainty in Income Taxes* (“FIN 48”). Based on the Company’sassessment of its tax positions in accordance with FIN 48, there was no impacton the results of operations, financial condition or liquidity and accordingly,there was no cumulative effect adjustment recorded for the change in accountingprinciple in the first quarter of 2007. Furthermore,  the income tax provision during the periodended July 1, 2007 was not impacted by FIN 48.

**5. ONLINE GAMING COMMITMENT ANDRELATED LOSS ON ABANDONMENT OF ONLINE GAMING ASSETS**

On April 23, 2007, the Company entered into a threeyear software supply and support agreement (the “Agreement”) with CryptoLogicInc., and its wholly-owned subsidiary WagerLogic Limited, (collectivelyreferred to as “CryptoLogic”). Pursuant to the Agreement, CryptoLogic willoperate an online gaming site for the Company featuring a poker room and casinogames utilizing its proprietary software, in exchange for a percentage of therevenue generated from the site.  The Company will be entitled toapproximately 80% of net gaming revenues from the operation of the site. Under the Agreement, the Company will also be a member in a centralized onlinegaming network (the “Network”) with several other licensees of CryptoLogicpursuant to which players will be able to play on the Company’s branded gamingsite on the Network.

Prior to signing the Agreement with CryptoLogic, theCompany was developing its own proprietary online gaming platform internally,which management decided to abandon and replace with the CryptoLogicarrangement.  As a result of signing theAgreement with CryptoLogic, during the second quarter of 2007, the Companywrote off approximately $2.3 

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million of capitalized costs related to the onlinegaming platform previously being developed internally.  The assets writtenoff consist primarily of software and computer equipment.

The online gaming site on the CrytoLogic platformbecame operational in June 2007, but operations during the quarter were notmaterial.

**6. CONTINGENCIES**

On July 19, 2006, alegal action was commenced against the Company by seven poker players thatalleges, among other things, an unfair business practice of the Company. OnMarch 14, 2007, the plaintiffs filed a motion for summary judgment in thecase and on April 12, 2007, the Company filed its opposition to the motion. OnMay 22, 2007, the Court denied the plaintiffs’ motion for summaryjudgment. A trial date has been set for April 1, 2008. Although managementis currently unable to predict the ultimate outcome of this matter, it believesthat the Company is not likely to sustain any material loss in connectiontherewith, and accordingly, no provision for loss has been recorded inconnection therewith.

The Company is also involved in various inquiries,administrative proceedings and litigation relating to other matters arising inthe normal course of the Company’s business. While any proceeding or litigation has an element of uncertainty,management currently believes that the final outcome of these matters is notlikely to have a material adverse effect upon the Company’s future financialposition or results of operations and accordingly, no provision for loss hasbeen recorded in connection therewith.

**7. SEGMENT INFORMATION**

The operatingsegments reported below are the segments of the Company for which separatefinancial information is available and for which operating results areevaluated by the chief operating decision maker in deciding how to allocateresources and in assessing performance.

**Threemonths ended July 1, 2007 (in thousands):**
| ** **       | ** ** | ** **       | ** ** | **WPT Online** | ** ** | ** **  | ** ** | ** **                     | ** ** | ** **    | ** ** |
|------------------|------------|------------------|------------|---------------------|------------|-------------|------------|--------------------------------|------------|---------------|------------|
| ** **       | ** ** | **WPT  Studios** | ** ** | **Gaming**          | ** ** | **Content** | ** ** | **WPT Global  Marketing** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
| Revenues         |       | $                | 5,778      |                | $          | 260         |       | $                              | 29         |          | $          | 1,653 |   | $ | — |   | $ | 7,720 |   |
| Cost of revenues |       | 2,748            |       | 162                 |       | 20          |       | 157                            |       | —        |       | 3,087 |   |
| Gross profit     |       | 3,030            |       | 98                  |       | 9           |       | 1,496                          |       | —        |       | 4,633 |   |
| Total assets     |       | 3,743            |       | 381                 |       | 84          |       | 960                            |       | 39,069        |       | 44,237 |   |
| Depreciation     |       | 82               |       | 15                  |       | —      |       | —                         |       | 83            |       | 180 |   |
|                  |            |                  |            |                     |            |             |            |                                |            |               |            |  |  |  |  |  |  |  |  |

 

**Threemonths ended July 2, 2006 (in thousands):**
| ** **       | ** ** | ** **       | ** ** | **WPT Online** | ** ** | ** **  | ** ** | ** **                     | ** ** | ** **    | ** ** |
|------------------|------------|------------------|------------|---------------------|------------|-------------|------------|--------------------------------|------------|---------------|------------|
| ** **       | ** ** | **WPT  Studios** | ** ** | **Gaming**          | ** ** | **Content** | ** ** | **WPT Global  Marketing** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
| Revenues         |       | $                | 8,524      |                | $          | 821         |       | $                              | 83         |          | $          | 1,601 |   | $ | — |   | $ | 11,029 |   |
| Cost of revenues |       | 3,657            |       | 381                 |       | 33          |       | 105                            |       | —        |       | 4,176 |   |
| Gross profit     |       | 4,867            |       | 440                 |       | 50          |       | 1,496                          |       | —        |       | 6,853 |   |
| Total assets     |       | 1,877            |       | 764                 |       | 38          |       | 1,174                          |       | 44,647        |       | 48,500 |   |
| Depreciation     |       | 86               |       | —              |       | —      |       | —                         |       | 49            |       | 135 |   |
|                  |            |                  |            |                     |            |             |            |                                |            |               |            |  |  |  |  |  |  |  |  |

 

