Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

** **

**(Mark One)**

 

| **x** | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|-------|------------|---------------------------------------------------------------------------------------------------------|

 

**For the quarterly periodended September 27, 2009**

 

**OR**

 

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

 

**For the transition period from                  to                  **

 

**Commission File No. 0-50848**

** **

**ANTE4, INC.**

**(formerly known as WPT Enterprises, Inc.)**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                                 | ** ** | **77-0639000**      |
|----------------------------------------------|------------|---------------------|
| (State or other  jurisdiction                |       | (I.R.S. Employer    |
| of incorporation or  organization)           |       | Identification No.) |
|                                         |       |                |
| **5700 Wilshire Boulevard,  Suite 625** | ** ** | ** **          |
| **Los Angeles, California**                  | ** ** | **90036**           |
| (Address of principal  executive offices)    |       | (Zip Code)          |

 

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

 

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

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T during the preceding 12 months (or for such shorter periodthat the registrant was required to submit and post such files). Yes o   No o

 

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

 

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

 

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

 

As of November 10,2009, there were 20,603,333 shares of Common Stock, $0.001 par value per shareoutstanding.

 

 

 

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**ANTE4, INC.**

**(Formerly WPT Enterprises Inc.)**

 

**INDEX**

 
| ** **    | ** **            | ** **                                                                                                                                                                                     | **Page of**   |
|---------------|-----------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|
| ** **    | ** **            | ** **                                                                                                                                                                                     | **Form 10-Q** |
| PART I.  | FINANCIAL INFORMATION |                                                                                                                                                                                           |
|          |                  |                                                                                                                                                                                           |               |
|          | ITEM 1.               | FINANCIAL STATEMENTS                                                                                                                                                                           |               |
|          |                  |                                                                                                                                                                                           |               |
|          |                  | Condensed Consolidated Balance Sheets as of  September 27, 2009 (unaudited) and December 28, 2008                                                                                    | 3                  |
|          |                  |                                                                                                                                                                                           |               |
|          |                  | Unaudited Condensed Consolidated Statements of Net  Earnings (Loss) and Comprehensive Earnings (Loss) for the three and nine  months ended September 27, 2009 and September 28, 2008 | 4                  |
|          |                  |                                                                                                                                                                                           |               |
|          |                  | Unaudited Condensed Consolidated Statements of Cash  Flows for the nine months ended September 27, 2009 and  September 28, 2008                                                      | 5                  |
|          |                  |                                                                                                                                                                                           |               |
|          |                  | Notes to Unaudited Condensed Consolidated Financial  Statements                                                                                                                                | 6                  |
|          |                  |                                                                                                                                                                                           |               |
|          | ITEM  2.              | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                                                                                    | 13                 |
|          |                  |                                                                                                                                                                                           |               |
|          | 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 5.               | OTHER MATTERS                                                                                                                                                                                  | 27                 |
|          |                  |                                                                                                                                                                                           |               |
|          | ITEM 6.               | EXHIBITS                                                                                                                                                                                       | 28                 |
|          |                  |                                                                                                                                                                                           |               |
| SIGNATURES    | 29                    |

 

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**PART 1 — FINANCIALINFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS**

 

**ANTE4, INC.**

**(Formerly WPT Enterprises Inc.)**

**Condensed ConsolidatedBalance Sheets**

 
| ** **                                                                                                                 | ** ** | **September 27, 2009**                                   | ** ** | ** **                      | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                 | ** ** | **(Unaudited)**                                                    | ** ** | **December 28, 2008** | ** ** |
| ** **                                                                                                                 | ** ** | **(In thousands, except par value data)** | ** ** |
| **Assets**                                                                                                                 |       |                                                               |       |                            |       |
| Current assets:                                                                                                            |       |                                                               |       |                            |       |
| Cash and cash equivalents                                                                                                  |       | $                                                                  | 11,000     |                            | $          | 11,497 |   |
| Investments in debt  securities                                                                                            |       | 8,781                                                              |       | 2,088                           |       |
| Accounts receivable, net  of allowances of $899 and $158                                                                   |       | 3,908                                                              |       | 2,099                           |       |
| Deferred television costs                                                                                                  |       | 1,662                                                              |       | 2,285                           |       |
| Other                                                                                                                      |       | 493                                                                |       | 666                             |       |
| Current assets of  discontinued operations                                                                                 |       | —                                                             |       | 401                             |       |
|                                                                                                                       |       | 25,844                                                             |       | 19,036                          |       |
|                                                                                                                       |       |                                                               |       |                            |       |
| Investments in debt  securities and put rights                                                                             |       | 1,688                                                              |       | 3,900                           |       |
| Property and equipment,  net                                                                                               |       | 889                                                                |       | 1,293                           |       |
| Investment in Cecure  Gaming                                                                                               |       | —                                                             |       | 1,000                           |       |
| Other                                                                                                                      |       | 384                                                                |       | 537                             |       |
| Long-term assets of  discontinued operations                                                                               |       | —                                                             |       | 115                             |       |
|                                                                                                                       |       | $                                                                  | 28,805     |                            | $          | 25,881 |   |
|                                                                                                                       |       |                                                               |       |                            |       |
| **Liabilities and Stockholders’  Equity**                                                                             |       |                                                               |       |                            |       |
| Current liabilities:                                                                                                       |       |                                                               |       |                            |       |
| Accounts payable                                                                                                           |       | $                                                                  | 430        |                            | $          | 487 |   |
| Accrued payroll and  related                                                                                               |       | 459                                                                |       | 269                             |       |
| Operating lease reserve                                                                                                    |       | 406                                                                |       | 456                             |       |
| Other accrued expenses                                                                                                     |       | 1,537                                                              |       | 693                             |       |
| Line of credit                                                                                                             |       | 2,602                                                              |       | —                          |       |
| Deferred revenue                                                                                                           |       | 1,524                                                              |       | 1,913                           |       |
|                                                                                                                       |       | 6,958                                                              |       | 3,818                           |       |
|                                                                                                                       |       |                                                               |       |                            |       |
| Contingencies                                                                                                              |       |                                                               |       |                            |       |
|                                                                                                                       |       |                                                               |       |                            |       |
| Stockholders’ equity:                                                                                                 |       |                                                               |       |                            |       |
| Preferred stock, $0.001  par value; authorized 20,000 shares; none issued or outstanding                                   |       | —                                                             |       | —                          |       |
| Common stock, $0.001 par  value; authorized 100,000 shares; 20,603 and 20,492 shares issued and  outstanding, respectively |       | 21                                                                 |       | 20                              |       |
| Additional paid-in capital                                                                                                 |       | 44,752                                                             |       | 44,561                          |       |
| Deficit                                                                                                                    |       | (22,926                                                            | )          | (22,521                         | )          |
| Accumulated other  comprehensive gain (loss)                                                                               |       | —                                                             |       | 3                               |       |
|                                                                                                                       |       | 21,847                                                             |       | 22,063                          |       |
|                                                                                                                       |       | $                                                                  | 28,805     |                            | $          | 25,881 |   |

 

Seenotes to unaudited condensed consolidated financial statements.

 

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**ANTE4, INC.**

**(Formerly WPT Enterprises Inc.)**

**CondensedConsolidated Statements of Net Earnings (Loss) and Comprehensive Earnings(Loss)**

(Unaudited)

 
| ** **                                                                                                        | ** ** | **Three months ended**                                   | ** ** | **Nine months ended**   | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                                                        | ** ** | **September  27, 2009**                                       | ** ** | **September  28, 2008** | ** ** | **September  27, 2009** | ** ** | **September  28, 2008** | ** ** |
| ** **                                                                                                        | ** ** | **(In thousands, except per share data)** | ** ** |
| **Revenues:**                                                                                                     |       |                                                               |       |                         |       |   |   |   |   |
| Television                                                                                                        |       | $                                                                  | 3,985      |                         | $          | 1,504 |   | $ | 10,590 |   | $ | 8,506 |   |
| ClubWPT                                                                                                           |       | 669                                                                |       | 101                          |       | 1,784 |   | 174 |   |
| Product licensing                                                                                                 |       | 381                                                                |       | 654                          |       | 1,424 |   | 1,914 |   |
| Event hosting and  sponsorship                                                                                    |       | 197                                                                |       | 358                          |       | 1,218 |   | 1,376 |   |
| Other                                                                                                             |       | 88                                                                 |       | 215                          |       | 403 |   | 896 |   |
|                                                                                                              |       | 5,320                                                              |       | 2,832                        |       | 15,419 |   | 12,866 |   |
|                                                                                                              |       |                                                               |       |                         |       |   |   |   |   |
| **Cost of revenues**                                                                                              |       | 1,205                                                              |       | 997                          |       | 4,907 |   | 6,452 |   |
| Gross profit                                                                                                      |       | 4,115                                                              |       | 1,835                        |       | 10,512 |   | 6,414 |   |
|                                                                                                              |       |                                                               |       |                         |       |   |   |   |   |
| **Selling, general and  administrative expense**                                                                  |       | 2,392                                                              |       | 4,081                        |       | 7,852 |   | 14,875 |   |
| **Asset impairment**                                                                                              |       | —                                                             |       | 1,923                        |       | 1,000 |   | 1,923 |   |
| Earnings (loss) from  operations                                                                                  |       | 1,723                                                              |       | (4,169                       | )          | 1,660 |   | (10,384 | ) |
|                                                                                                              |       |                                                               |       |                         |       |   |   |   |   |
| **Other income/(loss):**                                                                                          |       |                                                               |       |                         |       |   |   |   |   |
| Gain on sale of investment                                                                                        |       | —                                                             |       | —                       |       | — |   | 11 |   |
| Other                                                                                                             |       | (1,000                                                             | )          | —                       |       | (1,000 | ) | — |   |
| Interest, net                                                                                                     |       | 20                                                                 |       | 203                          |       | 123 |   | 804 |   |
| Earnings (loss) from  continuing operations before income taxes                                                   |       | 743                                                                |       | (3,966                       | )          | 783 |   | (9,569 | ) |
|                                                                                                              |       |                                                               |       |                         |       |   |   |   |   |
| **Income taxes**                                                                                                  |       | 119                                                                |       | —                       |       | 107 |   | — |   |
| Earnings (loss) from  continuing operations                                                                       |       | 624                                                                |       | (3,966                       | )          | 676 |   | (9,569 | ) |
|                                                                                                              |       |                                                               |       |                         |       |   |   |   |   |
| **Loss from discontinued  operations, net of income taxes (including $0 and $306 for shutdown in 2009  periods)** |       | —                                                             |       | (453                         | )          | (1,081 | ) | (1,562 | ) |
| **Net earnings (loss)**                                                                                           |       | 624                                                                |       | (4,419                       | )          | (405 | ) | (11,131 | ) |
|                                                                                                              |       |                                                               |       |                         |       |   |   |   |   |
| Unrealized gain (loss) on  securities                                                                             |       | 8                                                                  |       | (225                         | )          | (3 | ) | (1,270 | ) |
|                                                                                                              |       |                                                               |       |                         |       |   |   |   |   |
| **Comprehensive earnings (loss)**                                                                                 |       | $                                                                  | 632        |                         | $          | (4,644 | ) | $ | (408 | ) | $ | (12,401 | ) |
|                                                                                                              |       |                                                               |       |                         |       |   |   |   |   |
| Earnings (loss) per common  share from continuing operations - basic and diluted                                  |       | $                                                                  | 0.03       |                         | $          | (0.19 | ) | $ | 0.03 |   | $ | (0.46 | ) |
| Loss per common share from  discontinued operations - basic and diluted                                           |       | —                                                             |       | (0.02                        | )          | (0.05 | ) | (0.08 | ) |
| **Net earnings (loss) per common  share - basic and diluted**                                                     |       | $                                                                  | 0.03       |                         | $          | (0.21 | ) | $ | (0.02 | ) | $ | (0.54 | ) |
|                                                                                                              |       |                                                               |       |                         |       |   |   |   |   |
| **Weighted-average common shares  outstanding - basic**                                                           |       | 20,603                                                             |       | 20,603                       |       | 20,603 |   | 20,603 |   |
| Common stock equivalents                                                                                          |       | 697                                                                |       | —                       |       | 484 |   | — |   |
| **Weighted-average common shares  outstanding - diluted**                                                         |       | 21,300                                                             |       | 20,603                       |       | 21,087 |   | 20,603 |   |

 

Seenotes to unaudited condensed consolidated financial statements.

