**Table of Contents**

** **

 

** **

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

** **

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**FORM 10-Q**

 

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

 

**For the quarterly period ended June 29,2008**

 

**OR**

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

** **

**For thetransition period from                                  to**

 

**Commission File No. 0-24993**

** **

**WPT ENTERPRISES, INC.**

(Exactname of registrant as specified in its charter)

 

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

 

**(323) 330-9900**

(Registrant’stelephone number, including area code)

 

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

 

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

 

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

 

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

 

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

 

As of August 7, 2008 there were 20,491,993 sharesof Common Stock, $0.001 par value per share, outstanding.

 

 

 

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Table of Contents

 

**WPT ENTERPRISES, INC.**

 

**INDEX**

 
| ** **    | ** ** | ** **            | ** ** | **Page of**                                                                                                                                         |
|---------------|------------|-----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **    | ** ** | ** **            | ** ** | **Form 10Q**                                                                                                                                        |
| PART I.  |       | FINANCIAL INFORMATION |       |                                                                                                                                                     |
|          |       |                  |       |                                                                                                                                                     |
|          |       | ITEM 1.               |       | FINANCIAL STATEMENTS                                                                                                                                     |   |   |
|          |       |                  |       |                                                                                                                                                     |   |   |
|          |       |                  |       | Condensed  Consolidated Balance Sheets as of June 29, 2008 (unaudited) and  December 30, 2007                                                  |   | 3 |
|          |       |                  |       |                                                                                                                                                     |   |   |
|          |       |                  |       | Unaudited  Condensed Consolidated Statements of Loss and Comprehensive Loss for the  three and six months ended June 29, 2008 and July 1, 2007 |   | 4 |
|          |       |                  |       |                                                                                                                                                     |   |   |
|          |       |                  |       | Unaudited Condensed Consolidated Statements of  Stockholders’ Equity for the six months ended June 29, 2008 and  July 1, 2007             |   | 5 |
|          |       |                  |       |                                                                                                                                                     |   |   |
|          |       |                  |       | Unaudited Condensed Consolidated Statements of Cash  Flows for the six months ended June 29, 2008 and July 1, 2007                             |   | 6 |
|          |       |                  |       |                                                                                                                                                     |   |   |
|          |       |                  |       | Notes to Unaudited Condensed Consolidated Financial  Statements                                                                                          |   | 7 |
|          |       |                  |       |                                                                                                                                                     |   |   |
|          |       | ITEM 2.               |       | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                                              |   | 14 |
|          |       |                  |       |                                                                                                                                                     |   |   |
|          |       | ITEM 3.               |       | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                                              |   | 24 |
|          |       |                  |       |                                                                                                                                                     |   |   |
|          |       | ITEM 4.               |       | CONTROLS AND  PROCEDURES                                                                                                                                 |   | 24 |
|          |       |                  |       |                                                                                                                                                     |   |   |
| PART II. |       | OTHER INFORMATION     |       | 25                                                                                                                                                       |
|          |       |                  |       |                                                                                                                                                     |   |   |
|          |       | ITEM 1.               |       | LEGAL PROCEEDINGS                                                                                                                                        |   | 25 |
|          |       |                  |       |                                                                                                                                                     |   |   |
|          |       | ITEM 1A.              |       | RISK FACTORS                                                                                                                                             |   | 25 |
|          |       |                  |       |                                                                                                                                                     |   |   |
|          |       | ITEM 4.               |       | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                                     |   | 26 |
|          |       |                  |       |                                                                                                                                                     |   |   |
|          |       | ITEM 6.               |       | EXHIBITS                                                                                                                                                 |   | 26 |
|          |       |                  |       |                                                                                                                                                     |   |   |
| SIGNATURES    |       | 27                    |

 

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Tableof Contents

 

**WPT ENTERPRISES, INC.**

**CondensedConsolidated Balance Sheets**

 
| ** **                                                                                        | ** ** | **June 29, 2008** | ** ** | **December 30, 2007** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                                                                                        | ** ** | **(unaudited)**             | ** ** | ** **                      | ** ** |
| ** **                                                                                        | ** ** | **(In thousands)**     | ** ** |
| **Assets**                                                                                        |       |                        |       |                            |       |
| Current  assets:                                                                                  |       |                        |       |                            |       |
| Cash and cash equivalents                                                                         |       | $                           | 5,437      |                            | $          | 3,852 |   |
| Investments in marketable securities                                                              |       | 6,394                       |       | 22,971                          |       |
| Accounts receivable, net of allowances of  $7 and $18                                             |       | 1,363                       |       | 2,758                           |       |
| Deferred television costs                                                                         |       | 736                         |       | 2,198                           |       |
| Other                                                                                             |       | 789                         |       | 830                             |       |
|                                                                                              |       | 14,719                      |       | 32,609                          |       |
|                                                                                              |       |                        |       |                            |       |
| Investments in marketable securities                                                              |       | 12,444                      |       | 4,200                           |       |
| Property and equipment, net                                                                       |       | 1,579                       |       | 1,462                           |       |
| Investment in unconsolidated investee                                                             |       | 2,923                       |       | 2,923                           |       |
| Other                                                                                             |       | 636                         |       | 503                             |       |
|                                                                                              |       | $                           | 32,301     |                            | $          | 41,697 |   |
|                                                                                              |       |                        |       |                            |       |
| **Liabilities and Stockholders’ Equity**                                                     |       |                        |       |                            |       |
| Current liabilities:                                                                              |       |                        |       |                            |       |
| Accounts payable                                                                                  |       | $                           | 938        |                            | $          | 736 |   |
| Accrued payroll and related                                                                       |       | 598                         |       | 988                             |       |
| Other accrued expenses                                                                            |       | 984                         |       | 1,308                           |       |
| Deferred revenue                                                                                  |       | 1,125                       |       | 2,870                           |       |
|                                                                                              |       | 3,645                       |       | 5,902                           |       |
|                                                                                              |       |                        |       |                            |       |
| **Commitments and Contingencies**                                                                 |       |                        |       |                            |       |
|                                                                                              |       |                        |       |                            |       |
| Stockholders’ equity:                                                                        |       |                        |       |                            |       |
| Preferred stock, $0.001 par value;  authorized 20,000 shares;  none issued and outstanding        |       | —                      |       | —                          |       |
| Common stock, $0.001 par value; authorized  100,000 shares;  20,492 shares issued and outstanding |       | 20                          |       | 20                              |       |
| Additional paid-in capital                                                                        |       | 44,450                      |       | 43,833                          |       |
| Deficit                                                                                           |       | (14,783                     | )          | (8,072                          | )          |
| Accumulated other comprehensive earnings  (loss)                                                  |       | (1,031                      | )          | 14                              |       |
|                                                                                              |       | 28,656                      |       | 35,795                          |       |
|                                                                                              |       | $                           | 32,301     |                            | $          | 41,697 |   |

** **

See notes to unaudited condensed financial statements.