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**Sixmonths ended July 1, 2007 (in thousands):**
| ** **       | ** ** | ** **             | ** ** | **WPT Online** | ** ** | ** **  | ** ** | ** **                     | ** ** | ** **    | ** ** |
|------------------|------------|------------------------|------------|---------------------|------------|-------------|------------|--------------------------------|------------|---------------|------------|
| ** **       | ** ** | **WPT  Studios ** | ** ** | **Gaming**          | ** ** | **Content** | ** ** | **WPT Global  Marketing** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
| Revenues         |       | $                      | 8,646      |                | $          | 810         |       | $                              | 77         |          | $          | 2,679 |   | $ | — |   | $ | 12,212 |   |
| Cost of revenues |       | 4,418                  |       | 462                 |       | 46          |       | 313                            |       | —        |       | 5,239 |   |
| Gross profit     |       | 4,228                  |       | 348                 |       | 31          |       | 2,366                          |       | —        |       | 6,973 |   |
| Depreciation     |       | 167                    |       | 27                  |       | —      |       | —                         |       | 167           |       | 361 |   |
|                  |            |                        |            |                     |            |             |            |                                |            |               |            |  |  |  |  |  |  |  |  |

 

**Sixmonths ended July 2, 2006 (in thousands):**
| ** **       | ** ** | ** **       | ** ** | **WPT Online** | ** ** | ** **  | ** ** | ** **                     | ** ** | ** **    | ** ** |
|------------------|------------|------------------|------------|---------------------|------------|-------------|------------|--------------------------------|------------|---------------|------------|
| ** **       | ** ** | **WPT  Studios** | ** ** | **Gaming**          | ** ** | **Content** | ** ** | **WPT Global  Marketing** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
| Revenues         |       | $                | 12,979     |                | $          | 1,732       |       | $                              | 162        |          | $          | 2,609 |   | $ | — |   | $ | 17,482 |   |
| Cost of revenues |       | 5,489            |       | 789                 |       | 70          |       | 248                            |       | —        |       | 6,596 |   |
| Gross profit     |       | 7,490            |       | 943                 |       | 92          |       | 2,361                          |       | —        |       | 10,886 |   |
| Depreciation     |       | 158              |       | 1                   |       | —      |       | —                         |       | 96            |       | 255 |   |
|                  |            |                  |            |                     |            |             |            |                                |            |               |            |  |  |  |  |  |  |  |  |

 

**8.SUBSEQUENT EVENTS**

On August 6, 2007, the Company entered into anagreement with a Chinese government-sanctioned body with authority over certainleisure sports, including the popular national card game “Traktor Poker,” knownas Tuo La Ji.   Pursuant to the five yearterm of the agreement, the Company will receive exclusive branding and certainmarketing and sponsorship rights related to the China National Traktor PokerTour.  In exchange for these rights, theCompany will pay an annual fee, which starts at $505,000 in the first year andincreases by 10% annually for the remaining four years of the agreement.

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**WPTENTERPRISES, INC.****Management’s Discussion and Analysis ofFinancial Condition****And Results of Operations**

**ITEM 2.****              MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**FinancialOverview**

We had a net loss in thefirst six months of 2007 of $5.6 million, or $0.27 per fully diluted share,compared to net income of $6.2 million, or $0.30 per fully diluted share, inthe 2006 period. The primary reasons for the net loss in the 2007 periodcompared to the net earnings in 2006 were the following:

·                  Revenuesdecreased by $5.3 million, principally because of the delivery of fewertelevision episodes in 2007.

·                  Gross marginswere lower in 2007, principally because of the delivery of ten episodes of ourProfessional Poker Tour® (the “PPT”) series in 2006 for which a majority of theproduction costs had been expensed in an earlier period. In addition, online gamingoperations contributed to the overall lower margin in the first six months of2007 as a result of an amendment of the agreement with the service providerthat was effective in July 2006, which significantly increased the percentageof revenues paid to that party.

·                  Selling, generaland administrative expenses increased year-over-year by $1.7 million. Theincrease was primarily due to the Company’s efforts to develop its own onlinegaming software and support infrastructure.

·                   During thesecond quarter of 2007, we wrote-off approximately $2.3 million in onlinegaming assets as a result of ceasing development of our stand-alone onlinegaming operation and joining the CryptoLogic network.

·                   The prior yearperiod included a gain on sale of our investment in PokerTek, Inc. of $5.7million.

**BusinessOverview**

We createinternationally branded entertainment and consumer products driven by thedevelopment, production and marketing of televised programming based on gamingthemes. Our World Poker Tour®, or WPT, television series, based on a series ofhigh-stakes poker tournaments, currently airs on the Travel Channel in the UnitedStates and has been licensed to telecast in more than 150 marketsglobally.  We also operate a real-moneyonline gaming website which prohibits wagers from players in the U.S. and otherrestricted jurisdictions.  We currentlylicense our brand to companies in the business of poker equipment andinstruction, apparel, publishing, electronic and wireless entertainment,DVD/home entertainment, casino games and giftware.  We are also engaged in the sale of corporatesponsorship.  We have three operatingunits:

*WPTStudios*, our multi-media entertainment division, generatesrevenue through the domestic and international licensing of broadcast andtelecast rights and through casino host fees. Since our inception, the WPTStudios division has been responsible for approximately 73% of our totalrevenue. We licensed the WPT series Seasons One through Five to The TravelChannel, L.L.C. (“TRV” or “Travel Channel”) for telecast in the United Statesunder an exclusive license agreement (“TRV Agreement”). On April 2, 2007, weentered into an agreement (the “GSN Agreement”) with Game Show Network, LLC (“GSN”),pursuant to which GSN agreed to license from us the sixth season of the Showfor the payment of a $300,000 license fee per episode.  Under the TRV agreement, we received anaverage of $477,000 per episode for Season Five.  We also have license agreements for thedistribution of our WPT and PPT episodes into international territories forwhich we receive license fees, net of our agent’s sales fee and agreed uponsales and marketing expenses.  We alsocollect annual host fees from the member casinos that host World Poker Tourevents (our member casinos).

Since ourinception, fees from the TRV Agreement and an agreement with TRV relating tothe PPT series have been responsible for approximately 59% of our totalrevenue. For each season covered by the TRV Agreement and related options, 

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TRV has exclusive rightsto exhibit the episodes in that season an unlimited number of times on itstelevision network in the U.S. for four years (three years for the episodes inSeason One). We have produced five complete seasons of the World Poker Tourseries under the TRV Agreement.