 

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**ANTE4, INC.**

**(Formerly WPT Enterprises Inc.)**

**Condensed ConsolidatedStatements of Cash Flows**

(Unaudited)

 
| ** **                                                                                                           | ** ** | **Nine months ended** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                           | ** ** | **September  27, 2009**    | ** ** | **September  28, 2008** | ** ** |
| ** **                                                                                                           | ** ** | **(In thousands)**         | ** ** |
| **Operating Activities:**                                                                                            |       |                            |       |   |   |
| Net loss                                                                                                             |       | $                               | (405       | ) | $ | (11,131 | ) |
| Adjustments to reconcile  net loss to net cash provided by (used in) operating activities of continuing  operations: |       |                            |       |   |   |
| Loss from discontinued  operations                                                                                   |       | 1,081                           |       | 1,562 |   |
| Depreciation and  amortization                                                                                       |       | 524                             |       | 527 |   |
| Share-based compensation                                                                                             |       | 191                             |       | 596 |   |
| Asset impairment                                                                                                     |       | 1,000                           |       | 1,923 |   |
| Loss on sale of assets                                                                                               |       | 22                              |       | — |   |
| Change in value of put  rights                                                                                       |       | 221                             |       | — |   |
| Change in value of ARS portfolio                                                                                     |       | (221                            | )          | — |   |
| Bad debt provision                                                                                                   |       | 595                             |       | — |   |
| Change in operating assets  and liabilities:                                                                         |       |                            |       |   |   |
| Accounts receivable                                                                                                  |       | (2,405                          | )          | 1,791 |   |
| Deferred television costs                                                                                            |       | 623                             |       | 786 |   |
| Other                                                                                                                |       | 326                             |       | (454 | ) |
| Accounts payable                                                                                                     |       | (56                             | )          | (344 | ) |
| Accrued expenses                                                                                                     |       | 965                             |       | (541 | ) |
| Deferred revenue                                                                                                     |       | (389                            | )          | (1,860 | ) |
| Net cash provided by (used  in) operating activities of continuing operations                                        |       | 2,072                           |       | (7,145 | ) |
| Net cash used in operating  activities of discontinued operations                                                    |       | (565                            | )          | (1,568 | ) |
| Net cash provided by (used  in) operating activities                                                                 |       | 1,507                           |       | (8,713 | ) |
|                                                                                                                 |       |                            |       |   |   |
| **Investing Activities:**                                                                                            |       |                            |       |   |   |
| Purchase of property and  equipment                                                                                  |       | (142                            | )          | (545 | ) |
| Purchases of available for  sale debt securities                                                                     |       | (5,374                          | )          | (11,187 | ) |
| Sales/redemptions of  available for sale debt securities                                                             |       | 909                             |       | 21,957 |   |
| Net cash provided by (used  in) investing activities of continuing operations                                        |       | (4,607                          | )          | 10,225 |   |
| Net cash used in investing  activities of discontinued operations                                                    |       | —                          |       | (100 | ) |
| Net cash provided by (used  in) investing activities                                                                 |       | (4,607                          | )          | 10,125 |   |
|                                                                                                                 |       |                            |       |   |   |
| **Financing Activities:**                                                                                            |       |                            |       |   |   |
| Increase in restricted  cash                                                                                         |       | —                          |       | (37 | ) |
| Borrowing under line of  credit                                                                                      |       | 2,661                           |       | — |   |
| Repayments under line of  credit                                                                                     |       | (59                             | )          | — |   |
| Proceeds from exercise of  stock options                                                                             |       | 1                               |       | — |   |
| Net cash provided by (used  in) financing activities                                                                 |       | 2,603                           |       | (37 | ) |
|                                                                                                                 |       |                            |       |   |   |
| **Net increase (decrease) in cash  and cash equivalents**                                                            |       | (497                            | )          | 1,375 |   |
| Cash and cash equivalents  at beginning of period                                                                    |       | 11,497                          |       | 3,852 |   |
| Cash and cash equivalents  at end of period                                                                          |       | $                               | 11,000     |   | $ | 5,227 |   |
|                                                                                                                 |       |                            |       |   |   |
| **Supplemental Cash Flow  Information:**                                                                             |       |                            |       |   |   |
| Cash paid for interest                                                                                               |       | $                               | 20         |   | $ | — |   |

 

Seenotes to unaudited condensed consolidated financial statements.

 

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**ANTE4, INC.**

**(Formerly WPT Enterprises Inc.)**

**Notes to UnauditedCondensed Consolidated Financial Statements**

 

**1. BUSINESS AND BASIS OF PRESENTATION**

 

Thesecondensed consolidated financial statements present the financial condition andresults of operations of ante4, Inc. (formerly WPT Enterprises Inc. (Note12)), (the “Company”), as of the dates and for the periods indicated.  On November 2, 2009, the Company closeda transaction pursuant to which its agreed to sell substantially all of itsoperating assets other than cash, investments and certain excluded assets toPeerless Media Ltd. (the “Buyer” and such asset sale transaction, the “Transaction”).

 

Thefinancial statements have been prepared pursuant to the rules andregulations of the Securities and Exchange Commission applicable to interimfinancial information. Accordingly, certain information normally included inannual financial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America (“GAAP”) has been condensedor omitted. For further information, please refer to the annual auditedfinancial statements of the Company, and the related notes, included in theCompany’s Annual Report on Form 10-K for the fiscal year ended December 28,2008, from which the information as of that date is derived. Events through November 10,2009 were evaluated to determine if adjustments to or disclosure in thesecondensed consolidated financial statements were necessary. Certain minorreclassifications were made for comparability with the current periodpresentation.

 

Inthe opinion of management, all adjustments considered necessary for a fairpresentation have been included. The results for the current interim periodsare not necessarily indicative of the results to be expected for the full year. The accounting estimates that requirethe most significant, difficult and subjective judgments include the:

 

·                  valuation of investments in debt securities and put rights;

·                  valuation of non-marketable equity investments;

·                  determination of current and deferred income taxes;

·                  ultimate amount of estimated television revenues and costs;

·                  recognition of revenues; and

·                  valuation of share-based compensation.

 

The Game Show Network licensed Season Six of the WorldPoker Tour (“WPT”) and represented 0% and 32% of the Company’s total revenuefor the three months ended September 27, 2009 and September 28, 2008,respectively and 0% and 42% of the Company’s total revenue for the nine monthsended September 27, 2009 and September 28, 2008, respectively. FoxSports Net (“FSN”) is broadcasting Season Seven of the WPT television series in2009 and FullTiltPoker.net is the sponsor of the television series in the U.S.and Mexico. FullTiltPoker.net represented 5% and 0% of the Company’s totalrevenue for the three months ended September 27, 2009 and September 28,2008, respectively and 20% and 0% of the Company’s total revenue for the ninemonths ended September 27, 2009 and September 28, 2008, respectively.PartyGaming Plc (“PartyGaming”) is one international sponsor of Season One ofthe Professional Poker Tour (“PPT”) and Seasons Four through Six of the WPT.PartyGaming represented 49% and 11% of the Company’s total revenue for thethree months ended September 27, 2009 and September 28, 2008, respectivelyand 37% and 13% of the Company’s total revenue for the nine months ended September 27,2009 and September 28, 2008.

 

Included in accounts receivable at September 27,2009 are amounts billed to PokerStars and PartyGaming that are 12% and 76% ofthe total balance, respectively. Included in accounts receivable at December 28,2008 are amounts billed to FullTiltPoker.net, PartyGaming and Hands-On Mobilethat are 39%, 24% and 15% of the total balance, respectively.

 

**2. NEW ACCOUNTING STANDARDS**

 

In June 2009, theFinancial Accounting Standards Board (FASB) issued Statement No. 168. Thisstatement incorporates all then existing accounting standards other than thosepromulgated by the SEC into the FASB codification, now known as the AccountingStandards Codification (“ASC”) Statement No. 168, and now codified as FASBASC Topic 105, “*Generally AcceptedAccounting Principles”*and**is effective for interim andannual periods ending after September 15, 2009.  This development resulted in no changes tosuch existing standards but only changed how they are organized andreferenced.  Accordingly, theimplementation of this standard did not have any effect on the Company’sfinancial position, results of operations or cash flows.

 

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

 

As of September 27,2009, investments in debt securities and put rights consist of the following(in thousands):

 
| **Description**                                   | ** ** | **Cost**   | ** ** | **Unrealized  Gains/(Losses)** | ** ** | **Fair Value** | ** ** |
|---------------------------------------------------|------------|------------|------------|--------------------------------|------------|---------------------|------------|
| **Maturity less than 1 year** | ** ** | ** ** | ** ** | ** **                     | ** ** | ** **          | ** ** |
| Auction rate securities  (trading securities)     |       | $          | 3,295      |                           | $          | 221                 |       | $ | 3,516 |   |
| Put rights (trading  securities)                  |       | 555        |       | (221                           | )          | 334                 |       |
| Certificates of deposit                           |       | 4,932      |       | (1                             | )          | 4,931               |       |
|                                              |       | $          | 8,782      |                           | $          | (1                  | )          | $ | 8,781 |   |

 
| **Description**                                      | ** ** | **Cost** | ** ** | **Realized/********Unrealized  Gains/(Losses)** | ** ** | **Fair Value** | ** ** |
|------------------------------------------------------|------------|----------|------------|-------------------------------------------------|------------|---------------------|------------|
| **Maturity 1 year  to 5 years**  |       |     |       |                                            |       |                |       |
| Corporate preferred  securities (available for sale) |       | $        | 529        |                                            | $          | 3                   |       | $ | 532 |   |
| Certificates of deposit  (available for sale)        |       | 1,158    |       | (2                                              | )          | 1,156               |       |
|                                                 |       | $        | 1,687      |                                            | $          | 1                   |       | $ | 1,688 |   |

 

Investments in debtsecurities and put rights that are classified as available for sale or tradingsecurities are the only assets or liabilities that the Company is required tomeasure at their estimated fair value on a recurring basis. The estimated fairvalue is determined using inputs from among the three levels of the fair valuehierarchy set forth in FASB ASC Topic 820 as follows:

 

Level1 inputs  — Unadjusted quoted prices inactive markets for identical assets or liabilities, which prices are availableat the measurement date.

 

Level 2 inputs — Quotedprices for similar assets and liabilities in active markets, quoted prices foridentical or similar assets and liabilities in markets that are not active,inputs other than quoted prices that are observable for the asset or liability(*i.e.*, interest rates, yield curves, *etc.*) and inputs that are derived principally from orcorroborated by observable market data by correlation or other means (marketcorroborated inputs).

 

Level 3 inputs —Unobservable inputs that reflect management’s estimates about the assumptionsthat market participants would use in pricing the asset or liability in anorderly market. Management develops these inputs based on the best informationavailable, including internally-developed data and third party valuationmodels.

 

In estimating fair value,the Company utilizes valuation techniques that maximize the use of observableinputs and minimize the use of unobservable inputs to the extent possible. Noneof the Company’s financial instruments are measured based on Level 2 inputs.

 

As of September 27,2009, financial assets that are measured and recorded at fair value on arecurring basis consist of the following (in thousands):

 
| **Description**                       | ** ** | **Level 1** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
|---------------------------------------|------------|------------------|------------|------------------|------------|-----------|------------|
| Corporate preferred  securities       |       | $                | 532        |             | $          | —    |       | $ | 532 |   |
| Certificates of deposit               |       | 6,087            |       | —           |       | 6,087     |       |
| Auction rate securities               |       | —           |       | 3,516            |       | 3,516     |       |
| Put rights                            |       | —           |       | 334              |       | 334       |       |
| Total assets at estimated  fair value |       | $                | 6,619      |             | $          | 3,850     |       | $ | 10,469 |   |

 

For financialassets that utilize Level 1 inputs, the Company utilizes direct observableprice quotes in active markets for identical assets. Due to the lack ofobservable market quotes on the Company’s auction rate securities (“ARS”) portfolioand related put rights, the Company utilizes valuation models that relyexclusively on Level 3 inputs including those that are based on management’sestimates of expected cash flow streams and collateral values, default riskunderlying the security, long term broker credit rating, discount rates andoverall capital market liquidity. The valuation of the Company’s ARS portfolioand related put rights is subject to uncertainties that are difficult topredict. Factors that may affect the estimated fair value include changes tocredit ratings of ARS as well as to the assets collateralizing the securities,rates of default of the underlying assets and collateral value, broker defaultrisk, discount rates, and evolving market conditions affecting the liquidity ofARS.

 

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The following tablesummarizes activity in the Company’s ARS portfolio and put rights (inthousands):

 
| **Description**                                         | ** ** | **ARS** | ** ** | **Put Rights** | ** ** | **Total** | ** ** |
|---------------------------------------------------------|------------|---------|------------|---------------------|------------|-----------|------------|
| Balance —  December 28, 2008                  |       | $       | 3,295      |                | $          | 605       |       | $ | 3,900 |   |
| Change in value of put  rights, included in earnings    |       | —  |       | (271                | )          | (271      | )          |
| Change in value of ARS  portfolio, included in earnings |       | 271     |       | —              |       | 271       |       |
| Settlements, net of  purchases                          |       | (50     | )          | —              |       | (50       | )          |
| Balance —  September 27, 2009                 |       | $       | 3,516      |                | $          | 334       |       | $ | 3,850 |   |

 

In November 2008,the Company accepted an offer from UBS AG (“UBS”) that created new rights andobligations related to the ARS portfolio (the “Put Rights”). The Put Rightspermit the Company to require UBS to purchase the ARS at par value, at any timeduring the period of June 30, 2010 through July 2, 2012. UBS also hasthe right, in its discretion, to purchase or sell the ARS at any time until July 2,2012, so long as par value is received. The Company expects to sell the ARSunder the Put Rights. However, if the Put Rights are not exercised before July 2,2012 they will expire and UBS will have no further obligation to buy the ARS.