 

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**WPTENTERPRISES, INC.**

**CondensedConsolidated Statements of Loss and Comprehensive Loss**

**(unaudited)**

** **

** **
| ** **                                                          | ** ** | **Three months ended**                                   | ** ** | **Six months ended** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                          | ** ** | **June 29, 2008**                                        | ** ** | **July 1, 2007**     | ** ** | **June 29, 2008** | ** ** | **July 1, 2007** | ** ** |
| ** **                                                          | ** ** | **(In thousands, except per share data)** | ** ** |
| **Revenues:**                                                       |       |                                                               |       |                           |       |   |   |   |   |
| License fees:                                                       |       |                                                               |       |                           |       |   |   |   |   |
| Domestic television                                                 |       | $                                                                  | 2,400      |                           | $          | 4,306 |   | $ | 4,500 |   | $ | 6,708 |   |
| International television                                            |       | 403                                                                |       | 765                            |       | 1,172 |   | 1,220 |   |
| Product licensing                                                   |       | 573                                                                |       | 979                            |       | 1,260 |   | 1,859 |   |
|                                                                |       | 3,376                                                              |       | 6,050                          |       | 6,932 |   | 9,787 |   |
|                                                                |       |                                                               |       |                           |       |   |   |   |   |
| Online gaming                                                       |       | 298                                                                |       | 260                            |       | 538 |   | 810 |   |
| Event hosting and sponsorship fees                                  |       | 1,291                                                              |       | 1,357                          |       | 2,348 |   | 1,482 |   |
| Other                                                               |       | 109                                                                |       | 53                             |       | 216 |   | 133 |   |
|                                                                |       | 5,074                                                              |       | 7,720                          |       | 10,034 |   | 12,212 |   |
|                                                                |       |                                                               |       |                           |       |   |   |   |   |
| **Cost of revenues**                                                |       | 2,784                                                              |       | 3,087                          |       | 5,454 |   | 5,239 |   |
|                                                                |       |                                                               |       |                           |       |   |   |   |   |
| **Gross profit**                                                    |       | 2,290                                                              |       | 4,633                          |       | 4,580 |   | 6,973 |   |
|                                                                |       |                                                               |       |                           |       |   |   |   |   |
| **Selling, general and administrative expense**                     |       | 6,420                                                              |       | 5,950                          |       | 11,903 |   | 11,233 |   |
| **Loss on abandonment of online gaming assets**                     |       | —                                                             |       | 2,270                          |       | — |   | 2,270 |   |
|                                                                |       |                                                               |       |                           |       |   |   |   |   |
| **Loss from operations**                                            |       | (4,130                                                             | )          | (3,587                         | )          | (7,323 | ) | (6,530 | ) |
|                                                                |       |                                                               |       |                           |       |   |   |   |   |
| **Other income:**                                                   |       |                                                               |       |                           |       |   |   |   |   |
| Realized gain on sale of investment                                 |       | —                                                             |       | —                         |       | 11 |   | — |   |
| Interest                                                            |       | 248                                                                |       | 248                            |       | 601 |   | 911 |   |
|                                                                |       |                                                               |       |                           |       |   |   |   |   |
| **Loss before income taxes**                                        |       | (3,882                                                             | )          | (3,339                         | )          | (6,711 | ) | (5,619 | ) |
|                                                                |       |                                                               |       |                           |       |   |   |   |   |
| **Income taxes**                                                    |       | —                                                             |       | —                         |       | — |   | — |   |
|                                                                |       |                                                               |       |                           |       |   |   |   |   |
| **Net loss**                                                        |       | (3,882                                                             | )          | (3,339                         | )          | (6,711 | ) | (5,619 | ) |
|                                                                |       |                                                               |       |                           |       |   |   |   |   |
| **Unrealized gain (loss) on securities**                            |       | 40                                                                 |       | (16                            | )          | (1,045 | ) | 7 |   |
|                                                                |       |                                                               |       |                           |       |   |   |   |   |
| **Comprehensive loss**                                              |       | $                                                                  | (3,842     | )                              | $          | (3,355 | ) | $ | (7,756 | ) | $ | (5,612 | ) |
|                                                                |       |                                                               |       |                           |       |   |   |   |   |
| **Net loss per common share - basic and  diluted**                  |       | $                                                                  | (0.19      | )                              | $          | (0.16 | ) | $ | (0.33 | ) | $ | (0.27 | ) |
|                                                                |       |                                                               |       |                           |       |   |   |   |   |
| **Weighted-average common shares outstanding  - basic and diluted** |       | 20,603                                                             |       | 20,603                         |       | 20,603 |   | 20,603 |   |

 

See notes to unauditedcondensed consolidated financial statements

 

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**WPTENTERPRISES, INC.**

**CondensedConsolidated Statements of Stockholders’ Equity**

**SixMonths ended June 29, 2008 and July 1, 2007**

**(unaudited)**

 
| ** **                        | ** ** | ** **              | ** ** | ** **  | ** ** | ** **     | ** ** | ** **        | ** ** | **Accumlated**  | ** **  | ** ** | ** ** |
|-----------------------------------|------------|-------------------------|------------|-------------|------------|----------------|------------|-------------------|------------|-----------------|-------------|------------|------------|
| ** **                        | ** ** | ** **              | ** ** | ** **  | ** ** | **Additional** | ** ** | **Retained**      | ** ** | **Other**       | ** **  | ** ** | ** ** |
| ** **                        | ** ** | **Common Stock**   | ** ** | **Paid-in** | ** ** | **Earnings**   | ** ** | **Comprehensive** | ** ** | ** **      | ** **  |
| ** **                        | ** ** | **Shares**              | ** ** | **Dollars** | ** ** | **Capital**    | ** ** | **(Deficit)**     | ** ** | **Gain/(Loss)** | ** **  | **Total**  | ** ** |
| ** **                        | ** ** | **(in thousands)** | ** ** |
| **2008**                          | ** ** | ** **              | ** ** | ** **  | ** ** | ** **     | ** ** | ** **        | ** ** | ** **      | ** **  | ** ** | ** ** |
| **BALANCES AT DECEMBER 31, 2007** | ** ** | **20,492**              | ** ** | **$**       | **20**     | ** **     | **$**      | **43,833**        | ** ** | **$**           | **(8,072**  | **)**      | **$**      | **14** | ** ** | **$** | **35,795** | ** ** |
| Share-based compensation expense  |       |                    |       |        |       | 617            |       |              |       |            |        | 617        |       |
| Other comprehensive loss          |       |                    |       |        |       |           |       |              |       | (1,045          | )           | (1,045     | )          |
| Net loss                          |       |                    |       |        |       |           |       | (6,711            | )          |            |        | (6,711     | )          |
|                              |       |                    |       |        |       |           |       |              |       |            |        |       |       |
| **BALANCES AT JUNE 29, 2008**     | ** ** | **20,492**              | ** ** | **$**       | **20**     | ** **     | **$**      | **44,450**        | ** ** | **$**           | **(14,783** | **)**      | **$**      | **(1,031** | **)** | **$** | **28,656** | ** ** |
| ** **                        | ** ** | ** **              | ** ** | ** **  | ** ** | ** **     | ** ** | ** **        | ** ** | ** **      | ** **  | ** ** | ** ** |
| **2007**                          | ** ** | ** **              | ** ** | ** **  | ** ** | ** **     | ** ** | ** **        | ** ** | ** **      | ** **  | ** ** | ** ** |
| **BALANCES AT JANUARY 1, 2007**   | ** ** | **20,378**              | ** ** | **$**       | **20**     | ** **     | **$**      | **41,719**        | ** ** | **$**           | **1,561**   | ** ** | **$**      | **(49** | **)** | **$** | **43,251** | ** ** |
| Common stock issued               |       | 114                     |       |        |       | 1              |       |              |       |            |        | 1          |       |
| Share-based compensation expense  |       |                    |       |        |       | 1,250          |       |              |       |            |        | 1,250      |       |
| Other comprehensive gain          |       |                    |       |        |       |           |       |              |       | 7               |        | 7          |       |
| Net loss                          |       |                    |       |        |       |           |       | (5,619            | )          |            |        | (5,619     | )          |
| **BALANCES AT JULY 1, 2007**      | ** ** | **20,492**              | ** ** | **$**       | **20**     | ** **     | **$**      | **42,970**        | ** ** | **$**           | **(4,058**  | **)**      | **$**      | **(42** | **)** | **$** | **38,890** | ** ** |