Under the TRV and GSNAgreements, TRV and GSN pay fixed license fees for each episode we produce,which are payable at various times during the pre-production, production andpost-production process and revenues are recognized upon receipt and acceptanceof the completed episode. Television production costs related to WPT episodesare generally capitalized and charged to the cost of revenues as revenues arerecognized. Therefore, the timing and number of episodes involved in thevarious seasons of the series affect the timing of the revenues and expenses ofthe WPT Studios business. The following table describes the timing of SeasonsOne through Six of the World Poker Tour series, including the delivery andexhibition of the episodes each season:
| **World Poker  Tour Season** | ** ** | **Date of  Agreement or  Option for  Season** | ** ** | **Number of  episodes  (including  specials)** | ** ** | **Production Period and  Delivery of Episodes** | ** ** | **Initial Telecast of  Episodes in Season** |
|----------------------------------------|------------|--------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------------------------|------------|-----------------------------------------------------------------|
| Season One                             |       | January 2003                                                 |       | 15                                                  |       | February 2002 — June 2003                                      |       | March 2003 — June 2003                                     |
| Season Two                             |       | August 2003                                                  |       | 25                                                  |       | July 2003— June 2004                                           |       | December 2003 — September 2004                             |
| Season Three                           |       | May 2004                                                     |       | 21                                                  |       | May 2004 — April 2005                                          |       | October 2004 — August 2005                                 |
| Season Four                            |       | March 2005                                                   |       | 21                                                  |       | May 2005 — April 2006                                          |       | October 2005 — June 2006                                   |
| Season Five                            |       | March 2006                                                   |       | 22                                                  |       | May 2006 — April 2007                                          |       | August 2006 — August 2007                                  |
| Season Six                             |       | April 2007                                                   |       | 23                                                  |       | May 2007 — April 2008                                          |       | January 2008 — August 2008 (projected)                     |

 

The agreement withTRV relating to the PPT series, which continues to cover the broadcast rightsto Season One was substantially similar in structure to the TRV Agreement.

Under the WPT andPPT Agreements, TRV has the right to receive a percentage of our adjusted grossrevenues from international television licenses, product licensing andpublishing, merchandising and certain other sources, after specified minimumamounts are met.  For the six monthsended July 1, 2007, we recognized $0.4 million of Travel Channel participationexpense that was recorded in cost of revenues.

*WPT GlobalMarketing*,includes branded consumer products, sponsorship, and event managementdivisions. Our branded consumer products division generates revenue principallythrough royalties from the licensing of our brand to companies seeking to usethe World Poker Tour brand and logo in the retail sales of their consumerproducts. In addition, this business unit generates revenue from direct salesof company-produced branded merchandise. We have generated significant revenuesfrom existing licensees, including Hands-On Mobile and Take Two. We also have licenseesthat are developing new licensed products including interactive televisiongames from Pixel Play.

Our sponsorship and eventmanagement division generates revenue through corporate sponsorship andmanagement of televised and live events. Our sponsorship program uses theprofessional sports model as a method to foster entitlement sponsorshipopportunities and naming rights to major corporations.  Anheuser-Busch has been the largest source ofrevenues through its sponsorship of Seasons Two, Three, Four and Five of theWorld Poker Tour series on TRV. In addition, we had an agreement with BlueDiamond Almonds to sponsor the WPT Season Five Championship in April 2007 atthe Bellagio.  We began recognizingrevenues from these agreements as the Season Five programs were broadcast.

*WPT Online*.  In 2005 we began operating WPTonline.comthrough a license agreement with WagerWorks, Inc., under which we licensed ourbrand to WagerWorks and WagerWorks shared with us a percentage of all netrevenue it collected from the operation of the online poker room and onlinecasino. WPTonline.com generated approximately $0.8 million in revenues, whichare presented gross of WagerWorks costs, for the six months ended July 1, 2007,compared to costs of revenues of approximately $0.5 million. In June2007, WPTonline.com ceased operations and the relationship with WagerWorks,Inc. was terminated as we transitioned to a new online software platform as describedbelow.

In 2006, wedecided to develop our own software for our online poker room. We licensed asoftware platform from CyberArts Licensing, LLC, and hired thirty employees inIsrael to develop the software and a support infrastructure. On April 23, 2007,we entered into a three year software supply and support agreement (the “Agreement”)with CryptoLogic Inc., and its wholly-owned subsidiary WagerLogic Limited,(collectively referred to as “CryptoLogic”). As a result of the decision tomove away from the online gaming platform we were developing based on theCyberArts software and stopping the development of our own online gaming site,we have written off certain property and equipment and related capitalizedcosts of approximately $2.3 million during the second quarter of 2007. Inaddition to the write off, we curtailed our Israel operations and closed one ofour two offices. In our Nahariya, Israel office, we currently have eighteenemployees focused on marketing initiatives including affiliate marketing,search engine optimization and customer retention. 

Pursuant to theAgreement, CryptoLogic operates an online gaming site for us featuring a pokerroom and casino games utilizing its 

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proprietarysoftware, in exchange for a percentage of the revenue generated from the site.  We are entitled to approximately 80% of netgaming revenues, as defined below, from the operation of the site. Under theAgreement, we are also a member in a centralized online gaming network (the “Network”)with several other licensees of CryptoLogic pursuant to which players are ableto play on our branded gaming site on the Network. As a condition of joiningthe Network we have applied for a gaming license in Malta which we anticipateto be in effect by the third quarter of fiscal 2007, however, in the interim,we are currently licensed in Curacao, as are the other licensees in theNetwork.

On June 14, 2007 CryptoLogicdelivered the poker software to us and the go-live date was June 28, 2007. OnJuly 26, 2007, CryptoLogic delivered ten casino games (the “Initial Casino”), includingmulti-hand blackjack, European roulette and multiple interactive slotsincluding their most popular – Millionaire’s Club ®, Bejeweled ®, and The Hulk TM.  We also have an option, exercisable at anytime prior to July 1, 2008, to require CryptoLogic to provide our customerswith access to a full suite of casino games within three months of such notice.