 

UBS’s obligations underthe Put Rights are not secured by its assets and do not require UBS to obtainany financing to support its performance obligations under the Put Rights. UBShas disclaimed any assurance that it will have sufficient financial resourcesto satisfy its obligations under the Put Rights and UBS’s obligations are notguaranteed by any other party.

 

The Put Rights representan asset that is separate from the ARS. The Company initially recorded $605,000as the fair value of the Put Rights asset in interest income. The Company alsoelected to measure the Put Rights at fair value under FASB ASC Topic 825, whichpermits an entity to elect the fair value option for recognized financialassets. As a result, unrealized gains and losses are included in interestincome and the value of the Put Rights decreased by $121,000 in the threemonths ended September 27, 2009 and decreased by $271,000 in the ninemonths ended September 27, 2009. The Company did not elect the fair valueoption for its other financial assets and liabilities.

 

In connection with theacceptance of the UBS offer in November 2008, the Company transferred theARS from investments available-for-sale to trading securities in accordancewith SFAS 115. The transfer to trading securities reflects management’sintent to exercise the Put Rights during the period June 30, 2010 to July 3,2012. Prior to the agreement with UBS, the Company’s intent was to hold the ARSuntil the market recovered. At the time of transfer, the $605,000 unrealizedloss on ARS was included in accumulated other comprehensive gain (loss). Upontransfer to trading securities, the Company recognized a $605,000 reduction ininterest income. Unrealized gains and losses are included in interest incomeand the value of the ARS portfolio increased by $121,000 in the three monthsended September 27, 2009 and increased by $271,000 in the nine monthsended September 27, 2009. Prior to accepting the UBS offer, the ARS wererecorded as investments available-for-sale.

 

UBS provided theCompany with a line of credit, secured by ARS held by UBS, equal to 75% of theestimated fair value of the ARS. The Company borrowed $2,661,000 under the lineof credit from UBS in February 2009. Interest is charged at the actualinterest rate earned by the ARS. The line of credit is due upon demand. At September 27,2009, $2,602,000 was outstanding under the line of credit.

 

**4. FAIR VALUES OF FINANCIALINSTRUMENTS**

 

The carryingamount of cash equivalents and restricted cash approximates fair value asmeasured using level 1 inputs due to the short period of time to maturity.Investments in debt securities and put rights are measured and recorded at fairvalue on a recurring basis and information about these investments is in Note3. The investment in Cecure Gaming was fully impaired and written down in thefirst quarter of 2009 and information about the impairment of this investmentis in Note 5. The fair value of the Company’s line of credit is not practicableto estimate because the line of credit, the ARS collateral, the Put Rights andthe settlement of certain litigation rights are all interrelated and resultfrom a settlement by UBS with regulators, attorneys general and others.

 

As of September 27,2009, the estimated fair values of financial instruments are as follows (inthousands):

 
| ** **                                     | ** ** | **Carrying********Amount** | ** ** | **Fair********Value** | ** ** |
|------------------------------------------------|------------|----------------------------|------------|-----------------------|------------|
| Cash equivalents                               |       | $                          | 9,542      |                  | $          | 9,542 |   |
| Investments in debt  securities and put rights |       | 10,469                     |       | 10,469                |       |
| Investment in Cecure  Gaming                   |       | —                     |       | —                |       |
| Restricted cash                                |       | 285                        |       | 285                   |       |
| Line of credit                                 |       | (2,602                     | )          | Not estimated         |       |
|                                                |            |                            |            |                       |            |  |  |

 

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**5. ASSETIMPAIRMENT**

** **

In 2006, the Company paid$2,923,000 for a non-controlling ownership interest (currently 8%) in CecureGaming Ltd., a developer and operator of mobile phone casino games. The Companyrecorded a $1,923,000 impairment charge in the third quarter of 2008 related todifficulties Cecure was having in obtaining working capital to finance itsbusiness development that resulted in a significant reduction in staffing.Cecure’s financing difficulties continued into 2009 and the Company recorded anadditional $1,000,000 impairment charge in the first quarter of 2009. Thisinvestment was measuredat implied fair value resulting in an other-than-temporary impairment charge.The implied fair value measurement was calculated using financial metrics andratios of comparable public companies and was measured using Level 3unobservable inputs with significant management judgment to value thisinvestment due to the absence of quoted market prices, inherent lack ofliquidity, and the long-term nature of this investment.

 

**6.SHARE-BASED COMPENSATION**

 

Share-based compensationexpense was $66,000 and $190,000 for the three and nine months ended September 27,2009, respectively and ($21,000) and $596,000 for the three and nine monthsended September 28, 2008, respectively.

 

TheCompany uses the Black-Scholes option-pricing model to estimate the fair valueand compensation cost associated with employee incentive stock options whichrequires the consideration of historical employee exercise behavior data andthe use of a number of assumptions including volatility of the Company’s stockprice, the weighted-average risk-free interest rate and the weighted-averageexpected life of the options.

 

Thefollowing values represent the average per grant assumptions used to valueoptions granted during the three and nine months ended September 27, 2009and September 28, 2008. There have been no significant changes to theassumptions thus far in 2009.

 
| **Key valuation assumptions** | ** ** | **Three months ended  September 27, 2009** | ** ** | **Three months ended  September 28, 2008** | ** ** | **Nine  months ended  September 27, 2009** | ** ** | **Nine months ended  September 28, 2008** | ** ** |
|-----------------------------------------|------------|----------------------------------------------------------------|------------|----------------------------------------------------------------|------------|----------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| Risk-free interest rate                 |       | No grants                                                      |       | No grants                                                      |       | 2.27                                                           | %          | 3.38                                                     | %          |
| Expected term                           |       | No grants                                                      |       | No grants                                                      |       | 6.25 years                                                     |       | 6 years                                                  |       |
| Expected dividend yield                 |       | No grants                                                      |       | No grants                                                      |       | 0                                                              | %          | 0                                                        | %          |
| Expected volatility                     |       | No grants                                                      |       | No grants                                                      |       | 87.85                                                          | %          | 69.95                                                    | %          |
| Forfeiture rate                         |       | 24.11                                                          | %          | 20.58                                                          | %          | 24.11                                                          | %          | 20.58                                                    | %          |
| Weighted-average fair  value            |       | $                                                              | No grants  |                                                           | $          | No grants                                                      |       | 0.38                                                     |       | $ | 0.82 |   |
|                                         |            |                                                                |            |                                                                |            |                                                                |            |                                                          |            |  |  |  |

 

Thefollowing table summarizes stock option activity during the nine months ended September 27,2009:

 
| ** **                          | ** ** | ** **      | ** ** | **Number of Common Shares** | ** ** |
|-------------------------------------|------------|-----------------|------------|--------------------------------------------|------------|
| ** **                          | ** ** | **Options**     | ** ** | ** **                                 | ** ** | **Available** | ** ** | **Weighted-avg.** | ** ** |
| ** **                          | ** ** | **outstanding** | ** ** | **Exercisable**                            | ** ** | **for grant** | ** ** | **exercise price** | ** ** |
| Balance at  December 28, 2008  |       | 2,314,589       |       | 1,106,921                                  |       | 873,418 |   | $ | 3.83 |   |
| Granted                             |       | 529,000         |       | —                                     |       | (529,000 | ) | 0.50 |   |
| Forfeited/canceled/exchanged        |       | (1,238,333      | )          | —                                     |       | 1,238,333 |   | 5.55 |   |
| Exercised                           |       | (111,340        | )          | —                                     |       | — |   | 0.0049 |   |
| Balance at  September 27, 2009 |       | 1,493,916       |       | 191,077                                    |       | 1,582,751 |   | $ | 1.51 |   |

 

Thefollowing table summarizes significant ranges of outstanding and exercisableoptions as of September 27, 2009**:**

 
| ** **                              | ** **             | **Options outstanding** | ** ** | **Options exercisable**                                         | ** ** |
|-----------------------------------------|------------------------|------------------------------|------------|----------------------------------------------------------------------|------------|
| **Range of  exercise prices** | ** **             | **Number  outstanding**      | ** ** | **Weighted-avg.  remaining  contractual  life (in years)** | ** ** | **Weighted-avg.  exercise  price** | ** ** | **Aggregate  intrinsic  value** | ** ** | **Number  exercisable** | ** ** | **Weighted-avg.  exercise  price** | ** ** | **Aggregate  intrinsic  value** | ** ** |
| $                                       | 0.37  — 1.87 |                         | 1,257,250  |                                                                 | 9.28       |   | $ | 0.52 |   | $ | 594,620 |   | 9,746 |   | $ | 1.37 |   | $ | — |   |
| 4.26  — 8.00                  |                   | 223,666                      |       | 6.11                                                                 |       | 6.26 |   | — |   | 168,331 |   | 6.55 |   | — |   |
| 14.51  — 19.50                |                   | 13,000                       |       | 5.20                                                                 |       | 14.89 |   | — |   | 13,000 |   | 14.89 |   | — |   |
|                                    |                   | 1,493,916                    |       | 8.77                                                                 |       | $ | 1.51 |   | $ | 594,620 |   | 191,077 |   | $ | 6.86 |   | $ | — |   |
|                                         |                        |                              |            |                                                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Theaggregate intrinsic value in the preceding table****represents the total pre-tax intrinsic value, based on theCompany’s closing stock price of $0.99 on September 25, 2009, which wouldhave been received by the option holders had they exercised their options as ofthat date. As of September 27, 2009, there were no exercisable “in-the-money”stock options. The total intrinsic value of options exercised during the threeand nine months ended September 27, 2009 was $0 and $44,000, respectively.

 

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As of September 27, 2009, total unrecognized compensation costrelated to non-vested options was $624,000, which is expected to be recognizedover the next 37 months on a weighted-average basis.

 

**7. DISCONTINUED WPT CHINA OPERATIONS**

 

In January 2009,following approval by the Board of Directors, the Company began searching for astrategic partner to invest in the WPT China business. The cash needs tosupport the growth in that business was greater than the Company was willing toexpend. In March 2009, the Company shut down the operations of WPT Chinawhile continuing to look for a strategic partner to acquire the WPT Chinaassets. The financial results of WPT China have been retroactively reclassifiedas discontinued operations.

 

The Companyincurred $306,000 of costs to shutdown the WPT China business during the ninemonths ended September 27, 2009, consisting of $30,000 of employeeseverance, $170,000 of contract termination costs and $106,000 of softwarewrite down costs. During the three months ended September 27, 2009, theCompany did not incur any shutdown costs.

 

Summarized operatingresults information for the WPT China business is as follows (in thousands):

 
| ** **                         | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                         | ** ** | **September 27,  2009**     | ** ** | **September 28,  2008**    | ** ** | **September 27,  2009** | ** ** | **September 28,  2008** | ** ** |
| Revenues                           |       | $                                | —     |                            | $          | — |   | $ | — |   | $ | — |   |
| Loss before income tax  (benefit)  |       | —                           |       | (453                            | )          | (1,113 | ) | (1,562 | ) |
| Income tax (benefit)               |       | —                           |       | —                          |       | (32 | ) | — |   |
| Loss from discontinued  operations |       | —                           |       | (453                            | )          | (1,081 | ) | (1,562 | ) |
|                                    |            |                                  |            |                                 |            |  |  |  |  |  |  |  |  |

 

Summarized balancesheet information for the WPT China business is as follows (in thousands):

 
| ** **                               | ** ** | **September 27, 2009** | ** ** | **December 28, 2008** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| Cash and cash equivalents |       | $                           | —     |                       | $          | 168 |   |
| Other current assets                     |       | —                      |       | 233                        |       |
| Property and equipment,  net             |       | —                      |       | 115                        |       |
|                                          |            |                             |            |                            |            |  |  |

 

**8. INCOME TAXES**

 

TheCompany expects to pay federal alternativeminimum tax on the utilization of federal net operating lossesin 2009 and California income taxes due to the suspension of the availabilityof California net operating losses in 2009. The Company utilizes net operatinglosses from operations before utilizing net operating losses generated from theexercise of stock options. The income tax provision recognized for the threeand nine months ended September 27, 2009 is based on the estimatedeffective income tax rate for 2009. There was no income tax benefit recognizedfor the three and nine months ended September 28, 2008, because, based on theCompany’s relatively limited and volatile earnings history, the Company recorded a full valuationallowance for the net deferred tax assets. Management currently believes it is not more likely than not thatdeferred tax assets will be realized in the foreseeable future.