 

See notes to unauditedcondensed consolidated financial statements

 

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**WPT ENTERPRISES, INC.**

**CondensedConsolidated Statements of Cash Flows**

**(unaudited)**

 
| ** **                                                                   | ** ** | **Six months ended** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                   | ** ** | **June 29, 2008**    | ** ** | **July 1, 2007** | ** ** |
| ** **                                                                   | ** ** | **(In thousands)**        | ** ** |
| **OPERATING ACTIVITIES:**                                                    |       |                           |       |   |   |
| Net loss                                                                     |       | $                              | (6,711     | ) | $ | (5,619 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities: |       |                           |       |   |   |
| Depreciation and amortization                                                |       | 356                            |       | 361 |   |
| Share-based compensation                                                     |       | 617                            |       | 1,259 |   |
| Loss on abandonment of online gaming assets                                  |       | —                         |       | 2,270 |   |
| Increase in operating (assets) and  liabilities:                             |       |                           |       |   |   |
| Accounts receivable                                                          |       | 1,395                          |       | (788 | ) |
| Income taxes                                                                 |       | —                         |       | (393 | ) |
| Deferred television costs                                                    |       | 1,462                          |       | 760 |   |
| Other                                                                        |       | 44                             |       | (129 | ) |
| Accounts payable                                                             |       | 202                            |       | 386 |   |
| Accrued expenses                                                             |       | (714                           | )          | (596 | ) |
| Deferred revenue                                                             |       | (1,745                         | )          | (2,183 | ) |
| Net cash used in operating activities                                        |       | (5,094                         | )          | (4,672 | ) |
|                                                                         |       |                           |       |   |   |
| **INVESTING ACTIVITIES:**                                                    |       |                           |       |   |   |
| Purchase of property and equipment                                           |       | (473                           | )          | (509 | ) |
| Purchases of marketable securities                                           |       | (11,187                        | )          | (34,297 | ) |
| Sales/redemptions of marketable securities                                   |       | 18,475                         |       | 32,555 |   |
| Net cash provided by (used in) investing  activities                         |       | 6,815                          |       | (2,251 | ) |
|                                                                         |       |                           |       |   |   |
| **FINANCING ACTIVITIES:**                                                    |       |                           |       |   |   |
| Gross decrease (increase) in restricted  cash                                |       | (136                           | )          | 106 |   |
| Proceeds from stock option exercises                                         |       | —                         |       | 1 |   |
| Net cash provided by (used in) financing  activities                         |       | (136                           | )          | 107 |   |
|                                                                         |       |                           |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                        |       | 1,585                          |       | (6,816 | ) |
| Cash and cash equivalents - beginning of  period                             |       | 3,852                          |       | 8,360 |   |
| **Cash and cash equivalents - end of period**                                |       | $                              | 5,437      |   | $ | 1,544 |   |

 

See notes to unaudited condensed financialstatements.

 

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**WPTENTERPRISES, INC.**

**Notes toUnaudited Condensed Consolidated Financial Statements**

 

**1. BASIS OF PRESENTATION**

 

These condensed consolidated financial statements have been prepared bymanagement of WPT Enterprises, Inc. (the “Company”) pursuant to the rules andregulations of the Securities and Exchange Commission (the “SEC”) applicable tointerim financial information. Accordingly, certain information normallyincluded in the annual financial statements prepared in accordance withaccounting principles generally accepted in the United States of America hasbeen condensed or omitted.  For furtherinformation, please refer to the annual audited financial statements of the Company,and the related notes, included in the Company’s Annual Report on Form 10-Kfor the fiscal year ended December 30, 2007, previously filed with theSEC, from which the information as of that date is derived.

 

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

 

**2. LOSSPER SHARE**

 

Basic loss per common share is calculated by dividingnet loss by the weighted-average number of common shares outstanding during theperiod. Shares for certain stock options granted to employees and consultantsof the Company are included in the computation after the options have vestedwhen the shares are issuable for relatively minimal cash consideration inrelation to the fair value of the options (Note 3). Diluted earnings per commonshare is ordinarily calculated by adjusting weighted-average outstandingshares, assuming conversion of all potentially dilutive stock options and awards(common stock equivalents). However, an immaterial amount of common stockequivalents are not included in the calculation for loss periods because to doso would be anti-dilutive due to net losses for each period presented.

 

**3.SHARE-BASED COMPENSATION**

 

The tablebelow summarizes share-based compensation expense related to employee stockoptions, net of tax, which was allocated as follows (in thousands):

 
| ** **                                                       | ** ** | **Three months ended  June 29, 2008** | ** ** | **Three months ended   July 1, 2007** | ** ** | **Six months ended  June 29, 2008** | ** ** | **Six months ended  July 1, 2007** | ** ** |
|------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|----------------------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------------------------|------------|
| Total cost of share-based payment plans |       | $                                                         |  303  |                                                           | $          |  662                                               |       | $                                                      |  617  |   | $ |  1,250 |   |
| Amounts capitalized in deferred television  costs                |       | —                                                    |       | 1                                                              |       | —                                                  |       | 1                                                      |       |
| Amounts charged against income, before  income tax benefit       |       | $                                                         | 303        |                                                           | $          | 661                                                     |       | $                                                      | 617        |   | $ | 1,249 |   |

 

For the six-month periods ended June 29, 2008 and July 1,2007, no income tax benefit (Note 6) was recognized in the statement of lossfor share-based compensation arrangements. Management assessed the likelihood that the deferred tax assets relatingto future tax deductions from share-based compensation will be recovered fromfuture taxable income and determined that a valuation allowance is necessary tothe extent that management currently believes it is more likely than not thattax benefits will not be realized. Management’s determination is basedprimarily on historical losses, earnings volatility and forecasted taxablelosses for the remainder of fiscal 2008.

 

The Company uses the Black-Scholes option-pricing model to estimate thefair value and compensation cost associated with employee incentive stockoptions which requires the consideration of historical employee exercisebehavior data and the use of a number of assumptions including volatility ofthe company’s stock price, the weighted-average risk-free interest rate, andthe weighted-average expected life of the options.

 

The following values represent the average per grant assumptions usedto value options granted during the three and six months ended June 29,2008 and July 1, 2007, respectively. There have been no significantchanges to the assumptions thus far in 2008 and none are expected during theremainder of 2008.