We are entitled tothe following percentages of net gaming revenue: (a) Seventy-eight percent(78%) of the first $150,000 per month, (b) Seventy-nine percent (79%) ofrevenue in excess of $150,000 but less than $500,000 per month; and (c) Eightypercent (80%) of the revenue in excess of $500,000 per month.  CryptoLogic is entitled to earn the followingannual minimum guaranteed revenues associated with our online casino: $500,000for the Initial Casino and $2,500,000 for the full suite of casino games.  There is a one-time fee of $50,000 payable byus for the initial preparation and launch of the site, and we are required topay a monthly fee of $7,500 for the management of tournaments, collusiondetection, customer support and overall management of the poker room.  In addition, we are obligated to contribute4% of poker room revenue for certain marketing initiatives.

If, at any timeafter the nine (9) month anniversary of the go-live date, monthly gamingrevenues fall below $500,000 for three (3) consecutive months, CryptoLogic hasthe right to terminate the Agreement on ninety (90) days written notice.  However, we may prevent any such terminationthrough payment of the shortfall of CryptoLogic’s percentage of such gamingrevenue within thirty (30) days of receipt of CryptoLogic’s notice oftermination.

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**Results of Operations**

During the periodended July 1, 2007, we experienced substantial operating losses as compared toearnings in the comparable periods of the prior year. This decline in ouroperating results as compared to the prior year quarter was due primarily to aone time gain on the sale of an investment in the prior year, combined withincreased costs in the current year related to our online gaming operations.See additional details below.

**SixMonths Ended July 1, 2007 Compared to the Six Months Ended July 2, 2006**

*Revenues.*Our total revenues decreased by $5.3 million (30%) duringthe six months ended July 1, 2007, compared to the six months ended July 2,2006. Domestic television licensee fees decreased $3.6 million (35%) in thefirst six months of 2007 compared to the 2006 period. The decrease wasprimarily a result of the delivery of fourteen episodes of Season Five of theWPT television series in the first six months versus sixteen episodes of SeasonFour of the WPT and ten episodes of the PPT delivered in the 2006 period. Online gaming, sponsorshipand international television license revenues also decreased a combined $2.0million (36%) in the first six months of 2007 compared to the 2006 period. Thedecrease of $0.9 million from online gaming revenue during 2007 primarily wasdue to lower levels of player activity versus the prior year period.  Event hosting and sponsorship revenuesdecreased $0.7 million primarily due to the timing of airing ten Season Fiveepisodes in the first six months of 2007 versus the airing of fourteen episodesof Season Four in the prior year period. International television licensing revenues decreased by $0.3 million asa result of fewer distribution agreements in the internationalmarketplace.  Product licensing revenuesincreased by approximately $0.3 million (23%) in the first six months of 2007compared to the 2006 period. The increase was primarily due to higher interactivegaming revenues from Take Two.

*Cost of revenues*. Cost of revenues decreasedby approximately $1.4 million (21%) in the first six months of 2007 compared tothe 2006 period.  The decrease was aresult of a decrease in production costs of $1.2 million as we delivered fewerepisodes in the 2007 period versus the 2006 period, as noted above.Additionally, online gaming cost of revenues decreased $0.3 million in the 2007versus the 2006 period due to lower revenues.

*Gross margins.*  Overall gross margins were 57% in the first six months of2007 compared to 62% in the first six months of 2006.  Domestic television licensing margins were40% in the first six months of 2007 compared to 49% in the same period in2006.  This decrease was principallybecause of the delivery of ten episodes of our Professional Poker Tour seriesin 2006 for which the production costs had been expensed in an earlier period.  In addition, online gaming contributed to theoverall lower margin in the first six months of 2007 as a result of anamendment of the agreement with WagerWorks that was effective in July 2006,which significantly increased the percentage of revenues paid to it.

*Selling, generaland administrative expense.*Selling, general andadministrative expense increased $1.7 million (18%) year-over-year to $11.2million. The increase was primarily due to the Company’s efforts to develop itsown online gaming software and support infrastructure prior to entering into anagreement with CryptoLogic relating to our online poker room and casino.

*Loss onabandonment of online gaming assets.*We wrote-offapproximately $2.3 million in online gaming assets as a result of ceasingdevelopment of the stand-alone online gaming platform we were developing basedon the CyberArts software.

*Other income*. Other income decreasedprimarily as a result of recognizing $5.7 million in gain on sale of investmentin the first six months of 2006, relating to the sale of the stock in PokerTek,Inc. Interest income increased by $0.2 million (22%) for the first six monthsof 2007 compared to the 2006 period, primarily due to higher cash equivalentsand short-term investment balances.

*Income taxes*.  The income taxprovision was $0 and $1.6 million for the first six months of 2007 and 2006,respectively, and the effective tax rate for the first six months of 2007 and2006 was approximately 0% and 21%, respectively. We experienced no effect ofadopting Financial Accounting Standards Board (“FASB”) Interpretation 48, *Accounting for Uncertainty in Income Taxes*, in 2007. Weexpect to generate a net operating loss for 2007, and a valuation allowance hasbeen recorded for the net deferred tax asset related to the net loss generatedin the first six months.

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**ThreeMonths Ended July 1, 2007 Compared to the Three Months Ended July 2, 2006**

*Revenues.*Our total revenues decreased by $3.3 million (30%) duringthe three months ended July 1, 2007, compared to the three months ended July 2,2006. Domestic television licensee fees decreased $3.0 million (41%) in thesecond quarter of 2007 compared to the 2006 period. The decrease wasprimarily a result of the delivery of nine episodes of Season Five of the WPTtelevision series in the second quarter versus ten episodes of Season Four ofthe WPT and nine episodes of the PPT delivered in the 2006 period. Online gaming, sponsorshipand international television license revenues also decreased a combined $0.5million (18%) in the second quarter of 2007 compared to the 2006 period. Thedecrease of $0.6 million from online gaming revenue during 2007 primarily wasdue to lower levels of player activity versus the prior year period, as well asus ceasing operations on the WagerWorks network in June while transitioning ouronline gaming operations to CryptoLogic.  Product licensing revenues increased by approximately $0.2 million (22%)in the second quarter of 2007 compared to the 2006 period. The increase wasprimarily due to higher interactive gaming revenues from Take Two.