 

**9. NETEARNINGS (LOSS) PER COMMON SHARE**

 

Basic net earnings/(loss) per common share iscalculated by dividing net earnings (loss) by the weighted-average number ofcommon shares outstanding during the period. Shares for certain stock optionsgranted to Company employees are included in the computation after the optionshave vested when the shares are issuable for minimal cash consideration inrelation to the fair value of the options. Diluted earnings per common share iscalculated by adjusting weighted-average outstanding shares, assuming the conversionof all potentially dilutive stock options and awards (common stockequivalents). However, common stock equivalents are not used to calculatediluted per share amounts for loss periods because the effect would beanti-dilutive. There were 697,000 common stock equivalents for the three monthsended September 27, 2009 and none for the three months ended September 28,2008. There were 484,000 common stock equivalents for the nine months ended September 27,2009 and none for the nine months ended September 28, 2008. The Company excluded 266,000 and2,417,000 of weighted average outstanding stock options for the three monthsended September 27, 2009 and September 28, 2008, respectively, andexcluded 741,000 and 2,629,000 of weighted average outstanding stock optionsfor the nine months ended September 27, 2009 and September 28, 2008,respectively, from any calculation of dilution because the exercise prices ofthese stock options were greater than the average market value of the Company’scommon stock. These stock options could be included in the calculation in thefuture if the average market value of the Company’s common stock exceeds theexercise price of these stock options.

 

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**10.CONTINGENCIES**

 

TheCompany is involved in various inquiries, administrative proceedings andlitigation relating to matters arising in the normal course of business. TheCompany is not currently a defendant in any material litigation and is notaware of any threatened litigation that could have a material effect on theCompany. Management is not able to estimate the minimum loss to be incurred, ifany, as a result of the final outcome of these matters but believes they arenot likely to have a material adverse effect upon the Company’s financialposition or results of operations and, accordingly, no provision for loss hasbeen recorded.

 

**11. SEGMENTINFORMATION**

 

Theoperating segments reported below are the segments of the Company’s continuingoperations (Note 12) for which separate financial information is available andfor which operating results are evaluated by the chief operating decision makerin deciding how to allocate resources and assess performance.

 

**Threemonths ended September 27, 2009 (in thousands):**

 
| ** **                    | ** ** | **WPT**     | ** ** | **WPT Online** | ** ** | **WPT Global** | ** ** | ** **    | ** ** | ** **    | ** ** |
|-------------------------------|------------|-------------|------------|---------------------|------------|---------------------|------------|---------------|------------|---------------|------------|
| ** **                    | ** ** | **Studios** | ** ** | **Gaming**          | ** ** | **Non-gaming**      | ** ** | **Marketing** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
| Revenues:                     |       |        |       |                |       |                |       |          |       |          |       |   |   |
| Television                    |       | $           | 3,985      |                | $          | —              |       | $             | —     |          | $          | — |   | $ | — |   | $ | 3,985 |   |
| ClubWPT                       |       | —      |       | —              |       | 669                 |       | —        |       | —        |       | 669 |   |
| Product licensing             |       | —      |       | —              |       | —              |       | 381           |       | —        |       | 381 |   |
| Event hosting and sponsorship |       | 50          |       | —              |       | —              |       | 147           |       | —        |       | 197 |   |
| Other                         |       | —      |       | 68                  |       | 5                   |       | 15            |       | —        |       | 88 |   |
|                          |       | 4,035       |       | 68                  |       | 674                 |       | 543           |       | —        |       | 5,320 |   |
| Cost of revenues              |       | 799         |       | —              |       | 366                 |       | 40            |       | —        |       | 1,205 |   |
| Gross profit                  |       | 3,236       |       | 68                  |       | 308                 |       | 503           |       | —        |       | 4,115 |   |
| Total assets                  |       | 5,271       |       | 37                  |       | 593                 |       | 636           |       | 22,268        |       | 28,805 |   |
| Depreciation and amortization |       | 43          |       | —              |       | 73                  |       | —        |       | 40            |       | 156 |   |
|                               |            |             |            |                     |            |                     |            |               |            |               |            |  |  |  |  |  |  |  |  |

 

Revenuesattributed to domestic and international operations were $1.4 million and$3.9 million, respectively.

 

**Three months ended September 28,2008 (in thousands):**

 
| ** **                       | ** ** | **WPT**     | ** ** | **WPT Online** | ** ** | **WPT Global** | ** ** | ** **    | ** ** | ** **    | ** ** |
|----------------------------------|------------|-------------|------------|---------------------|------------|---------------------|------------|---------------|------------|---------------|------------|
| ** **                       | ** ** | **Studios** | ** ** | **Gaming**          | ** ** | **Non-gaming**      | ** ** | **Marketing** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
| Revenues:                        |       |        |       |                |       |                |       |          |       |          |       |   |   |
| Television                       |       | $           | 1,504      |                | $          | —              |       | $             | —     |          | $          | — |   | $ | — |   | $ | 1,504 |   |
| ClubWPT                          |       | —      |       | —              |       | 101                 |       | —        |       | —        |       | 101 |   |
| Product licensing                |       | —      |       | —              |       | —              |       | 654           |       | —        |       | 654 |   |
| Event hosting and sponsorship    |       | 275         |       | —              |       | —              |       | 83            |       | —        |       | 358 |   |
| Other                            |       | —      |       | 190                 |       | 10                  |       | 15            |       | —        |       | 215 |   |
|                             |       | 1,779       |       | 190                 |       | 111                 |       | 752           |       | —        |       | 2,832 |   |
| Cost of revenues                 |       | 667         |       | 172                 |       | 72                  |       | 86            |       | —        |       | 997 |   |
| Gross profit                     |       | 1,112       |       | 18                  |       | 39                  |       | 666           |       | —        |       | 1,835 |   |
| Total assets (1)                 |       | 2,076       |       | 256                 |       | 800                 |       | 670           |       | 22,953        |       | 26,755 |   |
| Depreciation and amortization(1) |       | 61          |       | —              |       | 51                  |       | —        |       | 76            |       | 188 |   |
|                                  |            |             |            |                     |            |                     |            |               |            |               |            |  |  |  |  |  |  |  |  |

 

----

(1)         The total excludes $392 of total assetsand $8 of depreciation and amortization for discontinued WPT China operations.

 

Revenues attributed to domestic and internationaloperations were $2.0 million and$0.8 million,respectively.

 

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**Nine months ended September 27, 2009 (in thousands):**

 
| ** **                       | ** ** | **WPT**     | ** ** | **WPT Online** | ** ** | **WPT Global** | ** ** | ** **    | ** ** | ** **    | ** ** |
|----------------------------------|------------|-------------|------------|---------------------|------------|---------------------|------------|---------------|------------|---------------|------------|
| ** **                       | ** ** | **Studios** | ** ** | **Gaming**          | ** ** | **Non-gaming**      | ** ** | **Marketing** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
| Revenues:                        |       |        |       |                |       |                |       |          |       |          |       |   |   |
| Television                       |       | $           | 10,590     |                | $          | —              |       | $             | —     |          | $          | — |   | $ | — |   | $ | 10,590 |   |
| ClubWPT                          |       | —      |       | —              |       | 1,784               |       | —        |       | —        |       | 1,784 |   |
| Product licensing                |       | —      |       | —              |       | —              |       | 1,424         |       | —        |       | 1,424 |   |
| Event hosting and sponsorship    |       | 625         |       | —              |       | —              |       | 593           |       | —        |       | 1,218 |   |
| Other                            |       | —      |       | 312                 |       | 22                  |       | 69            |       | —        |       | 403 |   |
|                             |       | 11,215      |       | 312                 |       | 1,806               |       | 2,086         |       | —        |       | 15,419 |   |
| Cost of revenues                 |       | 3,774       |       | —              |       | 973                 |       | 160           |       | —        |       | 4,907 |   |
| Gross profit                     |       | 7,441       |       | 312                 |       | 833                 |       | 1,926         |       | —        |       | 10,512 |   |
| Depreciation and amortization(1) |       | 173         |       | —              |       | 220                 |       | —        |       | 131           |       | 524 |   |
|                                  |            |             |            |                     |            |                     |            |               |            |               |            |  |  |  |  |  |  |  |  |

 

----

(1)         The total excludes $8 of depreciation andamortization for discontinued WPT China operations.

 

Revenues attributed todomestic and international operations were $7.3 million and$8.1 million, respectively.

 

**Nine months ended September 28,2008 (in thousands):**

 
| ** **                        | ** ** | **WPT**     | ** ** | **WPT Online** | ** ** | **WPT Global** | ** ** | ** **    | ** ** | ** **    | ** ** |
|-----------------------------------|------------|-------------|------------|---------------------|------------|---------------------|------------|---------------|------------|---------------|------------|
| ** **                        | ** ** | **Studios** | ** ** | **Gaming**          | ** ** | **Non-gaming**      | ** ** | **Marketing** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
| Revenues:                         |       |        |       |                |       |                |       |          |       |          |       |   |   |
| Television                        |       | $           | 8,506      |                | $          | —              |       | $             | —     |          | $          | — |   | $ | — |   | $ | 8,506 |   |
| ClubWPT                           |       | —      |       | —              |       | 174                 |       | —        |       | —        |       | 174 |   |
| Product licensing                 |       | —      |       | —              |       | —              |       | 1,914         |       | —        |       | 1,914 |   |
| Event hosting and sponsorship     |       | 1,000       |       | —              |       | —              |       | 376           |       | —        |       | 1,376 |   |
| Other                             |       | —      |       | 756                 |       | 42                  |       | 98            |       | —        |       | 896 |   |
|                              |       | 9,506       |       | 756                 |       | 216                 |       | 2,388         |       | —        |       | 12,866 |   |
| Cost of revenues                  |       | 5,511       |       | 556                 |       | 146                 |       | 239           |       | —        |       | 6,452 |   |
| Gross profit                      |       | 3,995       |       | 200                 |       | 70                  |       | 2,149         |       | —        |       | 6,414 |   |
| Depreciation and amortization (1) |       | 190         |       | —              |       | 103                 |       | —        |       | 234           |       | 527 |   |
|                                   |            |             |            |                     |            |                     |            |               |            |               |            |  |  |  |  |  |  |  |  |

 

----

(1)         The total excludes $25 of depreciationand amortization for discontinued WPT China operations.

 

Revenues attributed to domestic and internationaloperations were $9.1 million and$3.8 million,respectively.

 

**12. SUBSEQUENT EVENTS**

 

Weheld a Special Meeting of stockholders on October 30, 2009. At themeeting, our stockholders authorized the sale of substantially all of its operating assets other than cash, investmentsand certain excluded assets to Peerless Media Ltd. (the “Buyer” and suchtransaction the “Transaction”). The Transaction closed on November 2,2009.  In connection with the closing ofthe Transaction, the Company’s name has been changed to ante4, Inc., andthe employment of all employees other than the Company’s President and ChiefExecutive Officer has been terminated. Under the terms of the Transaction, certain former employees of theCompany that are now employees of Buyer will continue to provide transitionservices to the Company for a limited period, after the closing of theTransaction.

 

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**ITEM2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Business Overview**

 

We entered into an AssetPurchase Agreement (the “Purchase Agreement”), dated August 24, 2009, withPeerless Media Ltd. (the “Buyer”) pursuant to which we agreed to sellsubstantially all of our operating assets other than cash, investments andcertain excluded assets to Buyer (the “Transaction”).  We closed the Transaction on November 2,2009.  As a result of closing theTransaction, we no longer will operate the Company’s previous business, andplan to use the proceeds of the Transaction to develop or acquire a newoperating business.  In addition, theCompany’s name has been changed to ante4, Inc.  Except as specifically described below, the followingdescription of our business describes our business prior to the closing of theTransaction.

 

We created internationally branded entertainment andconsumer products driven by the development, production and marketing oftelevised programming based on gaming themes. The current season of the WorldPoker Tour®,or WPT® television series - Season Seven, based on aseries of high-stakes poker tournaments, currently airs on Fox Sports Net inthe United States, and has been licensed for broadcast globally. In January 2008,we launched ClubWPT.com, an innovative subscription-based online poker clubtargeted to the estimated 60 million poker players in the United States,which is currently offered in 38 states. Through November 2008, weoffered a real-money online gaming website which prohibited wagers from playersin the U.S. and other restricted jurisdictions. We also licensed our brand tocompanies in the business of poker equipment and instruction, apparel,publishing, electronic and wireless entertainment, DVD/home entertainment,casino games and giftware and were engaged in the sale of corporatesponsorships. Through March 2009, we developed and marketed online andmobile games supporting the WPT China National Traktor Poker TourTM.