 

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| **Key valuation assumptions** | ** ** | **Three months ended  June 29, 2008** | ** ** | **Three months ended  July 1, 2007** | ** ** | **Six months ended  June 29, 2008** | ** ** | **Six months ended  July 1, 2007** | ** ** |
|-----------------------------------------|------------|-----------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------------------------|------------|
| Risk-free interest rate                 |       | 3.38                                                      | %          | 4.84                                                     | %          | 3.38                                                    | %          | 4.65                                                   | %          |
| Expected term                           |       | 6 years                                                   |       | 6 years                                                  |       | 6 years                                                 |       | 6 years                                                |       |
| Expected dividend yield                 |       | 0                                                         | %          | 0                                                        | %          | 0                                                       | %          | 0                                                      | %          |
|                                    |       |                                                      |       |                                                     |       |                                                    |       |                                                   |       |
| Expected volatility                     |       | 69.95                                                     | %          | 72.22                                                    | %          | 69.95                                                   | %          | 73.03                                                  | %          |
| Forfeiture rate                         |       | 14.14                                                     | %          | 12.99                                                    | %          | 14.14                                                   | %          | 12.99                                                  | %          |
| Weighted-average fair value             |       | $                                                         | 0.82       |                                                     | $          | 3.06                                                    |       | $                                                      | 0.82       |   | $ | 3.17 |   |
|                                         |            |                                                           |            |                                                          |            |                                                         |            |                                                        |            |  |  |  |  |

 

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·                  Risk-free interest rate — For periodswithin the expected term of the share option, risk-free interest rate is basedon the U.S. Treasury yield curve in effect at the time of grant and withmaturities consistent with the expected term of the options.

 

·                  Expected term — The Companycalculated expected term for each grant using the “Simplified Method” inaccordance with SAB 107 and 110.

 

·                  Expected dividend yield — As theCompany does not pay dividends, the dividend rate variable in the Black-Scholesmodel is zero.

 

·                  Expected volatility — As the Companyhas a relatively short operating history and no definitive peer or peer groups,expected volatility was based on historical daily stock prices of the Company’sstock since it began trading in August 2004.

 

·                  Forfeiture rate — As share-based compensation expenserecognized is based on awards ultimately expected to vest, expense for grantsbeginning upon adoption of Statement of Financial Accounting Standards (“SFAS”)No. 123R, *Share-Based Payment-Revised2004*(“SFAS 123R”) will be reduced for estimated forfeitures.SFAS 123R requires forfeitures to be estimated at the time of grant andrevised, if necessary, in subsequent periods if actual forfeitures differ fromthose estimates. The Company uses historical data to estimate futureforfeitures, and reviews the estimates quarterly.

 

The following table summarizes stock option activity through thesix-month periods ended June 29, 2008 and July 1, 2007:

 
| ** **                            | ** ** | ** **      | ** ** | **Number of Common Shares** | ** ** |
|---------------------------------------|------------|-----------------|------------|--------------------------------------------|------------|
| ** **                            | ** ** | **Options**     | ** ** | ** **                                 | ** ** | **Available** | ** ** | **Weighted-avg.** | ** ** |
| ** **                            | ** ** | **outstanding** | ** ** | **Exercisable**                            | ** ** | **for grant** | ** ** | **exercise price** | ** ** |
|                                  |       |            |       |                                       |       |   |   |   |   |
| **2008**                              |       |            |       |                                       |       |   |   |   |   |
| **Balance at December 31, 2007** |       | 2,920,857       |       | 1,322,206                                  |       | 267,150 |   | $ | 5.66 |   |
| Forfeited /cancelled/expired          |       | (83,600         | )          |                                       |       | 83,600 |   | $ | 4.33 |   |
| **Balance at March 30, 2008**    |       | 2,837,257       |       | 1,412,373                                  |       | 350,750 |   | $ | 5.70 |   |
| ** **                            |       |            |       |                                       |       |   |   |   |   |
| Granted                               |       | 52,000          |       |                                       |       | (52,000 | ) | $ | 1.26 |   |
| Forfeited /cancelled/expired          |       | (33,950         | )          |                                       |       | 33,950 |   | $ | 4.66 |   |
| **Balance at June 29, 2008**     |       | 2,855,307       |       | 1,466,040                                  |       | 332,700 |   | $ | 5.63 |   |
|                                  |       |            |       |                                       |       |   |   |   |   |
| **2007**                              |       |            |       |                                       |       |   |   |   |   |
| **Balance at January 1, 2007**        |       | 2,318,166       |       | 1,050,200                                  |       | 983,501 |   | $ | 6.76 |   |
| ** **                            |       |            |       |                                       |       |   |   |   |   |
| Granted                               |       | 287,000         |       |                                       |       | (287,000 | ) | $ | 4.80 |   |
| Forfeited /cancelled/expired          |       | (90,466         | )          |                                       |       | 90,466 |   | $ | 8.49 |   |
| **Balance at April 1, 2007**     |       | 2,514,700       |       | 1,010,533                                  |       | 786,967 |   | $ | 6.47 |   |
|                                  |       |            |       |                                       |       |   |   |   |   |   |
| Granted                               |       | 182,000         |       |                                       |       | (182,000 | ) | $ | 4.53 |   |
| Forfeited /cancelled/expired          |       | (85,667         | )          |                                       |       | 85,667 |   | $ | 5.25 |   |
| Exercised                             |       | (113,660        | )          |                                       |       |   |   | $ | 0.0049 |   |
| **Balance at July 1, 2007**      |       | 2,497,373       |       | 912,139                                    |       | 690,634 |   | $ | 6.67 |   |
|                                       |            |                 |            |                                            |            |  |  |  |  |  |  |

 

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Tableof Contents

 

The following table summarizes significant ranges of outstanding andexercisable options as of June 29, 2008**:**

 
| ** **                                    | ** **               | **Options outstanding** | ** ** | **Options exercisable**                    | ** ** |
|-----------------------------------------------|--------------------------|------------------------------|------------|-------------------------------------------------|------------|
| **Range of   exercise prices** | ** **               | **Number  outstanding**      | ** ** | **Weighted-avg.  remaining  contractual  life** | ** ** | **Weighted-avg   exercise  price** | ** ** | **Aggregate  intrinsic  value** | ** ** | **Number  exercisable** | ** ** | **Weighted-avg.  price** | ** ** | **Aggregate  intrinsic  value** | ** ** |
| $                                             | 0.0049                   |                         |       | 111,340                                         |       | 3.66 |   | $ | 0.0049 |   | $ | 119,702 |   | 111,340 |   | $ | 0.0049 |   | $ | 119,702 |   |
| $                                             | 1.26  — 4.80   |                         |       | 1,290,100                                       |       | 9.05 |   | 3.33 |   | — |   | 160,200 |   | 4.50 |   | — |   |
| $                                             | 5.18  — 9.92   |                         |       | 1,293,866                                       |       | 6.47 |   | 7.57 |   | — |   | 1,120,166 |   | 7.82 |   | — |   |
| $                                             | 11.95  — 14.51 |                         |       | 154,000                                         |       | 7.12 |   | 12.18 |   | — |   | 70,000 |   | 12.47 |   | — |   |
| $                                             | 15.05  — 19.50 |                         |       | 6,001                                           |       | 7.06 |   | 15.79 |   | — |   | 4,334 |   | 16.08 |   | — |   |
|                                          |                     | 2,855,307                    |       | 7.56                                            |       | $ | 5.63 |   | $ | 119,702 |   | 1,466,040 |   | $ | 7.11 |   | $ | 119,702 |   |

 

The aggregate intrinsic value in the preceding table****represents the total pre-tax intrinsicvalue, based on the Company’s closing stock price of $1.08 on June 27,2008, which would have been received by the option holders had they exercisedtheir options as of that date. As of June 29, 2008 and July 1, 2007,the total number of “in-the-money” options exercisable was 111,340.  No options were exercised during the threeand six months ended June 29, 2008. The total intrinsic value of optionsexercised during the three and six months ended July 1, 2007 was $0.5million.