*Cost of revenues*. Cost of revenues decreasedby approximately $1.1 million (26%) in the second quarter of 2007 compared tothe 2006 period.  The decrease wasprimarily a result of a decrease in production costs of $1.0 million as we deliveredfewer episodes in the 2007 period versus the 2006 period, as noted above.

*Gross margins.*  Overall gross margins were 60% in the second quarter of2007 compared to 62% in the second quarter of 2006.  Domestic television licensing margins were40% in the second quarter of 2007 compared to 51% in the same period in2006.  This decrease was principallybecause of the delivery of nine episodes of our PPT series in 2006 for whichthe production costs had been expensed in an earlier period.  The lower domestic television margins in the2007 period were largely offset by increased margin contribution from productlicensing, international television and sponsorship

*Selling, generaland administrative expense.*Selling, general andadministrative expense increased $1.6 million (36%) year-over-year to $6.0million. The increase was primarily due to our efforts to develop our ownonline gaming software and support infrastructure prior to entering into anagreement with CryptoLogic relating to our online poker room and casino.

*Loss onabandonment of online gaming assets.*We wrote-offapproximately $2.3 million in online gaming assets as a result of ceasingdevelopment of the stand-alone online gaming platform we were developing basedon the CyberArts software.

*Income taxes*.  The income taxprovision was $0 and $0.3 million for the second quarter of 2007 and 2006,respectively, and the effective tax rate for the second quarter of 2007 and2006 was approximately 0% and 12%, respectively. We expect to generate a netoperating loss for 2007, and a valuation allowance has been recorded for thenet deferred tax asset related to the net loss generated in the second quarter.

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**Liquidity and Capital Resources**

During the first six months of 2007, cash and cashequivalents and investments in marketable securities decreased by $5.1 millionto a combined balance of $34.6 million. Cash flows were used to supportoperating activities and to purchase property and equipment. Our principal cashrequirements consist of the following costs: online gaming operations,television production, payroll and benefits, professional fees, marketing,business insurance and office lease. We intend to use funds currently on handfor working capital and capital expenditures associated with the expansion ofour media, online gaming and other businesses and for general corporatepurposes. We anticipate that sales and marketing costs will increase significantlyin upcoming quarters as we aggressively market our re-launched online gamingwebsite. In addition, we intend to invest significantly in internationalexpansion, including our recent agreement with the China Leisure SportsAdministrative Center (“CLSAC”.) We expect that cash, cash equivalents andinvestments in marketable securities on hand and generated from operations willbe sufficient to fund our working capital and capital expenditure requirementsfor at least the next twelve months.

However, we may from time to time seek additional capitalto fund our operations or fund our expansion plans as circumstances arise. Toraise capital, we may seek to sell additional equity securities, issue debt orconvertible securities, or seek to obtain credit facilities through financialinstitutions.

The table below sets forth our known contractualobligations as of July 1, 2007 (in thousands):
| ** **                       | ** ** | **Payments due by period** | ** ** |
|----------------------------------|------------|-------------------------------------------|------------|
| **Contractual obligations** | ** ** | **Total**                                 | ** ** | **Year 1** | ** ** | **Years 2-3** | ** ** | **Years 4-5** | ** ** | **Years 6  and beyond** | ** ** |
| Operating lease  obligations (1) |       | $                                         | 3,500      |   | $ | 844 |   | $ | 1,771 |   | $ | 885 |   | $ | — |   |
| Purchase obligations  (2)        |       | 2,925                                     |       | 1,243 |   | 1,387 |   | 295 |   | — |   |
| Employee obligations  (3)        |       | 750                                       |       | 500 |   | 250 |   | — |   | — |   |
|                             |       | $                                         | 7,175      |   | $ | 2,587 |   | $ | 3,408 |   | $ | 1,180 |   | $ | 0 |   |

 

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(1)        Operatinglease obligations include rent payments for our corporate offices pursuant totwo lease agreements. For the first lease, monthly lease payments began atapproximately $38,000 and escalate to approximately $45,000 over the six-yearlease term. For the second lease, monthly payments began at approximately$28,000 and escalate up to approximately $33,000 over the five-year lease term.The lease obligations presented include rent payments for our Israel officefacilities in Nahariya. The amounts set forth in the table above assume monthlylease payments through June 2011.

(2)        Purchaseobligations include minimum guarantees to CryptoLogic and operational expensesassociated with our online gaming division, as well as a $505,000 annualpayment to the CLSAC for exclusive marketing and sponsorship opportunities. Additionally,included in purchase obligations are open purchase orders of approximately$219,000 as of July 1, 2007.  Theseliabilities are included in Other Accrued Expenses.

(3)        Employeeobligations include the base salary payable to Steven Lipscomb under hisemployment agreement.

**CriticalAccounting Estimates and Policies**

Althoughour financial statements necessarily make use of certain accounting estimatesby management, except as described below, we believe there are no matters thatare the subject of such estimates that are so highly uncertain or susceptibleto change as to present a significant risk of a material impact on ourfinancial condition or operating performance. Moreover, except as describedbelow, we do not employ any critical accounting policies that are selected fromamong available alternatives or require the exercise of significant managementjudgment to apply.

*Revenuerecognition:*  Revenuefrom the domestic and international distribution of our television series isrecognized as earned under the following criteria established by the AmericanInstitute of Certified Public Accountants Statement of Position (SOP) No. 00-2,*Accounting by Producers or Distributors ofFilms*(SOP 00-2):

·      Persuasive evidence of an arrangement exists;

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·     The show/episode is complete, and inaccordance with the terms of the arrangement, has been delivered or isavailable for immediate and unconditional delivery;

·     The license period has begun and thecustomer can begin its exploitation, exhibition or sale;

·     The seller’s price to the buyer is fixedand determinable; and

·     Collectibility is reasonably assured.