 

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

 

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

 

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

 

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

 

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

 

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**Results of Operations**

 

**Three Months Ended September 27, 2009 Compared to theThree Months Ended September 28, 2008**

 

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

 
| ** **                    | ** ** | **Three months ended**        | ** ** |
|-------------------------------|------------|-------------------------------|------------|
| ** **                    | ** ** | **September 27,   2009** | ** ** | **% of  Revenues** | ** ** | **September 28,   2008** | ** ** | **% of  Revenues** | ** ** |
| WPT Studios:                  |       |                          |       |   |   |   |   |   |   |
| Domestic sponsorship          |       | $                             | 250        |   | 6 | % | $ | — |   | — | % |
| Domestic license              |       | —                        |       | — | % | 900 |   | 51 | % |
| International sponsorship     |       | 3,496                         |       | 87 | % | 318 |   | 18 | % |
| International license         |       | 239                           |       | 6 | % | 287 |   | 16 | % |
| Event hosting and sponsorship |       | 50                            |       | 1 | % | 275 |   | 15 | % |
|                          |       | 4,035                         |       | 100 | % | 1,780 |   | 100 | % |
| Cost of revenues              |       | 799                           |       | 20 | % | 667 |   | 37 | % |
| Gross profit                  |       | $                             | 3,236      |   | 80 | % | $ | 1,113 |   | 63 | % |

 
| ** **                    | ** ** | **Three months ended**        | ** ** |
|-------------------------------|------------|-------------------------------|------------|
| ** **                    | ** ** | **September 27,   2009** | ** ** | **% of  Revenues** | ** ** | **September 28,   2008** | ** ** | **% of  Revenues** | ** ** |
| WPT Online:                   |       |                          |       |   |   |   |   |   |   |
| Online gaming                 |       | $                             | 68         |   | 9 | % | $ | 189 |   | 63 | % |
| Non-gaming                    |       | 674                           |       | 91 | % | 111 |   | 37 | % |
|                          |       | 742                           |       | 100 | % | 300 |   | 100 | % |
| Cost of revenues              |       | 366                           |       | 49 | % | 244 |   | 81 | % |
| Gross profit                  |       | $                             | 376        |   | 51 | % | $ | 56 |   | 19 | % |
|                          |       |                          |       |   |   |   |   |   |   |
| WPT Global Marketing:         |       |                          |       |   |   |   |   |   |   |
| Product licensing             |       | $                             | 381        |   | 70 | % | $ | 654 |   | 87 | % |
| Event hosting and sponsorship |       | 147                           |       | 27 | % | 83 |   | 11 | % |
| Other                         |       | 15                            |       | 3 | % | 15 |   | 2 | % |
|                          |       | 543                           |       | 100 | % | 752 |   | 100 | % |
| Cost of revenues              |       | 40                            |       | 7 | % | 86 |   | 11 | % |
| Gross profit                  |       | $                             | 503        |   | 93 | % | $ | 666 |   | 89 | % |

 

***WPT Studios. ***Combined domestic and foreign televisionrevenues increased $2,480,000 to $3,985,000 in 2009, from $1,505,000 in 2008.Domestic television revenues decreased $650,000 and international televisionrevenues increased $3,130,000 in 2009 compared to 2008. The sponsorship feesreceived per episode in 2009 for Season Seven of the WPT television series werelower than the license fees received for Season Six in 2008. The sponsorshipfee per one-hour episode for Season Seven was $125,000 compared to a licensefee of $300,000 per two-hour episode for Season Six. In the third quarter of2009, we aired 2 one-hour episodes of Season Seven compared to the delivery ofthree two-hour episodes of Season Six in 2008. International televisionsponsorship revenues increased $3,178,000 in 2009 compared to 2008 as we hadgreater distribution of Seasons Four, Five and Six of the WPT television seriesand PPT Season One in territories covered by the PartyGaming sponsorshipcontract.  We also received internationaltelevision sponsorship revenues for Season Seven of the WPT television seriesfrom PokerStars.  Internationaltelevision licensing revenues decreased $48,000 in 2009 compared to 2008 as aresult of fewer international territories accepting license arrangements andthe substitution of sponsorship arrangements for license arrangements in manyterritories. WPT television series hosting fees decreased by $225,000 in 2009due to lower per episode hosting fees in Season Seven.

 

During2009, our sources of revenue changed from primarily licensed-based revenuesfrom the sale of our programming to television networks to primarily sponsorship-basedrevenues. Sponsors pay to appear in the show and television networks air theprogram for free or we pay a fee to television networks to air the program. Inaddition, in recent television seasons, foreign television revenues increasedand domestic television revenues decreased.

 

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Televisioncost of revenues increased $122,000 in 2009compared to 2008 due to increased costs related to international televisionsponsorship costs. Television gross profit margins were 51% in the quartercompared to 19% in the same period 2008 due to higher gross margins for SeasonSeven of the WPT television series compared to Season Six.

 

***WPT Online. ***Online revenues increased $442,000 to$742,000 in 2009, from $300,000 in 2008. Online gaming revenues decreased$121,000 between years. In 2009, our online gaming revenues were derived fromaffiliate revenues whereas in 2008 our online gaming revenues were derived fromthe WPT-branded online gaming website. In November, 2008, we terminated theWPT-branded online gaming website. Affiliate revenues in 2009 had no costof revenues whereas the WPT-branded online gaming website had $172,000 of costof revenues in the third quarter of 2008.

 

Non-gaming revenues increased $563,000 between yearsdue to increased membership in ClubWPT.com which was launched in the firstquarter of 2008. ClubWPT.com cost of revenues increased $297,000 to $357,000 in2009 from $59,000 in the same period 2008 due to increased revenues.ClubWPT.com gross profit margins increased to 47% in 2009 from 41% in 2008. Astotal membership increased, we realized improved gross profit margins fromeconomies of scale.

 

***WPT Global Marketing. ***Global marketing revenues decreased$209,000 to $543,000 in 2009, from $752,000 in 2008. A decrease in productlicensing revenues was offset by an increase in hosting and sponsorshiprevenues. There was a decrease in product licensing revenues from onesignificant licensee in 2009. Hosting and sponsorship revenues increased in2009 due to the addition of non-televised sponsored events internationally.Global marketing gross profit margins increased to 93% in 2009 from 88% in2008.

 

***Selling, General and Administrative Expense. ***The following table sets forth selling, general andadministrative expense information for our three continuing business segments(amounts in thousands):

 
| ** **                          | ** ** | **Three months ended**        | ** ** |
|-------------------------------------|------------|-------------------------------|------------|
| ** **                          | ** ** | **September 27,   2009** | ** ** | **September 28,   2008** | ** ** | **% Change** | ** ** |
| Operational expenses                |       | $                             | 75         |   | $ | 296 |   | (75 | )% |
| Selling and marketing expenses      |       | 197                           |       | 626 |   | (69 | )% |
| General and administrative expenses |       | 2,120                         |       | 3,159 |   | (33 | )% |
|                                |       | $                             | 2,392      |   | $ | 4,081 |   | (41 | )% |

 

Selling,general and administrative expense decreased $1,689,000 to $2,392,000 in 2009,from $4,081,000 in 2008. Selling, general and administrative expense consistsof operational costs to manage websites and software, sales and marketingexpenses and general and administrative expenses.

 

Operationalcosts decreased $221,000 in 2009. Costs associated with our domestic websitedecreased $73,000 in 2009 due to lower maintenance costs. Costs associated withour WPT-branded online gaming website decreased $140,000 in 2009 because weterminated our WPT-branded online gaming website November 2008.

 

Salesand marketing expenses decreased $429,000 in 2009. Decreases in commissioncosts of $74,000 in 2009 were related to the lower licensing revenues. Costsassociated with our domestic website decreased $144,000 due to decreased costsassociated with our ClubWPT.com website. Costs also decreased due to the shutdown of our WPT-branded onlinegaming website. In the first three quarters of 2008, we heavily marketed ourWPT-branded online gaming website and costs associated with advertising,content, promotions, sponsorship and affiliates for online gaming decreased$166,000 in 2009.

 

Generaland administrative expenses decreased $1,039,000 in 2009. The decrease wasprimarily due to personnel reductions in 2008 that resulted in $449,000 inlower payroll and related costs in 2009. General and administrative expenseswere also lower due to a $300,000 lease abandonment provision and $350,000 ofcosts to terminate our agreements with CryptoLogic in 2008. Offsetting theselower 2009 costs were increased professional and consulting expenses of$119,000 in the 2009 period principally due to expenses related to the assetsale transaction.  In 2009, we had higherbad debt expense of $245,000 primarily due to the third party system providerfor ClubWPT.

 

***Other Income.***  Net interestincome decreased $180,000 in 2009 compared to 2008, primarily due to lowerinterest rates. We recorded a $121,000 increase in interest income during thesecond quarter of 2009 in marking our ARS portfolio to fair value and acorresponding decrease in interest income in marking to fair value the rightsthat our broker gave us to compel them to repurchase our auction ratesecurities. In addition, in the third quarter we incurred a$1,000,000 termination fee in connection with the Gamynia asset purchasetermination.

 

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***Income Taxes. ***TheCompany expects to pay federal alternative minimum tax on the utilization ofnet operating losses in 2009 and California income taxes due to the suspensionof the availability of net operating losses in 2009. The income tax expense forthe three months ended September 27, 2009 is based on the estimated annualeffective income tax rate for 2009 after considering the foregoing. There wasno income tax benefit for the three months ended September 28, 2008 due tothe loss for the period.

 

***DiscontinuedWPT China Operations. ***The followingtable sets forth selling, general and administrative expense information forour discontinued business segment (amounts in thousands):

 
| ** **                          | ** ** | **Three months ended**      | ** ** |
|-------------------------------------|------------|-----------------------------|------------|
| ** **                          | ** ** | **September 27, 2009** | ** ** | **September 28, 2008** | ** ** | **% Change** | ** ** |
| Operational expenses                |       | $                           | —     |   | $ | 21 |   | — | % |
| Selling and marketing expenses      |       | —                      |       | 21 |   | — | % |
| General and administrative expenses |       | —                      |       | 411 |   | — | % |
| Shut down provision                 |       | —                      |       | — |   | — | % |
|                                |       | $                           | —     |   | $ | 453 |   | — | % |

 

Wehad no costs related to WPT China during the quarter ended September 27,2009 and $453,000 in operating costs in the same period 2008. The 2008operating costs consisted of $335,000 of payroll costs, $21,000 of websitecosts and $21,000 of television production costs.

 

**Nine Months Ended September 27, 2009 Compared to theNine Months Ended September 28, 2008**

 

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

 
| ** **                    | ** ** | **Nine months ended**       | ** ** |
|-------------------------------|------------|-----------------------------|------------|
| ** **                    | ** ** | **September 27, 2009** | ** ** | **% of  Revenues** | ** ** | **September 28, 2008** | ** ** | **% of  Revenues** | ** ** |
| WPT Studios:                  |       |                        |       |   |   |   |   |   |   |
| Domestic sponsorship          |       | $                           | 3,125      |   | 28 | % | $ | — |   | — | % |
| Domestic license              |       | —                      |       | — | % | 5,400 |   | 57 | % |
| International sponsorship     |       | 6,567                       |       | 59 | % | 1,647 |   | 17 | % |
| International license         |       | 898                         |       | 8 | % | 1,459 |   | 15 | % |
| Event hosting and sponsorship |       | 625                         |       | 5 | % | 1,000 |   | 11 | % |
|                          |       | 11,215                      |       | 100 | % | 9,506 |   | 100 | % |
| Cost of revenues              |       | 3,774                       |       | 34 | % | 5,511 |   | 58 | % |
| Gross profit                  |       | $                           | 7,441      |   | 66 | % | $ | 3,995 |   | 42 | % |
|                          |       |                        |       |   |   |   |   |   |   |
| WPT Online:                   |       |                        |       |   |   |   |   |   |   |
| Online gaming                 |       | $                           | 312        |   | 15 | % | $ | 756 |   | 78 | % |
| Non-gaming                    |       | 1,806                       |       | 85 | % | 216 |   | 22 | % |
|                          |       | 2,118                       |       | 100 | % | 972 |   | 100 | % |
| Cost of revenues              |       | 973                         |       | 46 | % | 702 |   | 72 | % |
| Gross profit                  |       | $                           | 1,145      |   | 54 | % | $ | 270 |   | 28 | % |
|                          |       |                        |       |   |   |   |   |   |   |
| WPT Global Marketing:         |       |                        |       |   |   |   |   |   |   |
| Product licensing             |       | $                           | 1,424      |   | 68 | % | $ | 1,914 |   | 80 | % |
| Event hosting and sponsorship |       | 593                         |       | 29 | % | 376 |   | 16 | % |
| Other                         |       | 69                          |       | 3 | % | 98 |   | 4 | % |
|                          |       | 2,086                       |       | 100 | % | 2,388 |   | 100 | % |
| Cost of revenues              |       | 160                         |       | 8 | % | 239 |   | 10 | % |
| Gross profit                  |       | $                           | 1,926      |   | 92 | % | $ | 2,149 |   | 90 | % |

 

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***WPT Studios. ***Combined domestic and foreign televisionrevenues increased $2,083,000 to $10,590,000 in 2009, from $8,506,000 in 2008.Domestic television revenues decreased $2,275,000 and international televisionrevenues increased $4,358,000 in 2009 compared to 2008. The sponsorship feesreceived per episode in 2009 for Season Seven of the WPT television series werelower than the license fees received for Season Six in 2008. The sponsorshipfee per one-hour episode for Season Seven was $125,000 compared to a licensefee of $300,000 per two-hour episode for Season Six. In 2009, we aired 26one-hour episodes of Season Seven compared to the delivery of 18 two-hourepisodes of Season Six in 2008. International television sponsorship revenuesincreased $4,919,000 in 2009 compared to 2008 as we had greater distribution ofSeasons Four, Five and Six of the WPT television series and PPT Season One interritories covered by the PartyGaming sponsorship contract. We also receivedinternational television sponsorship revenues for Season Seven of the WPTtelevision series from PokerStars. International television licensing revenues decreased $561,000 in 2009compared to 2008 as a result of fewer international territories acceptinglicense arrangements and the substitution of sponsorship arrangements forlicense arrangements in many territories. WPT television series hosting feesdecreased by $375,000 in 2009 due to lower per episode hosting fees in SeasonSeven.