 

As of June 29,2008, total unrecognized compensation cost related to non-vested options is$2.1 million, which is expected to be recognized over the next 29 months on aweighted-average basis.

 

 

**4. FAIRVALUE MEASUREMENT**

 

On December 31, 2007 (the first day of fiscal 2008), the Companyadopted the provisions of the Financial Accounting Standards Board Statement ofFinancial Accounting Standard 157, *Fair Value Measurements*(“SFASNo. 157”).  The adoption of SFAS No. 157in the first quarter of 2008 did not impact net income.

 

Investments in marketable securities that are classified as availablefor sale 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 SFAS No. 157 as follows:

 

Level 1 inputs – Unadjusted quoted prices in active markets foridentical assets or liabilities, which prices are available at the measurementdate.

 

Level 2 inputs – Include quoted prices for similar assets andliabilities in active markets, quoted prices for identical or similar assetsand liabilities in markets that are not active, inputs other than quoted pricesthat are observable for the asset or liability (*i.e.*,interest rates, yield curves, *etc.*) andinputs that are derived principally from or corroborated by observable marketdata by correlation or other means (market corroborated inputs).

 

Level 3 inputs – Unobservable inputs that reflect management’sestimates about the assumptions that market participants would use in pricingthe asset or liability. Management develops these inputs based on the bestinformation available, including internally-developed data.

 

Inestimating fair value, the Company utilizes valuation techniques that maximizethe use of observable inputs and minimize the use of unobservable inputs to theextent possible. None of the Company’s financial instruments aremeasured based on Level 2 inputs.

 

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Asof June 29, 2008, the Company’s financial assets carried at fair value aresummarized below:

 
| **Description**                           | ** ** | **Level 1** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
|-------------------------------------------|------------|------------------|------------|------------------|------------|-----------|------------|
| Municipal bonds (*)                       |       | $                | 803        |             | $          | —    |       | $ | 803 |   |
| Auction rate securities (*)               |       | —           |       | 11,353           |       | 11,353    |       |
| Corporate preferred securities (*)        |       | 5,818            |       | —           |       | 5,818     |       |
| Certificates of deposit (*)               |       | 864              |       | —           |       | 864       |       |
| Total assets at estimated fair value (**) |       | $                | 7,485      |             | $          | 11,353    |       | $ | 18,838 |   |

 

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(*)           See Note 5.

 

(**)                      The Company chose not to elect the fair valueoption as offered by Statement of Financial Accounting Standards No. 159, *The Fair Value Option for Financial Assets**and Financial Liabilities — includingan amendment**of FAS 115,*forits financial assets and liabilities that had not been previously carried atfair value. Therefore, material financial assets and liabilities not carried atfair value are still reported at carrying values.

 

For financialassets that utilize Level 1 inputs, the Company utilizes direct observableprice quotes in active markets (corporate paper, municipal bond and certificateof deposit markets) for identical assets.

 

Due to thelack of observable market quotes on the Company’s auction rate securities (“ARS”)portfolio, the Company utilizes valuation models that rely exclusively on Level3 inputs including those that are based on management’s estimates of expectedcash flow streams and collateral values, default risk underlying the security,discount rates and overall capital market liquidity.  The valuation of the Company’s ARS portfoliois subject to uncertainties that are difficult to predict.  Factors that may impact the estimated fairvalue include changes to credit ratings of the ARS as well as to the assets collateralizingthe securities, rates of default of the underlying assets, underlyingcollateral value, discount rates, and evolving market conditions affecting theliquidity of the ARS.

 

The followingtable summarizes the activity related to the Company’s ARS, which as discussedabove, are measured at fair value using Level 3 inputs (in thousands):

 
| Beginning balance - December 31, 2007                                             |   | $      | 7,825  |   |
|----------------------------------------------------------------------------------------|--------|--------|--------|--------|
|                                                                                   |   |   |   |
| Total realized and unrealized gains  (losses) Included in other comprehensive loss (*) |   | (1,047 | )      |
|                                                                                   |   |   |   |
| Purchases, issuances and settlements                                                   |   | 4,575  |   |
|                                                                                   |   |   |   |
| Ending balance - June 29, 2008  (unaudited)                                       |   | $      | 11,353 |   |

 

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(*)                              TheCompany considers the decline in the estimated fair value of its ARS to betemporary. Accordingly, the related unrealized loss is included in AccumulatedOther Comprehensive Loss in the shareholders’ equity section of the balancesheet as of June 29, 2008.

 

**5.INVESTMENTS IN MARKETABLE SECURITIES**

 

TheCompany’s investment portfolio includes investments in ARS. The types of ARSinvestments that the Company owns are backed by student loans, the majority ofwhich are guaranteed under the Federal Family Education Loan Program (“FFELP”),and are primarily AAA or Aaa rated through the date of this filing.  However, as a result of recently experienced liquidity issues, the Company’s ARSare classified as long-term investments in marketable securities as of June 29,2008.

 

As of June 29, 2008and December 30, 2007, investments in marketable securities with originalmaturities beyond three months consist of the following (in thousands):

 

10

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**June 29, 2008 (unaudited)**

 
| ** **                                        | ** ** | **Cost** | ** ** | **Unrealized  Gains/(Losses)** | ** ** | **Fair Value** | ** ** |
|---------------------------------------------------|------------|----------|------------|--------------------------------|------------|---------------------|------------|
| **Maturity less than 1 year** |       |     |       |                           |       |                |       |
| Corporate preferred securities                    |       | $        | 5,819      |                           | $          | (1                  | )          | $ | 5,818 |   |
| Certificates of deposit                           |       | 576      |       | —                         |       | 576                 |       |
|                                              |       | 6,395    |       | (1                             | )          | 6,394               |       |
| **Maturity 1 to 5 years**                         |       |     |       |                           |       |                |       |
| Municipal bonds                                   |       | 800      |       | 3                              |       | 803                 |       |
| Auction rate securities                           |       | 12,400   |       | (1,047                         | )          | 11,353              |       |
| Certificates of deposit                           |       | 288      |       | —                         |       | 288                 |       |
|                                              |       | $        | 13,488     |                           | $          | (1,044              | )          | $ | 12,444 |   |

 