In accordance with theterms of the TRV Agreements, we recognize domestic television license revenuesupon the receipt and acceptance of completed episodes.  However, due to restrictions and practicallimitations applicable to our operating relationships with foreign networks, wecurrently do not consider collectibility of international television licenserevenues to be reasonably assured, and accordingly, we do not recognize suchrevenue until the distributor has received payment.  Additionally, we present international distribution license fee revenues netof the distributor’s fees, as the distributor is the primary obligor in thetransaction with the ultimate customer pursuant to Emerging Issues Task Force(EITF) 99-19, *Reporting Revenue Gross as a Principalversus Net as an Agent*(EITF99-19).

Product licensingrevenues are recognized when the underlying royalties from the sales of therelated products are earned. We recognize minimum revenue guarantees ratablyover the term of the license or as earned royalties based on actual sales ofthe related products, if greater.  Wepresent product licensing fees gross of licensing commissions, which arerecorded as selling and administrative expenses as we are the primary obligorin the transaction with the ultimate customer pursuant to EITF 99-19.

Online gaming revenues have been recognized monthly based on detailedstatements received from WagerWorks, our former online gaming service provider,for online poker and casino activity during the previous month.  We expect to receive similar statements fromCryptoLogic, our current online gaming provider during the third quarter of2007.  In accordance with EITF 99-19, wepresent online gaming revenues gross of the service provider costs, (includingthe service provider’s management fee, royalties, credit card processing andchargebacks that are recorded as cost of revenues) as we have the ability toadjust price and specifications of the online gaming site, we bear the majorityof the credit risk and we are responsible for the sales and marketing of thegaming site.**We include certainpromotional expenses related to free bets and deposit bonuses along withcustomer chargebacks as deductions of revenue. All other promotional expensesare generally recorded as sales and marketing expenses.

Event hosting feesare paid by host casinos for the privilege of hosting the events and arerecognized as the episodes that feature the host casino are aired. Sponsorshiprevenues are recognized as the episodes that feature the sponsor areaired.  Licensing advances and guaranteedpayments collected, but not yet earned, by us, as well as casino host fees andsponsorship receipts collected prior to the airing of episodes, are classifiedas deferred revenue in the accompanying balance sheets.

*TravelChannel Participation: *We account for royalty payments to TRV inaccordance with the WPT and PPT agreements, in which TRV retains a right to 15%of adjusted gross revenues from the exploitation of the World Poker Tour andProfessional Poker Tour brands.  Werecord these amounts in cost of revenues as revenues from internationaltelevision, consumer products licensing, home entertainment and merchandise arerecognized.

*Deferred television costs:*  We account for deferred television costs inaccordance with SOP 00-2.  Deferredtelevision costs include capitalizable direct costs, production overhead anddevelopment costs and are stated at the lower of cost or net realizable valuebased on anticipated revenue. We have not currently anticipated any revenues inexcess of those subject to existing contractual relationships, since we haveinsufficient operating history to enable such anticipation.  Marketing, distribution and general andadministrative costs are expensed as incurred. Capitalized televisionproduction costs for each episode are expensed as revenues are recognized upondelivery and acceptance by the Travel Channel of the completed episode.Management currently estimates that 97% of the approximately $1.0 million incapitalized deferred television costs at July 1, 2007, are expected to beexpensed in connection with episode deliveries by the end of fiscal 2007.

*Investments: *On July 31, 2006, weacquired an approximate 10% ownership interest in Cecure Gaming (“Cecure”) forapproximately $2.9 million.  Cecuredesigns and operates software and products which enable Cecure or its licenseesto offer gaming services to customers via mobile devices.  As we have less then 20% ownership interestand do not have the ability to exercise significant influence over Cecure, weaccount for this investment under the cost method and adjust only for

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other-than-temporarydeclines in fair value.  Management iscurrently unaware of any change in circumstance that might trigger such adecline.

*Income taxes:*  We must assess the likelihood that deferredtax assets will be recovered from future taxable income and to the extent webelieve that recovery is not likely, we must establish a valuationallowance.  Our current growth plans includeinternational expansion, primarily related to our online gaming business,expansion of our television and product licensing businesses, and entry intonew branded gaming businesses.  Althoughwe anticipate that all potential strategies will be accretive to earnings, weare aware of the risks involved with an aggressive growth strategy.  Therefore, based on our limited and volatileearnings history combined with our cautious optimism, we have determined that a valuation allowance is necessary to the extentthat management currently believes it is more likely than not that deferred taxassets will not be recovered in the forseeable future.

##### **RecentlyIssued Accounting Pronouncements**

In September 2006, the Financial AccountingStandards Board (“FASB”) issued SFAS No. 157, *Fair Value Measurements,* which defines fair value,establishes a framework for measuring fair value and expands disclosures aboutfair value measurements. In February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for Financial Assets andFinancial Liabilities—Including an amendment of FASB Statement No. 115,*whichwill permit the option of choosing to measure certain eligible items at fairvalue at specified election dates and report unrealized gains and losses inearnings. Both SFAS No.157 and SFAS No. 159 will become effective for us forour 2008 fiscal year. We are currently evaluating the effect that SFAS No. 157and No. 159 might have on our future financial position, results of operationsand operating cash flows.

**Off-BalanceSheet Arrangements**

We have nooff-balance sheet arrangements that have or are reasonably likely to have a currentor future material effect on our financial condition, changes in financialcondition, revenues or expenses, results of operations, liquidity, capitalexpenditures or capital resources.