 

During2009, our sources of revenue changed from primarily licensed-based revenuesfrom the sale of our programming to television networks to primarilysponsorship-based revenues. Sponsors pay to appear in the show and televisionnetworks air the program for free or we pay a fee to television networks to airthe program. In addition, in recent television seasons, foreign televisionrevenues increased and domestic television revenues decreased.

 

Televisioncost of revenues decreased $1,737,000 in 2009compared to 2008 due to higher gross margins for Season Seven of the WPTtelevision series compared to Season Six despite higher revenues in 2009compared to 2008. Television gross profit margins were 64% in 2009 compared to35% in 2008.

 

***WPT Online. ***Online revenues increased $1,146,000 to$2,118,000 in 2009, from $972,000 in 2008. Online gaming revenues decreased$444,000 between years. In 2009, our online gaming revenues were derived fromaffiliate revenues whereas in 2008 our online gaming revenues were derived fromthe WPT-branded online gaming website. In November, 2008, we terminated theWPT-branded online gaming website. Affiliate revenues in 2009 had no costof revenues whereas the WPT-branded online gaming website had $556,000 of costof revenues in 2008.

 

Non-gaming revenues increased $1,590,000 between yearsdue to increased membership in ClubWPT.com which was launched in the firstquarter of 2008. ClubWPT.com cost of revenues increased $853,000 to $957,000 in2009 from $104,000 in 2008 due to increased revenues. ClubWPT.com gross profitmargins increased to 46% in 2009 from 40% in 2008. As total membershipincreased, we realized improved gross profit margins from economies of scale.

 

***WPT Global Marketing. ***Global marketing revenues decreased$302,000 to $2,086,000 in 2009, from $2,388,000 in 2008. A decrease in productlicensing revenues in 2009 was partially offset by an increase in hosting andsponsorship revenues. There was a decrease in product licensing revenues in2009 from one significant licensee that was partially offset by higher productlicensing revenues from another significant licensee.  Hosting and sponsorship revenues increased in2009 due to the addition of increased non-televised sponsored eventsinternationally. Other global marketing revenues decreased $29,000 in 2009 dueto the expiration of a DVD distributor agreement in 2008. Global marketing grossprofit margins increased to 92% in 2009 from 90% in 2008.

 

***Selling, General and Administrative Expense. ***The following table sets forth selling, general andadministrative expense information for our three continuing business segments(amounts in thousands):

 
| ** **                          | ** ** | **Nine months ended**       | ** ** |
|-------------------------------------|------------|-----------------------------|------------|
| ** **                          | ** ** | **September 27, 2009** | ** ** | **September 28, 2008** | ** ** | **% Change** | ** ** |
| Operational expenses                |       | $                           | 341        |   | $ | 1,168 |   | (71 | )% |
| Selling and marketing expenses      |       | 1,208                       |       | 3,703 |   | (67 | )% |
| General and administrative expenses |       | 6,303                       |       | 10,004 |   | (37 | )% |
|                                |       | $                           | 7,852      |   | $ | 14,875 |   | (47 | )% |

 

Selling,general and administrative expense decreased $7,023,000 to $7,852,000 in 2009,from $14,875,000 in 2008. Selling, general and administrative expense consistsof operational costs to manage websites and software, sales and marketing expensesand general and administrative expenses.

 

Operationalcosts decreased $827,000 in 2009. Costs associated with our domestic websitedecreased $316,000 in 2009 due to lower maintenance costs. Costs associatedwith our WPT-branded online gaming website decreased $488,000 in 2009 becausewe terminated our WPT-branded online gaming website in November 2008.

 

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Salesand marketing expenses decreased $2,495,000 in 2009. Decreases in commissioncosts of $121,000 in 2009 were related to the lower licensing revenues. Costsassociated with our domestic website decreased $503,000 due costs associatedwith our ClubWPT.com website. Costs decreased primarily due to the shutdown ofour WPT-branded online gaming website. In the first half of 2008, we heavilymarketed our WPT-branded online gaming website and costs associated withadvertising, promotions and affiliates for online gaming decreased $1,370,000in 2009. Other sponsorship costs decreased $278,000 in 2009 due to thetermination of our spokesperson contract with Antonio Esfandiari.

 

Generaland administrative expenses decreased $3,701,000 in 2009. The decrease wasprimarily due to personnel reductions in 2008 that resulted in $2,546,000 inlower payroll and related costs in 2009. Travel expense decreased $176,000 alsoas a result of personnel reductions. Professional and consulting expenses were reduced by $229,000 in the2009 period. General and administrative expenses were also lower due to adecrease in rent of $198,000 which included a lease abandonment provision and$350,000 of costs to terminate our agreements with CryptoLogic in 2008. Achange in Board of Director compensation decreased Board related costs in 2009by $172,000.  Also a reduction ininsurance premiums lowered insurance costs in 2009 by $177,000. Offsetting these lower 2009 costs was $704,000 ofhigher bad debt expense that was primarily due to the third party systemprovider for ClubWPT.

 

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

 

***Other Income.***  Net interestincome decreased $681,000 in 2009 compared to 2008, primarily due to lowerinterest rates and lower balances of investments in cash equivalents and debtsecurities. We recorded a $271,000 increase in interest income in 2009 inmarking our ARS portfolio to fair value and a corresponding decrease ininterest income in marking to fair value the rights that our broker gave us tocompel them to repurchase our auction rate securities.  In addition, in the thirdquarter we incurred a $1,000,000 termination fee in connection with the Gamyniaasset purchase termination.

 

***Income Taxes. ***TheCompany expects to pay federal alternative minimum tax on the utilization ofnet operating losses in 2009 and California income taxes due to the suspensionof the availability of net operating losses in 2009. The income tax expense forthe nine months ended September 27, 2009 is the estimated annual effectiveincome tax rates for 2009 after considering the foregoing. There was no incometax benefit recognized for the nine months ended September 28, 2008 due tothe loss for the period.

 

***DiscontinuedWPT China Operations. ***The followingtable sets forth selling, general and administrative expense information forour discontinued business segment (amounts in thousands):

 
| ** **                          | ** ** | **Nine months ended**       | ** ** |
|-------------------------------------|------------|-----------------------------|------------|
| ** **                          | ** ** | **September 27, 2009** | ** ** | **September 28, 2008** | ** ** | **% Change** | ** ** |
| Operational expenses                |       | $                           | 57         |   | $ | 107 |   | (47 | )% |
| Selling and marketing expenses      |       | 247                         |       | 279 |   | (11 | )% |
| General and administrative expenses |       | 503                         |       | 1,176 |   | (57 | )% |
| Shut down provision                 |       | 306                         |       | — |   | — | % |
|                                |       | $                           | 1,113      |   | $ | 1,562 |   | (29 | )% |

 

In January 2009, the Company began searching for a strategicpartner to invest in the WPT China business. The cash needs to support thegrowth in this business were greater than the Company was willing to expend. InMarch 2009, the Company shut down the operations of WPT China andcontinues to look for a strategic partner to acquire the WPT China assets.

 

Weincurred $807,000 in 2009 and $1,562,000 in 2008 of selling, general andadministrative expenses. We also incurred $306,000 of costs in 2009 to shutdown the WPT China operations.  Higher2008 expenses resulted from $872,000 of higher payroll costs and $157,000 ofhigher Traktor Poker Tour fees.

 

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**Business Following theTransaction**

 

The Company does notcurrently intend to distribute any proceeds from the Transaction to Companystockholders.  We are seeking to use theproceeds of the Transaction to develop or acquire a non-poker related business.

 

Pursuant to the PurchaseAgreement, Buyer has agreed to pay the Company 5% of future gaming and otherrevenues, as described in the Purchase Agreement, from the use of the Company’sformer brands by Buyer.  Buyer hasguaranteed that the Company will receive at least an aggregate of $3 millionduring the three years following the closing under this future revenue sharingarrangement.  For the two year periodfollowing the closing, 20% of the proceeds from the future revenue sharingarrangement will be placed into an escrow account to settle the Company’sindemnification obligations, if any, arising under the Purchase Agreement andthe related ancillary agreements.  Theamounts deposited into such escrow account shall not be the sole source ofrecovery for the Company’s indemnification obligations to Buyer.

 

**Liquidity and Capital Resources**

 

At the closing of the Transaction, following the endof the quarter, Buyer paid the Company approximately $11.2 million in cash,representing $12.3 million less a $1 million payment by Buyer in August 2009,less the amount of  certain obligationsof PartyGaming or its affiliates accruing or paid  to the Company from July 10, 2009through the closing date.

 

During the nine months ended September 27, 2009,cash and cash equivalents and investments in debt securities and put rightsincreased $4.0 million to a combined balance of $21.5 million. Weborrowed $2.7 million from the broker that holds our ARS portfolio andthis source of cash was a significant part of the increase in cash andinvestment balances. Cash flows from operating activities of continuing operationswere $1,507,000 in 2009 compared to ($8,713,000) in 2008. Reductions inproduction costs and selling, general and administrative expenses in 2009 werethe primary reasons for the improvement between years. Our principal operatingcash requirements consist of payroll and benefits, office leases, televisionproduction, professional and consulting fees, business insurance and sales andmarketing costs. Cash flows from investing activities of continuing operationsdecreased to ($4,607,000) in 2009 from $10,125,000 in 2008. The decrease wascaused by fewer net redemptions of investments in 2009. Cash flows fromfinancing activities increased to $2,603,000 from ($37,000) in 2008. The 2009cash flows were from the draw down of the line of credit in February 2009.

 

As of September 27, 2009, we had $3.9 millioninvested in ARS and rights to put the ARS back to UBS. Historically, ARS hadbeen liquid with interest rates resetting every 7 to 35 days by an auctionprocess. However, beginning in February 2008, auctions for ARS held by usfailed as a result of liquidity issues experienced in the global credit andcapital markets. An auction failure means that the amount of securitiessubmitted for sale exceeds the amount of purchase orders and the partieswishing to sell the securities are instead required to hold the investmentuntil a successful auction is completed. The ARS continue to pay interest inaccordance with the terms of the underlying security; however, liquidity willcontinue to be limited until there is a successful auction or until such timeas other markets for ARS develop.

 

We entered into anagreement with UBS that requires UBS to buy the ARS from us at par during theperiod June 30, 2010 to July 2, 2012. We are required to sell the ARSto UBS prior to that period if they decide to buy the ARS at par value for anyreason. UBS provided us with a line of credit, secured by ARS held by UBS,equal to 75% of the fair value of the ARS. We borrowed $2,661,000 under theline of credit agreement in February 2009. At September 27, 2009,$2,602,000 was outstanding under the line of credit.

 

We expect that cash, cash equivalents, investments indebt securities and put rights and borrowings on the credit line secured by ourARS portfolio will be sufficient to fund our working capital and capitalexpenditure requirements for the next twelve months even considering thecurrent liquidity issues with the ARS. We preparequarterly cash flow projections in order to operate our business and to makeforward looking statements about our cash flow expectations. General economicand capital market conditions are rapidly changing, are unpredictable and theimpact on our business is not within our control. If we need to raise workingcapital, we may need to seek to sell additional equity securities, issue debtor convertible securities or seek to obtain credit facilities through financialinstitutions, the availability of which is highly uncertain.