**December 30, 2007**

 
| ** **                                        | ** ** | **Cost**   | ** ** | **Unrealized  Gains/(Losses)** | ** ** | **Fair Value** | ** ** |
|---------------------------------------------------|------------|------------|------------|--------------------------------|------------|---------------------|------------|
| **Maturity less than 1 year** | ** ** | ** ** | ** ** | ** **                     | ** ** | ** **          | ** ** |
| US treasury and agency securities                 |       | $          | 1,000      |                           | $          | —              |       | $ | 1,000 |   |
| Short-term municipal bonds                        |       | 1,000      |       | 1                              |       | 1,001               |       |
| Auction rate securities                           |       | 7,825      |       | —                         |       | 7,825               |       |
| Corporate preferred securities                    |       | 12,464     |       | 9                              |       | 12,473              |       |
| Certificates of deposit                           |       | 672        |       | —                         |       | 672                 |       |
|                                              |       | 22,961     |       | 10                             |       | 22,971              |       |
| **Maturity 1 to 5 years**                         |       |       |       |                           |       |                |       |
| Municipal bonds                                   |       | 1,827      |       | (3                             | )          | 1,824               |       |
| Corporate preferred securities                    |       | 1,985      |       | 7                              |       | 1,992               |       |
| Certificates of deposit                           |       | 384        |       | —                         |       | 384                 |       |
|                                              |       | $          | 4,196      |                           | $          | 4                   |       | $ | 4,200 |   |

 

Unrealized gains (losses) previously reported as other comprehensiveincome that were realized and included in the statement of loss andcomprehensive loss were not material during the six months ended June 29,2008 and July 1, 2007, respectively.

 

**6. INCOMETAXES**

 

Due toactual and forecasted net losses, the income tax provision was $0 for the threeand six-month periods ended in 2008 and 2007. Based on the Company’srelatively limited and volatile earnings history, the Company has recorded a full valuation allowance for the net deferredtax assets as management currently believes it is more likely than not thatdeferred tax assets will not be recovered in the foreseeable future.

 

**7.CONTINGENCIES**

 

In 2006, a legal action was commenced against the Company by seven pokerplayers that alleged, among other things, an unfair business practice of theCompany.   On April 18, 2008, theCompany settled the lawsuit without cost by agreeing to implement a newstandard player release form to be provided to all players at all future WPTtournaments and events.

 

The Company is currently involved in various inquiries, administrativeproceedings and litigation relating to other matters arising in the normalcourse of the Company’s business.  Management is unable to estimate theminimum loss to be incurred, if any, as a result of the final outcome of thesematters but believes they are not likely to have a material adverse effect uponthe Company’s future financial position or results of operations; accordingly,no provision for loss has been recorded in connection therewith.

 

**8.SEGMENT INFORMATION**

 

The operating segments reported below are the segments of the Companyfor which separate financial information is available and for which operatingresults are evaluated by the chief operating decision maker in deciding how toallocate resources and in assessing performance.

 

11

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**Three months ended June 29, 2008 (in thousands):**

 
| ** **                    | ** ** | ** **       | ** ** | **WPT Online** | ** ** | ** **     | ** ** | ** **                     | ** ** | ** **     | ** ** | ** **    | ** ** |
|-------------------------------|------------|------------------|------------|---------------------|------------|----------------|------------|--------------------------------|------------|----------------|------------|---------------|------------|
| ** **                    | ** ** | **WPT  Studios** | ** ** | **Gaming**          | ** ** | **Non-gaming** | ** ** | **WPT Global  Marketing** | ** ** | **WPT  China** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
| Revenues:                     |       |             |       |                |       |           |       |                           |       |           |       |          |       |   |   |
| Domestic television           |       | $                | 2,400      |                | $          | —         |       | $                              | —     |           | $          | —        |       | $ | — |   | $ | — |   | $ | 2,400 |   |
| International television      |       | 403              |       | —              |       | —         |       | —                         |       | —         |       | —        |       | 403 |   |
| Product licensing             |       | —           |       | —              |       | —         |       | 573                            |       | —         |       | —        |       | 573 |   |
| Online gaming                 |       | —           |       | 298                 |       | —         |       | —                         |       | —         |       | —        |       | 298 |   |
| Event hosting and sponsorship |       | 1,218            |       | —              |       | —         |       | 73                             |       | —         |       | —        |       | 1,291 |   |
| Other                         |       | 1                |       | —              |       | 92             |       | 16                             |       | —         |       | —        |       | 109 |   |
|                          |       | 4,022            |       | 298                 |       | 92             |       | 662                            |       | —         |       | —        |       | 5,074 |   |
| Cost of revenues              |       | 2,320            |       | 203                 |       | 44             |       | 217                            |       | —         |       | —        |       | 2,784 |   |
| Gross profit                  |       | 1,702            |       | 95                  |       | 48             |       | 445                            |       | —         |       | —        |       | 2,290 |   |
| Total assets                  |       | 1,629            |       | 327                 |       | 935            |       | 694                            |       | 94             |       | 28,622        |       | 32,301 |   |
| Depreciation and amortization |       | 64               |       | —              |       | 41             |       | —                         |       | 8              |       | 78            |       | 191 |   |
|                               |            |                  |            |                     |            |                |            |                                |            |                |            |               |            |  |  |  |  |  |  |  |  |  |

 

Revenues attributed todomestic and foreign operations were $3.6 million and $1.5 million,respectively.

 

**Three months ended July 1, 2007 (in thousands):**

 
| ** **                    | ** ** | **WPT**     | ** ** | **WPT Online** | ** ** | **WPT Global** | ** ** | **WPT**       | ** ** | ** ** | ** ** | ** **    | ** ** |
|-------------------------------|------------|-------------|------------|---------------------|------------|---------------------|------------|---------------|------------|------------|------------|---------------|------------|
| ** **                    | ** ** | **Studios** | ** ** | **Gaming**          | ** ** | **Non-gaming**      | ** ** | **Marketing** | ** ** | **China**  | ** ** | **Corporate** | ** ** | **Total** | ** ** |
| Revenues:                     |       |        |       |                |       |                |       |          |       |       |       |          |       |   |   |
| Domestic television           |       | $           | 4,306      |                | $          | —              |       | $             | —     |       | $          | —        |       | $ | — |   | $ | — |   | $ | 4,306 |   |
| International television      |       | 765         |       | —              |       | —              |       | —        |       | —     |       | —        |       | 765 |   |
| Product licensing             |       | —      |       | —              |       | —              |       | 996           |       | —     |       | —        |       | 996 |   |
| Online gaming                 |       | —      |       | 260                 |       | —              |       | —        |       | —     |       | —        |       | 260 |   |
| Event hosting and sponsorship |       | 700         |       | —              |       | —              |       | 609           |       | —     |       | —        |       | 1,309 |   |
| Other                         |       | 7           |       | —              |       | 29                  |       | 48            |       | —     |       | —        |       | 84 |   |
|                          |       | 5,778       |       | 260                 |       | 29                  |       | 1,653         |       | —     |       | —        |       | 7,720 |   |
| Cost of revenues              |       | 2,748       |       | 162                 |       | 20                  |       | 157           |       | —     |       | —        |       | 3,087 |   |
| Gross profit                  |       | 3,030       |       | 98                  |       | 9                   |       | 1,496         |       | —     |       | —        |       | 4,633 |   |
| Total assets                  |       | 3,743       |       | 381                 |       | 84                  |       | 960           |       | —     |       | 39,069        |       | 44,237 |   |
| Depreciation and amortization |       | 82          |       | 15                  |       | —              |       | —        |       | —     |       | 83            |       | 180 |   |
|                               |            |             |            |                     |            |                     |            |               |            |            |            |               |            |  |  |  |  |  |  |  |  |  |

 

Revenues attributed todomestic and foreign operations were $6.5 million and $1.2 million,respectively.