**Private SecuritiesLitigation Reform Act**

The foregoingdiscussion 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 possibleto foresee all of the factors that may cause actual results to differ from ourforward-looking statements, these factors include, among others, the following risks:

·     Our business arrangements with CryptoLogic(with respect to online gaming) and GSN (with respect to the broadcast of theWPT television series) are new arrangements that will likely be the main sourceof our future revenue, and there is no guarantee that our relationships witheither of them will be successful or long-term;

·     The termination or impairment of ourrelationships with key licensing and strategic partners could harm our businessperformance;

·     Our television programming may fail to maintaina sufficient audience for a variety of reasons, many of which are beyond ourcontrol;

·     Our ability to create and license ourtelevision programming profitably may be negatively affected by adverse trendsthat apply to the television production business generally;

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·      Our competitors (many of whom have greaterfinancial resources or marketplace presence) may develop television programmingthat would directly compete with our television programming;

·      A decline in general economic conditionsor the popularity of our brand of televised poker tournaments may negativelyimpact our business;

·      We may be unable to protect ourentertainment concepts, our current and future brands and our otherintellectual property rights;

·      We may be unable to successfully expandinto foreign markets or into new or complementary businesses;

·      The regulatory environment for onlinegaming is currently uncertain, and despite our efforts to comply withapplicable laws, we may be unable to pursue this business fully or our activitiesmay be claimed or found to be in violation of applicable United States orforeign regulations;

·      It is difficult for us to predict thegrowth of our online gaming business, which is a relatively new industry withan increasing number of market entrants;

·      It is uncertain whether the UnlawfulInternet Gambling Enforcement Act of 2006 will have an adverse effect on thecompetitive environment for finding online gaming customers outside the UnitedStates; and

·      The loss of our President and ChiefExecutive Officer or another member of our senior management team maynegatively impact the success of our business.

·      Investors are cautioned that allforward-looking statements involve risks and uncertainties.

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**WPT ENTERPRISES, INC.Quantitative and Qualitative Disclosures about Market Risk; Controls andProcedures**

**ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

Our financialinstruments include cash and cash equivalents, U.S. Treasury and Agencysecurities and short-term municipal securities. Our main investment objectivesare the preservation of investment capital and the maximization of after-taxreturns on our investment portfolio. Consequently, we invest with onlyhigh-credit-quality issuers and limit the amount of credit exposure to any oneissuer. We do not use derivative instruments for speculative or investmentpurposes.

Our cash and cashequivalents are not subject to significant interest rate risk due to the shortmaturities of these instruments. As of July 1, 2007, the carrying value of ourcash and cash equivalents approximated fair value. We have in the past and mayin the future obtain marketable debt securities (principally consisting ofcommercial paper, corporate bonds and government securities) having a weightedaverage duration of one year or less. Consequently, such securities would notbe subject to significant interest rate risk.

**ITEM 4.CONTROLS AND PROCEDURES**

Under thesupervision and with the participation of our management, including our ChiefExecutive Officer and Chief Financial Officer, we conducted an evaluation ofour disclosure controls and procedures, as such term is defined underRule 13a-15(e) or Rule 15d – 15(e) promulgated under the SecuritiesExchange Act of 1934, as amended, as of the end of the period covered by thisquarterly report. Based on their evaluation, our Chief Executive Officer andChief Financial Officer concluded that WPT Enterprises, Inc.’s disclosurecontrols and procedures are effective.

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

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**WPT ENTERPRISES, INC.Part IIOther Information**

**ITEM 1.LEGAL PROCEEDINGS**

On July 19, 2006, a legal action was commencedagainst us by seven poker players that alleged that we engaged in, among otherthings, unfair, anti-competitive business practices. On March 14, 2007,the plaintiffs filed a motion for summary judgment and on April 12, 2007 wefiled our opposition to the motion. On May 22, 2007, the court denied theplaintiffs’ motion for summary judgment. A trial date has been set for April 1,2008.

Weare also involved in various inquiries, administrative proceedings, andlitigation relating to other matters arising in the normal course of ourbusiness. While any proceeding or litigation has an element of uncertainty,management currently believes that the final outcome of these matters is notlikely to have a material adverse effect upon our future financial position orresults of operations.

**ITEM 1A.RISK FACTORS**

In addition to theother information set forth in this report, you should carefully consider thefactors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report onForm 10-K for the year ended December 31, 2006, and our Form 10-Q for thequarter ended April 1, 2007 some of which have been revised in their entiretythat are listed below.  Additional risksand uncertainties not currently known to us or that we currently deem to beimmaterial also may materially adversely affect our business, financialcondition and/or operating results.

***Our agreement with CryptoLogic is a new business arrangementthat we hope will be a significant source of our future revenue, and there isno assurance that CryptoLogic will be a viable business partner, which wouldmaterially and adversely affect our results of operations.***

On April 23, 2007, we entered into anagreement with CryptoLogic, Inc. pursuant to which CryptoLogic operatesand manages our WPT-branded real-money gaming website, WorldPokerTour.com,solely in jurisdictions where online gaming is not restricted.  The website uses geo-filtering and othertechnology to prevent bets from players in the U.S. and from other restrictedjurisdictions.  We cannot be assured thatCryptoLogic’s operation of the site going forward will meet management’sbusiness expectations, the failure of which would have a material adverseimpact on our online gaming business.

***Terminationor impairment of our relationships with key licensing and strategic partnerscould adversely affect our revenues and results of operations.***

We have developedrelationships with key strategic partners in many areas of our business,including poker tournament event sponsorship, merchandise licensing, corporatesponsorship, Internet gaming and international distribution. We hope to derivesignificant income from our licensing arrangements, and our agreements with ourstrategic partners are vital to finding these licensing arrangements. If wewere to fail to manage our existing licensing relationships, this failure couldhave a material adverse effect on our financial condition and results ofoperations. We would also be materially adversely affected if we were to loseour rights under any of our other key contracts or if the counterparty to anyof these contracts were to breach its obligations to us. We rely on a limitednumber of contracts under which third parties provide us with services vital toour business. These agreements include:

·  our agreement with PartyGaming, pursuant towhich PartyGaming agreed to pay us fees for sponsoring international broadcastsof our programming in international territories (i.e., non-U.S.), subject tocertain requirements regarding the type and amount of advertising and brandingwe are able to provide them; and;

·  our agreement with Brandgenuity LLC, pursuantto which it negotiates third party consumer product licensing agreements;

·  our agreement with CryptoLogic, pursuant towhich CryptoLogic operates and manages our WPT-branded real-money gamingwebsite, WorldPokerTour.com.