 

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

 

The table below sets forth our contractual obligations asof September 27, 2009 (in thousands):

 
| ** **                       | ** ** | **Payments due by period (in thousands)** | ** ** |
|----------------------------------|------------|--------------------------------------------------------------------|------------|
| **Contractual obligations** | ** ** | **Total**                                                          | ** ** | **Year 1** | ** ** | **Years 2-3** | ** ** | **Years 4-5** | ** ** | **Years 6  and Beyond** | ** ** |
| Operating leases (1)             |       | $                                                                  | 1,561      |   | $ | 908 |   | $ | 653 |   | $ | — |   | $ | — |   |
| Broadcaster placement fees (2)   |       | 244                                                                |       | 244 |   | — |   | — |   | — |   |
| Purchase obligations (3)         |       | 137                                                                |       | 82 |   | 55 |   | — |   | — |   |
|                             |       | $                                                                  | 1,942      |   | $ | 1,234 |   | $ | 708 |   | $ | — |   | $ | — |   |

 

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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 areapproximately $43,000 and escalate to approximately $45,000 over the remaininglease term. For the second lease, monthly lease payments are approximately$32,000 and escalate up to approximately $33,000 over the remaining lease term.The amounts set forth in the table above include monthly lease payments throughJune 2011.

 

(2)             Wepay fees to certain broadcasters to place the WPT and PPT television series ontheir television network. The placement fees are generally due when the showairs, provided the terms and conditions of airing were met. We have projectedthe period that the placement fee will be due based on information provided bythe television networks.

 

(3)             Purchaseobligations do not include future amounts to be paid to produce Season Eight ofthe World Poker Tour because these amounts are generally not payable unless thetour event is filmed or the service is provided after the tour event is filmed.

 

As a result of the Transaction, we no longer have theobligations relating to broadcaster placement fees and purchase obligations, asthese obligations have been assumed by the Buyer. In addition, the operatinglease commitment will be partially offset by approximately $900,000 due to the subleasewith the Buyer.

 

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

 

**CriticalAccounting Estimates**

 

The methods, estimatesand judgments that we use in applying our accounting policies have asignificant impact on the results that we report in our financial statements.Some of our accounting policies require us to make difficult and subjectivejudgments, often as a result of the need to make estimates regarding mattersthat are inherently uncertain. Management believes that there have been nosignificant changes during the nine months ended September 27, 2009 to theitems that we disclosed as our critical accounting policies and estimates inManagement’s Discussion and Analysis of Financial Condition and Results ofOperations in our Annual Report on Form 10-K for the fiscal year ended December 28,2008.

 

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

#####  

There are no recentlyissued accounting pronouncements not yet effective or adopted that are likelyto have a significant effect on our future financial statements.

 

**Private Securities Litigation Reform Act**

** **

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

 

Forward-lookinginformation involves important risks and uncertainties that could significantlyaffect our anticipated future results and, accordingly, actual results maydiffer materially from those expressed in any forward-looking statement. Ourforward-looking statements generally relate to expectations about futureoperating results and other business development activities, expected levels ofcapital spending and potential sources of future revenue. Although it is notpossible to foresee all of the factors that may cause actual results to differfrom our forward-looking statements, see “Part II — Other Information,Item 1A. Risk Factors” and the risk factors described in our Form 10-K forthe year ended December 28, 2008 for risk factors that may impact ourforward-looking statements.

 

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**ITEM 3. QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

Our financialinstruments include cash and cash equivalents, short-term municipal bonds,corporate preferred securities, certificates of deposit and ARS, includingrelated put rights. Our main investment objectives are the preservation ofinvestment capital and the maximization of after-tax returns on our investmentportfolio. Consequently, we invest with only high-credit-quality issuers andlimit the amount of credit exposure to any one issuer. We do not use derivativeinstruments for speculative or investment purposes.

 

Our cashequivalents and restricted cash are not subject to significant interest raterisk due to the short maturities of these instruments, or for our ARS portfoliobecause interest rates reset to market rates frequently. As of September 27,2009, the carrying value of our cash equivalents and restricted cashapproximated fair value. We have in the past and our investment strategy forthe future is to obtain marketable debt securities (principally consisting ofgovernment securities, municipal bonds, corporate preferred securities andcertificates of deposit) having a weighted average duration of one year orless. Consequently, such securities would not be subject to significantinterest rate risk.

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

**Underthe supervision and with the participation of our management, including ourChief Executive Officer and President, and Interim Chief Financial Officer, weconducted an evaluation of our disclosure controls and procedures, as such termis defined under Rules 13a-15(e) or 15d-15(e) promulgated underthe Exchange Act, as of the end of the period covered by this report. Based onthis evaluation, our management has concluded that our disclosure controls andprocedures are effective.**

** **

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

 

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**PART II — OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

See “Note 10. Contingencies” for information aboutlegal proceedings.

 

**ITEM 1A. RISK FACTORS**

 

In addition to the other information set forth inthis report, the risk factors set forth below include any material changes tothe risk factors that you should carefully consider as discussed in Part I,“Item 1A. Risk Factors” in our Annual Report on Form 10-K for the yearended December 28, 2008. Additional risks and uncertainties not currentlyknown to us or that we currently deem to be immaterial may also materiallyadversely affect our business, financial condition and/or operating results.

 

***The Company has become a development stage company with cashand investments, certain international sponsorship agreements and aparticipation in future WPT and******Professional Poker Tour®******(“PPT”)brand revenues, but has no operating history on which investors can evaluateits ability to achieve stated business objectives.***

 

Nowthat the Transaction is closed, substantially all of the Company’s operatingassets other than cash, investments and certain other assets have been sold toBuyer. We should now be considered a development stage company with no historicoperating results. We will generate revenues from our international sponsorshipagreements with PokerStars and we will have general and administrative expensesto remain a public company and to search for a new company to develop oracquire. There is no basis on which to evaluate our ability to achieve ourbusiness objective of acquiring or developing a new business. The Company doesnot have any specific merger, asset acquisition, reorganization or otherbusiness combination under consideration or contemplation and cannot guaranteethat the Company will be able to successfully consummate any such transaction.We have not, nor has anyone on our behalf, had substantive discussions, formalor otherwise, with respect to such a transaction.

 

***Buyer or alternatively its parent company, ElectraWorksLtd., may not honor all of their obligations under the asset purchaseagreement.***

 

Buyerhas made significant representations, warranties and commitments to the Companyabout various matters including the commitment to pay the Company 5% of futuregross gaming revenues less certain taxes and 5% of other future gross revenuesless certain taxes and costs earned with the purchased assets. Buyer has agreedthat the future gaming and other revenue-based participation amount will be atleast $3 million over the three year period following the close of theasset purchase agreement, or otherwise Buyer will make up the shortfall to$3 million at the end of the period. Buyer currently has no operations andElectraWorks Ltd. (“Parent”) has guaranteed all of Buyer’s obligations underthe asset purchase agreement. Buyer or alternatively Parent may not honor allof their obligations under the asset purchase agreement.

 

***You will not receive protections afforded stockholders ofcertain blank check companies.***

 

Untilwe acquire or develop a business, we may be deemed to be a “blank check”company under U.S. securities laws. Our cash and investments were not, however,obtained through an initial public offering with the intention of being used toacquire or develop a business like other blank check companies. Companies thatcomplete an initial public offering and have less than $5.0 million of nettangible assets are regulated by Securities and Exchange Commission (“SEC”) Rule 419that is designed to protect stockholders in blank check companies. Accordingly,Company stockholders will not receive the benefits or protections of that rule.Among other things, this means that our common stock is immediately tradable;at least 90% of the initial public offering proceeds are not held in an escrowaccount; investments are not restricted to deposits under the Federal DepositInsurance Act, money market funds meeting the requirements of the InvestmentCompany Act of 1940 or investments that are direct obligations of or guaranteedby the U.S.; investors will not have their investment refunded if theydisapprove of a proposed acquisition; we are not obligated to spend at lease80% of the funds held in escrow for an acquisition; and we will have longerthan 18 months to complete a business combination.

 

Largeblank check special purpose acquisition companies that complete an initialpublic offering and have more than $5.0 million of net tangible assets are alsonot protected by Rule 419. These companies, however, during the initialpublic offering process usually agree to restrictions in their certificate ofincorporation that are similar to restrictions contained in Rule 419.Among other things, large blank check special purpose acquisition companiesgenerally agree to place 85% or more of the initial public offering proceeds inan escrow account; investments are generally restricted to money market fundsmeeting the requirements of the Investment Company Act

 

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of1940 or short-term U.S. government securities such as treasury bills; investorsgenerally have their investment refunded if they disapprove of a proposedacquisition; they are generally obligated to spend 80% of the funds held inescrow for the acquisition and they generally have 18 to 24 months tocomplete a business combination. Our cash and investments were not, however,obtained through an initial public offering with the intention of being used toacquire or develop a new business like large blank check special purposeacquisition companies and we are not similarly restricted.

 

***If our common stock becomes subject to the SEC’s penny stockrules, broker-dealers may experience difficulty in completing customertransactions and trading activity in our securities may be adversely affected.***

 

If atany time we have net tangible assets of $5.0 million or less and ourcommon stock has a market price per share of less than $5.00, transactions inour common stock may be subject to the “penny stock” rules promulgatedunder the Exchange Act. Under these rules, broker-dealers who recommend suchsecurities to persons other than institutional accredited investors must:

 

·                  make a special written suitability determination forthe purchaser;

 

·                  receive the purchaser’s written agreement to atransaction prior to sale;

 

·                  provide the purchaser with risk disclosure documentsthat identify certain risks associated with investing in “penny stocks” andthat describe the market for these “penny stocks,” as well as a purchaser’slegal remedies; and

 

·                  obtain a signed and dated acknowledgment from thepurchaser demonstrating that the purchaser has actually received the requiredrisk disclosure document before a transaction in “penny stock” can becompleted.

 

If ourcommon stock becomes subject to these rules, broker-dealers may find itdifficult to effect customer transactions and trading activity in oursecurities may be adversely affected. As a result, the market price of oursecurities may be depressed, and you may find it more difficult to sell oursecurities.

 

***Until the Company selects a particular industry or targetbusiness with which to complete a business combination, you will be unable toascertain the merits or risks of the industry or business in which we mayultimately operate.***

 

Weintend to develop or acquire a company with principal business operations in anindustry that we believe will provide significant opportunities for growth andwe are not limited to any particular industry or type of business. Accordingly,there is no current basis for you to evaluate the possible merits or risks ofthe particular industry in which we may ultimately operate or the targetbusiness or businesses with which we may ultimately enter a businesscombination. Although we will evaluate the risks inherent in a particulartarget business, we cannot assure you that all of the significant risks presentin that target business will be properly assessed. Even if we properly assessthose risks, some of them may be outside of our control or ability to affect.

 

***Resources will be expended in researching potentialacquisitions that might not be consummated.***

 

Theinvestigation of target businesses and the negotiation, drafting and executionof relevant agreements, disclosure documents, and other instruments willrequire substantial management time and attention in addition to costs foraccountants, attorneys and others. We will incur operating losses, resultingfrom payroll, rent and other overhead fees. If a decision is made not tocomplete a specific business combination, the costs incurred up to that pointfor the proposed transaction likely would not be recoverable. Furthermore, evenif an agreement is reached relating to a specific target business, we may failto consummate the business combination for any number of reasons includingthose beyond our control.

 

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***If an acquired business does not perform up to expectations,our financial condition and results of operations may be negatively impacted.***

 

Inorder to meet our disclosure and financial reporting obligations under federalsecurities laws, and in order to develop and seek to execute strategic plansfor how we can increase the revenues and/or profitability of a target business,realize operating synergies or capitalize on market opportunities, we mustconduct a due diligence investigation of one or more target businesses.Intensive due diligence is time consuming and expensive due to the operations,accounting, finance and legal professionals who must be involved in the duediligence process. Even if we conduct extensive due diligence on a targetbusiness with which we combine, we cannot guarantee you that this diligencewill surface all material issues or that factors outside of the target businessand outside of our control will not later arise. If our diligence fails toidentify issues specific to a target business, industry or the environment inwhich the target business operates, we may be forced to later write-down orwrite-off assets, restructure our operations, or incur impairment or othercharges that could result in our reporting losses. Even though these chargesmay be non-cash items and not have an immediate impact on our liquidity, thefact that we report charges of this nature could contribute to negative marketperceptions about us or our common stock. In addition, charges of this naturemay cause us to violate net worth or other covenants to which we may be subjectas a result of assuming pre-existing debt held by a target business or byvirtue of our obtaining debt financing.