 

**Six months ended June 29, 2008 (in thousands):**

 
| ** **                    | ** ** | **WPT**     | ** ** | **WPT Online** | ** ** | **WPT Global** | ** ** | **WPT**       | ** ** | ** ** | ** ** | ** **    | ** ** |
|-------------------------------|------------|-------------|------------|---------------------|------------|---------------------|------------|---------------|------------|------------|------------|---------------|------------|
| ** **                    | ** ** | **Studios** | ** ** | **Gaming**          | ** ** | **Non-gaming**      | ** ** | **Marketing** | ** ** | **China**  | ** ** | **Corporate** | ** ** | **Total** | ** ** |
| Revenues:                     |       |        |       |                |       |                |       |          |       |       |       |          |       |   |   |
| Domestic television           |       | $           | 4,500      |                | $          | —              |       | $             | —     |       | $          | —        |       | $ | — |   | $ | — |   | $ | 4,500 |   |
| International television      |       | 1,172       |       | —              |       | —              |       | —        |       | —     |       | —        |       | 1,172 |   |
| Product licensing             |       | —      |       | —              |       | —              |       | 1,260         |       | —     |       | —        |       | 1,260 |   |
| Online gaming                 |       | —      |       | 538                 |       | —              |       | —        |       | —     |       | —        |       | 538 |   |
| Event hosting and sponsorship |       | 2,054       |       | —              |       | —              |       | 294           |       | —     |       | —        |       | 2,348 |   |
| Other                         |       | 7           |       | —              |       | 135                 |       | 74            |       | —     |       | —        |       | 216 |   |
|                          |       | 7,733       |       | 538                 |       | 135                 |       | 1,628         |       | —     |       | —        |       | 10,034 |   |
| Cost of revenues              |       | 4,441       |       | 384                 |       | 74                  |       | 555           |       | —     |       | —        |       | 5,454 |   |
| Gross profit                  |       | 3,292       |       | 154                 |       | 61                  |       | 1,073         |       | —     |       | —        |       | 4,580 |   |
| Depreciation and amortization |       | 129         |       | —              |       | 52                  |       | —        |       | 17         |       | 158           |       | 356 |   |
|                               |            |             |            |                     |            |                     |            |               |            |            |            |               |            |  |  |  |  |  |  |  |  |  |

 

Revenues attributed todomestic and foreign operations were $6.8 million and $3.2 million,respectively.

 

12

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**Six months ended July 1, 2007 (in thousands):**

 
| ** **                    | ** ** | **WPT**     | ** ** | **WPT Online** | ** ** | **WPT Global** | ** ** | **WPT**       | ** ** | ** ** | ** ** | ** **    | ** ** |
|-------------------------------|------------|-------------|------------|---------------------|------------|---------------------|------------|---------------|------------|------------|------------|---------------|------------|
| ** **                    | ** ** | **Studios** | ** ** | **Gaming**          | ** ** | **Non-gaming**      | ** ** | **Marketing** | ** ** | **China**  | ** ** | **Corporate** | ** ** | **Total** | ** ** |
| Revenues:                     |       |        |       |                |       |                |       |          |       |       |       |          |       |   |   |
| Domestic television           |       | $           | 6,708      |                | $          | —              |       | $             | —     |       | $          | —        |       | $ | — |   | $ | — |   | $ | 6,708 |   |
| International television      |       | 1,219       |       | —              |       | —              |       | —        |       | —     |       | —        |       | 1,219 |   |
| Product licensing             |       | —      |       | —              |       | —              |       | 1,897         |       | —     |       | —        |       | 1,897 |   |
| Online gaming                 |       | —      |       | 810                 |       | —              |       | —        |       | —     |       | —        |       | 810 |   |
| Event hosting and sponsorship |       | 700         |       | —              |       | —              |       | 688           |       | —     |       | —        |       | 1,388 |   |
| Other                         |       | 19          |       | —              |       | 77                  |       | 94            |       | —     |       | —        |       | 190 |   |
|                          |       | 8,646       |       | 810                 |       | 77                  |       | 2,679         |       | —     |       | —        |       | 12,212 |   |
| Cost of revenues              |       | 4,418       |       | 462                 |       | 46                  |       | 313           |       | —     |       | —        |       | 5,239 |   |
| Gross profit                  |       | 4,228       |       | 348                 |       | 31                  |       | 2,366         |       | —     |       | —        |       | 6,973 |   |
| Depreciation and amortization |       | 167         |       | 27                  |       | —              |       | —        |       | —     |       | 167           |       | 361 |   |
|                               |            |             |            |                     |            |                     |            |               |            |            |            |               |            |  |  |  |  |  |  |  |  |  |

 

Revenues attributed todomestic and foreign operations were $10.0 million and $2.2 million,respectively.

 

 

**9.SUBSEQUENT EVENTS**

 

On July 17, 2008, the Company announceda broadcast license agreement with Fox Sports Network (“FSN”), pursuant towhich FSN will broadcast domestically 26 all-new, one-hour episodes of SeasonSeven of the World Poker Tour ® (“WPT”) television series. The Company has theoption to produce additional Season Seven episodes for broadcast on othernetworks should the opportunity arise. Unlike the Company’s historical broadcast license agreements with TravelChannel and GSN, the Company will not receive per-episode license fees fromFSN.  However, similar to many sportsleagues and entertainment properties, the Company has been afforded certainintegration and advertising in and around the program which will allow theCompany to seek sponsorship opportunities for Season Seven of the WPT,domestically and internationally. Accordingly, the Company is currently indiscussions with several potential sponsors.

 

On July 31, 2008, the Company announcedan additional agreement with FSN to jointly create a new poker program focusedon driving awareness and traffic to the Company’s online subscription website,ClubWPT.com.  The parties have agreed tothe production and distribution of 13 one-hour television programs (“theInitial Programming”) of the new series. Subsequent to the delivery of the Initial Programming, FSN will have anoption to broadcast future episodes and the number of future episodes to bebroadcast will depend upon the number of shows the Company delivers, up toforty hours per year. FSN may also terminate the relationship upon thirty dayswritten notice. As a result of the agreements with FSN, the Company will beobligated to: 1) manage all aspects of ClubWPT.com including running alltournaments and identifying winners that will participate in the television program,2) ensure that television participants are brought to the television studio andare set up to play in the event, and 3) pay FSN a percentage of net profits andpay for the costs of television production (production costs of the InitialProgramming are recoupable against net profits). In addition to providing thedistribution channel, discussed above, FSN will be obligated to promoteClubWPT.com through in-show title sponsorship, in-show billboards, audiomentions, website logo on poker table, commercial inventory and websitepresence on the main page of FSN’s website, FoxSports.com.