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If ourrelationship with any of these or certain other third parties were to beinterrupted, or the services provided by any of these third parties were to bedelayed or deteriorate for any reason without being adequately replaced, ourbusiness could be materially adversely affected. If we are forced to find areplacement for any of these strategic partners, this could create disruptionin our business and may result in reduced revenues, increased costs ordiversion of management’s attention and resources.

In addition, whilewe have significant control over our licensed products and advertising, we donot have operational and financial control over these third parties, and wehave limited influence with respect to the manner in which they conduct theirbusinesses. If any of these strategic partners experiences a significant downturnin its business or were otherwise unable to honor its obligations to us, ourbusiness could be materially disrupted.

***Our further expansion into foreign markets will subject usto additional business risks.***

In connection withour prior decision to build and operate our own online gaming site, wesignificantly expanded our international presence.  We currently have eighteen employees inIsrael that are focused on marketing initiatives for the online gaming site. Weintend to further expand our business in foreign markets in other ways,including continued international distribution of our U.S. telecasts, creatingadditional poker tours in foreign countries and distributing brandedmerchandise in foreign countries. Our international operations could beadversely affected by changes in political and economic conditions, tradeprotection measures and the status of regulatory requirements that may restrictthe sales of our products, increase costs of foreign production or other coststhat prohibit Internet gaming activities in international jurisdictions. Also,changes in exchange rates between the U.S. dollar and other currencies couldpotentially result in significant increases in our costs or decreases in ourearnings.

***Government regulation of online gaming in foreign countriesmay restrict the activities or affect the financial results of our online gamingbusiness.***

We are currentlyreliant on CryptoLogic for our gaming website’s compliance with all applicableregulations, including the initial verification that players who wish to wagerare actually from non-restricted countries. In addition, we rely on CryptoLogicand third party vendors to assure that players cannot place improper wagers onan on-going basis. If CryptoLogic’s compliance or verification is inadequate orour third party verification tools fail, regulators in the U.S. or otherjurisdictions may impose fines or other sanctions or threaten or take otheractions that could adversely affect our reputation and the revenues we derivefrom the license of rights to CryptoLogic. Although CryptoLogic is responsiblefor obtaining all gaming permits and licenses necessary to operate the gamingsite itself, we are responsible for obtaining all gaming permits and licenseson behalf of the Company, which may be expensive and time consuming. Wecontinue to monitor the legality of Internet gaming in domestic andinternational jurisdictions, but cannot be certain that changes in existingregulations will be beneficial to the online gaming market or that courts inlocal jurisdictions will ultimately sustain the legality of our marketing andoperating methods in such jurisdictions. Additionally, we expect that on-airpromotion of our online gaming site via international WPT television telecastswill continue to be a primary marketing tool for driving poker players to thesite. However, certain territories and foreign networks may restrict us fromincorporating marketing elements related to our online site into ourinternational telecasts and certain laws or regulations may restrict the typeof advertising in general in those territories. If these restrictions occur,our costs of customer acquisition may be substantially higher than anticipated.

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**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

Weheld our annual meeting of stockholders on May 30, 2007.  At the meeting, our stockholders took thefollowing actions:

(i)    Thestockholders elected nine directors to serve as members of our Board ofDirectors until the next annual meeting of stockholders. The stockholderspresent in person or by proxy cast the following numbers of votes in connectionwith the election of directors, resulting in the election of all nominees:

| Nominee                | ** ** | **Votes For** | ** ** | **Votes Withheld** | ** ** |
|------------------------|------------|--------------------|------------|-------------------------|------------|
|                   |       |               |       |                    |       |
| Lyle Berman            |       | 19,879,347         |       | 36,146                  |       |
| Michael  Beindorff     |       | 19,887,347         |       | 28,146                  |       |
| Bradley Berman         |       | 19,879,047         |       | 36,446                  |       |
| Joseph S.  Carson, Jr. |       | 19,886,447         |       | 29,046                  |       |
| Timothy J. Cope        |       | 19,866,447         |       | 29,046                  |       |
| Steven Lipscomb        |       | 19,885,347         |       | 30,146                  |       |
| Ray M. Moberg          |       | 19,885,767         |       | 29,726                  |       |
| Glenn Padnick          |       | 19,887,147         |       | 28,346                  |       |
| Mimi Rogers            |       | 19,880,747         |       | 34,746                  |       |

 

(ii)   Thestockholders ratified the appointment of Piercy, Bowler, Taylor & Kern asour independent registered public accounting firm for the 2007 fiscal year.There were 19,891,356 votes cast for the proposal; 16,125 votes were castagainst the proposal; 8,012 votes abstained; and there were no brokernon-votes.

**ITEM6. EXHIBITS**
| 10.1   |   | Agreement dated April 2, 2007, by and between WPT  Enterprises, Inc. and Game Show Network, LLC                                                                       |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                  |
| 10.2   |   | Software Supply and Support Agreement, dated April  23, 2007, by and between WPT Enterprises, Inc., WPT Enterprises, Malta,  CryptoLogic Inc. and WagerLogic Limited* |
|   |   |                                                                                                                                                                  |
| 31.1   |   | Certification of CEO 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 CFO 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 pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                   |
|   |   |                                                                                                                                                                  |
| 32.2   |   | Certification of Chief Financial Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                   |

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*       Confidentialtreatment has been requested as to certain portions of this exhibit pursuant toRule 24b-2 of the Securities Exchange Act of 1934, as amended.

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report on Form 10-Q to be signed on its behalf by theundersigned, thereunto duly authorized. 
| Dated: August 10, 2007 |   | WPT ENTERPRISES, INC.   |
|------------------------|--------|-------------------------|
|                   |   | Registrant              |
|                   |   |                    |
|                   |   |                    |
|                   |   | / s/ Steven Lipscomb    |
|                   |   | Steven Lipscomb         |
|                   |   | Chief Executive Officer |
|                   |   |                    |
|                   |   |                    |
|                   |   | /s/ Scott A. Friedman   |
|                   |   | Scott A. Friedman       |
|                   |   | Chief Financial Officer |

 

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