 

***If we are deemed to be an investment company, we may berequired to institute burdensome compliance requirements and our activities maybe restricted, which may make it difficult for us to complete a businesscombination.***

 

Rule 3a-2of the Investment Company Act of 1940 allows companies that have a bona fideintent to engage primarily in a business other than that of investing insecurities up to a one year period to engage in that other business activity.This exception may only be used once during a three-year period. We plan toseek the exemption under Rule 3a-2 of the Investment Company Act of 1940to avoid being deemed to be an investment company.

 

We caninvest our investment portfolio in U.S. government securities and otherinvestments that qualify for an exception under Rule 3a-1 of theInvestment Company Act of 1940 of the definition of what is an investmentsecurity if we believe that we may be deemed to be an investment company. Byqualifying under this exception, we do not believe that our anticipatedbusiness activities will subject us to the requirements of the InvestmentCompany Act of 1940. One part of our current investment portfolio, however, isa $3,850,000 investment in auction rate securities and related rights to putthe securities to the broker holding the securities during the period June 30,2010 to July 2, 2012 that could be deemed an investment security under theInvestment Company Act of 1940. We may not be able to sell the auction ratessecurities and related put rights near par value until June 30, 2010 andinvest the proceeds in investments that qualify for the exception under Rule 3a-1of the Investment Company Act of 1940.

 

We maybe deemed to be an investment company, as defined under Sections 3(a)(1)(A) and(C) of the Investment Company Act of 1940, if, prior to the consummationof a business combination, we are viewed as engaging in the business ofinvesting in securities or we own investment securities having a valueexceeding 40% of our total assets. If we are deemed to be an investment companyunder the Investment Company Act of 1940, we may be subject to certainrestrictions that may make it difficult for us to complete a businesscombination, including:

 

·                  Restrictions on the nature of and custodialrequirements for holding our investments; and

 

·                  Restrictions on our issuance of securities which maymake it difficult for us to complete a business combination.

 

Inaddition, we may have imposed upon us burdensome requirements, including:

 

·                  Registration as an investment company;

 

·                  Adoption of a specific form of corporate structure;and

 

·                  Reporting, record keeping, voting, proxy anddisclosure requirements and other rules and regulations.

 

If webecome subject to the Investment Company Act of 1940, compliance with theseadditional regulatory burdens would require additional costs and expenses.There can be no assurance that we are not deemed to be an investment company,as defined under Sections 3(a)(1)(A) and (C) of the InvestmentCompany Act of 1940 or that we will qualify for the exemptions under Rule 3a-1or Rule 3a-2 of the Investment Company Act of 1940.

 

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***Nasdaq may determine that we are operating as a “publicshell” and may decide to subject us to delisting proceedings or additional andmore stringent continued listing criteria.***

 

WhileNasdaq has no bright-line or qualitative test for determining whether aparticular company is a “public shell,” the exchange has expressed the opinionthat the securities of companies operating as “public shells” may be subject tomarket abuses or other violative conduct that is detrimental to the interestsof the investing public. Nasdaq has defined a public shell as a company with noor nominal operations and either no or nominal assets, assets consisting solelyof cash and cash equivalents, or assets consisting of any amount of cash andcash equivalents and nominal other assets. Nasdaq may perform a facts andcircumstances analysis to determine whether they believe that the Company is a “publicshell”. Listed companies determined to be public shells by Nasdaq may besubject to delisting proceedings or additional and more stringent continuedlisting criteria.

 

On September 8,2009, we received a letter from Nasdaq inquiring about our plans after theclosing of the Transaction.  Now that theTransaction has closed, until we acquire or develop an operating business, itis possible that we will be considered a “shell company” under the ExchangeAct.  In accordance with Nasdaq Listing Rule 5101,Nasdaq may determine to apply additional and more stringent listing criteria tous or move to delist us if the determine that we are a shell company, whichcould cause the price of our common stock to drop.

 

***We may issue shares of our capital stock or debt securitiesto complete a business combination, which would reduce the equity interest ofour stockholders and could cause a change in control of our ownership.***

 

OurCertificate of Incorporation authorizes the issuance of up to 100 millionshares of common stock, par value $.001 per share, and 20 million sharesof preferred stock, par value $.001 per share. There are approximately76 million authorized but unissued shares of our common stock availablefor issuance (after appropriate reservation for the issuance of the shares uponfull exercise of our outstanding stock options). All of the 20 million sharesof preferred stock are available for issuance.

 

Theissuance of additional shares of our common stock or our preferred stock:

 

·                  may significantly reduce the equity interest ofinvestors;

 

·                  may subordinate the rights of holders of common stockif we issue preferred stock with rights senior to those afforded to our commonstock;

 

·                  will likely cause a change in control if a substantialnumber of our shares of common stock are issued, which may affect, among otherthings, our ability to use our net operating loss carry forwards; and

 

·                  may adversely affect the market price for our commonstock.

 

Similarly,if we issue debt securities, it could result in:

 

·                  Default and foreclosure on our assets if our operatingrevenues after a business combination are insufficient to repay our debtobligations;

 

·                  Acceleration of our obligations to repay theindebtedness (even if we make all principal and interest payments when due) ifwe breach certain covenants that require the maintenance of certain financialratios or reserves without a waiver or renegotiation of that covenant;

 

·                  Our immediate payment of all principal and accruedinterest, if any, if the debt security is payable on demand; and

 

·                  Our inability to obtain necessary additional financingif the debt security contains covenants restricting our ability to obtain suchfinancing while the debt security is outstanding.

 

***We may incur additional******impairment charges to our auction rate securitiesportfolio and we are dependent on UBS AG to repurchase these investments fromus.***

 

As of June 28,2009, we had $3,900,000 of principal invested in auction rate securities. Thetypes of ARS investments that we own are backed by student loans, areguaranteed under the Federal Family Education Loan Program and are AAA or Aaarated. The estimated fair value of our ARS holdings at June 28, 2009 was$3,455,000, which reflects a $445,000 impairment loss.

 

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Weentered into an agreement with UBS that requires UBS to buy our ARS at parvalue during the period June 30, 2010 to July 2, 2012. We have valuedthat right at $445,000 at June 28, 2009. We have given UBS the right tosell our ARS before that period if they are able to find a buyer that iswilling to pay par value for our ARS. UBS has provided a $2,661,000 line of creditto us, secured by the ARS held by them, which we drew down in February 2009.At June 28, 2009, $2,647,000 was outstanding under the line of credit.

 

UBS’sobligation to repurchase our ARS is not secured by their assets and does notrequire UBS to obtain any financing to support their performance obligations.UBS has disclaimed any assurance that they will have sufficient financialresources to satisfy their obligations and the obligations are not guaranteedby any other party.

 

Ifuncertainties in the capital and credit markets continue, these marketsdeteriorate further or we experience any ratings downgrades on any ARSinvestments in our portfolio, we may need to further impair the value of ourARS portfolio, which could negatively affect our financial condition andresults of operations. We are also dependant on UBS to repurchase our ARSportfolio at par value and that obligation is subject to performance risk onthe part of UBS.

 

***A substantial amount of our assets consists of cash and cash equivalents,which are on deposit with financial institutions in which the value of thoseassets may exceed the amount of Federal Deposit Insurance Corporation (“FDIC”)insurance held by those financial institutions.***

 

As aresult of closing the Transaction, substantially all of our assets consist ofcash and cash equivalents, which are deposited with various financialinstitutions.  Global weakness in theworldwide commercial and investment banking systems is continuing, and as aresult, the risk of asset impairment and/or closure of financial institutionsremains high.  Although we have depositedand/or invested our cash assets with multiple financial institutions tomaximize our FDIC insurance coverage, this coverage is currently limited to$250,000 per institution.  If any of thefinancial institutions that hold our cash and cash equivalents were to fail orotherwise be unable to return our assets to us, we could lose a substantialamount of our cash and cash equivalents.

 

***If we do not remain in compliance with the minimum stocklisting price requirements of Nasdaq Listing Rule 5550(a)(2) or areotherwise not in compliance with Nasdaq rules and if we are delisted fromNasdaq, the price of our common stock could drop.***

 

UnderNasdaq Listing rules, if the closing bid price of our common stock is below$1.00 for 30 consecutive business days, we could be delisted from the NasdaqGlobal Market. Nasdaq Listing rules provide the Company with 180 calendardays to regain compliance, which will require the bid price of the Company’scommon stock to remain above $1.00 for a minimum of 10 consecutive businessdays.  On August 14, 2008, wereceived a letter from Nasdaq notifying us that we weren’t in compliance withthe rule. Although we subsequently received a letter from Nasdaq dated July 1,2009 stating that we had regained compliance with this rule, our closing stockprice has only been slightly above $1.00, and is likely to fluctuate above andbelow that price for some time.

 

***The loss of the services of Steven Lipscomb or other keyemployees or our failure to attract key individuals could adversely affect ourbusiness.***

 

We arehighly dependent on the services of Steven Lipscomb, who currently serves asour President and Chief Executive Officer. We do not currently have an employmentcontract with Mr. Lipscomb and he may elect to decrease the level of hisinvolvement with us or terminate his employment with us altogether.

 

Ourcontinued success is also dependent upon retention of other key managementexecutives and upon our ability to attract and retain employees to implementour corporate development strategy. The loss of some of our senior executives,or an inability to attract or retain other key individuals, could materiallyadversely affect us. Growth in our business is dependent, to a large degree, onour ability to retain and attract such employees. We seek to compensate andprovide incentives to our key executives, as well as other employees, throughcompetitive salaries, stock ownership and bonus plans, but we can make no assurancethat these programs will allow us to retain key employees or hire newemployees.

 

***Members of our Board of Directors own a large number of theoutstanding shares of our common stock and are able to significantly influenceour management and operations.***

 

Threemembers of our Board own 6,437,277 shares of our common stock, representingapproximately 31% of our voting power as of October 2, 2009. As a result,these three individuals have a significant impact on the outcome of all mattersrequiring stockholder approval, including the future merger, consolidation orsale of all or substantially all of our assets. This concentrated ownershipcould discourage others from pursuing a potential merger, takeover or otherchange of control transaction. As a result, the return on investment in ourcommon stock through the market price of our common stock or ultimate sale ofour business could be adversely affected.

 

***Our Board of Directors’ ability to issue undesignatedpreferred stock and the existence of anti-takeover provisions may depress thevalue of our common stock.***

 

Ourauthorized capital includes 20 million shares of undesignated preferredstock. Our Board has the power to issue any or all of the shares of preferredstock, including the authority to establish one or more series and to fix thepowers, preferences, rights and limitations of such class or series, withoutseeking stockholder approval, subject to certain limitations on this powerunder Nasdaq listing requirements. Further, as a Delaware corporation, we aresubject to provisions of the Delaware General Corporation Law regarding “businesscombinations.” We may, in the future, consider adopting additionalanti-takeover measures. The authority of our Board to issue undesignated stockand the anti-takeover provisions of Delaware law, as well as any futureanti-takeover measures adopted by us, may, in certain circumstances, delay,deter or prevent takeover attempts and other changes in control of our Companythat are not approved by our Board. As a result, our stockholders may loseopportunities to dispose of their shares at favorable prices 

 

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generally available intakeover attempts or that may be available under a merger proposal and themarket price, voting and other rights of the holders of common stock may alsobe affected.

 

**ITEM 5.  OTHERMATTERS**

** **

We held a special meeting of stockholders on October 30,2009. At the meeting, our stockholders authorized the Transaction, which closedon November 2, 2009.  In connectionwith the closing of the Transaction, the Company’s name has been changed toante4, Inc., and the employment of all employees other than the Company’sPresident and Chief Executive Officer has been terminated.  Under the terms of the Transaction, certainex-employees of the Company that are now employees of Buyer will continue toprovide transition services to the Company for a limited period after theclosing of the Transaction.

 

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**ITEM 6. EXHIBITS**

 
| 4.1    | Form of  Specimen Stock Certificate                                                                                                                                                                       |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                           |
| 31.1   | Certification of  Chief Executive Officer pursuant to Securities Exchange Act  Rules 13a-15(e) and 15d-15(e) as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002         |
|   |                                                                                                                                                                                                           |
| 31.2   | Certification of  Interim Chief Financial Officer pursuant to Securities Exchange Act  Rules 13a-15(e) and 15d-15(e) as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 |
|   |                                                                                                                                                                                                           |
| 32.1   | Certification of  Chief Executive Officer and Interim Chief Financial Officer pursuant to 18  U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002             |

 

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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:  November 10, 2009 | ANTE4, INC.                      |
|--------------------------------|----------------------------------|
|                           | Registrant                       |
|                           |                             |
|                           |                             |
|                           | /s/ *Steven Lipscomb*            |
|                           | Steven Lipscomb                  |
|                           | Chief Executive  Officer         |
|                           |                             |
|                           |                             |
|                           | /s/ *John Simonelli*             |
|                           | John Simonelli                   |
|                           | Interim Chief  Financial Officer |

 

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