 

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**WPT ENTERPRISES, INC. Management’s Discussion and Analysis of Financial ConditionAnd Results of Operations**

 

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

 

**Financial Overview**

 

We had a net loss in the first six months of 2008 of $6.7 million, or$0.33 per fully diluted share, compared to a net loss of $5.6 million, or $0.27per fully diluted share, in the comparative 2007 period. The primary reasonsfor the increase in the net loss in the 2008 period compared to the 2007 periodare as follows:

 

·                  Revenues decreased by $2.2 million,primarily as a result of a decrease in domestic television license fees, whichis due to lower per episode license fees under the GSN agreement in effectduring the 2008 period, as compared to the Travel Channel agreement which wasin effect during the 2007 period. Decreased revenues of $0.6 million and $0.3million related to lower  productlicensing fees and decreased online gaming player activity, respectively, wereoffset by a $0.9 million increase in hosting and sponsorship revenue primarilydriven by international television sponsorship which was minimal in the prioryear due to a sponsorship agreement where revenue began to be recognized in June 2007.

 

·                  Cost of revenues increased by $0.2million, primarily a result of thedelivery of fifteen episodes of Season Six in the period versus the delivery offourteen episodes of Season Five in the prior year period.  Higher costs in international television sponsorship,a result of increased sponsorship revenues, also contributed to the overallincrease in cost of revenues.

 

·                  Selling, general and administrativeexpense increased by $0.7 million, primarily due to the Company’s increasedefforts in marketing its online gaming operations and ClubWPT.com, offset bydecreased headcount expenses Company-wide.

 

 

**Business Overview**

 

We create internationally branded entertainment and consumer productsdriven by the development, production and marketing of televised programmingbased on gaming themes. Our World Poker Tour®, or WPT, televisionseries, based on a series of high-stakes poker tournaments, currently airs onGSN and the Travel Channel in the United States, and has been licensed forbroadcast globally.    We also haveoperations in mainland China, pursuant to our agreement with the China LeisureSports Administrative Center (the “CLSAC”) where we are developing andmarketing the WPT China National Traktor Poker Tour. In January 2008, welaunched ClubWPT.com, an innovative subscription-based online poker clubtargeted to the estimated 60 million poker players in the United States, whichis currently offered in 38 States. We currently license our brand to companiesin the business of poker equipment and instruction, apparel, publishing,electronic and wireless entertainment, DVD/home entertainment, casino games andgiftware and are engaged in the sale of corporate sponsorships. Lastly, weoffer a real-money online gaming website, which prohibits wagers from players inthe U.S. and other restricted jurisdictions.

 

We have four business segments:

 

*WPTStudios*, our multi-media entertainment division, generatesrevenue through the domestic and international licensing of televisionbroadcasts, international television sponsorship revenue and casino host fees.Since our inception, the WPT Studios division has been responsible for 73% ofour total revenue. We licensed Seasons One through Five of the WPT series toThe Travel Channel, L.L.C. (“TRV” or “Travel Channel”) for telecast in theUnited States under an exclusive license agreement (the “TRV Agreement”). Priorto 2007, we also licensed Season One of the Professional Poker Tour (“PPT”)television series to TRV. On April 2, 2007, we entered into an agreement(the “GSN Agreement”) with Game Show Network, LLC (“GSN”), pursuant to whichGSN agreed to license from us the sixth season of the WPT for a $300,000license fee per episode.  For SeasonFive, we received an average of $477,000 under the TRV agreement.  We also have license agreements for thedistribution of our WPT and PPT episodes into international territories forwhich we receive license fees, net of our agent’s sales fee and agreed uponsales and marketing expenses.  We alsocollect annual host fees from the member casinos that host World Poker Tourevents (our member casinos).

 

Since our inception, domestic television distribution fees from the TRVAgreement, an agreement with TRV relating to the PPT series and the GSNagreement have been responsible for 56% of our total revenue. For each seasoncovered by the TRV Agreement and related options, TRV has exclusive rights toexhibit the episodes in that season an unlimited number of times on itstelevision network in the U.S. for four years, or three years in the case of SeasonOne of the WPT.

 

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Under both the TRV and GSN Agreements, TRV and GSN pay fixed licensefees for each episode we produce, which are payable at various times during thepre-production, production and post-production process and revenues are notrecognized until receipt and acceptance of the completed episode is confirmed.Television production costs related to WPT episodes are generally capitalizedand charged to cost of revenues as the related revenues are recognized.Therefore, the timing and number of episodes involved in the various seasons ofthe series affect the timing of the revenues and expenses of the WPT Studiosbusiness. For Season Six of the WPT series, we are producing a total of 23 episodes,production of which began in May 2007, and we expect to be completed by August 2008,with initial telecasts of the episodes scheduled to air between March 2008and August 2008.

 

On June 7, 2008, GSN did not exercise its option tobroadcast the seventh season of the WPT series. On July 17, 2008, we announced a broadcast license agreement withFSN, pursuant to which FSN will broadcast Season Seven of the WPT televisionseries.  FSN received exclusive rights toair 26 all new one-hour WPT episodes in the United States across its nationalsports cable network. Unlike past seasons, FSN’s exclusivity only applies tothe episodes it produces for the network. Consequently, we are free to produce other Season Seven episodes onother networks if another deal arises. Unlike our historical broadcast license agreements with Travel Channeland GSN, we will not receive per-episode license fees from FSN.  However, similar to many sports leagues andentertainment properties, we have been afforded certain integration andadvertising rights in and around the program which will allow us to seeksponsorship revenues for Season Seven of the WPT, domestically andinternationally. Accordingly, we are currently in discussions with severalpotential sponsors.

 

From 2004 until December 2006, we licensed our showsinternationally through an exclusive agreement with Alfred Haber Distribution, Inc. InDecember 2006, we notified Alfred Haber that they would no longer be theinternational distributor for our shows, and we began utilizing our internalstaff and resources to distribute our shows into the international marketplace.During 2007, we came to an arrangement with Alfred Haber whereby they providenon-exclusive assistance on international licensing matters on a case-by-casebasis, with substantially the same terms as our previous relationship withthem.

 

In December 2006, we signed a multi-year international sponsorshipagreement with PartyGaming Plc, owner of PartyPoker.com, pursuant to which theysponsor certain international television broadcasts of the WPT and PPT.  PartyGaming pays us fixed fees for enteringinto broadcast sponsorship arrangements that meet certain requirements, withmaximum payment levels for each of the covered seasons of each series. For thesix months ended June 29, 2008, we recognized revenues of $1.3 millionfrom the PartyGaming agreement. No revenues were recognized for the six monthsended July 1, 2007.

 

Asinternational television license fees continue to decline, we are pursuinginternational sponsorship revenues. We expect to begin recognizing additionalinternational sponsorship revenues from the PartyGaming agreement during thefourth quarter of 2008 related to the distribution of Season Six of theWPT.  We are also currently indiscussions with potential sponsors for the international distribution ofSeason Seven and beyond of the WPT television series.

 

*WPT Global Marketing* includes branded consumer products, sponsorship andpartnerships, and event management divisions. Our branded consumer productsdivision generates revenue principally through royalties from the licensing ofour brand to companies seeking to use the World Poker Tour brand and logo inthe retail sales of their consumer products.

 

Our domestic sponsorship and event management divisiongenerates revenue through corporate sponsorship and management of televised andlive events. During 2007, we signed a three-year agreement with Blue DiamondAlmonds to sponsor Seasons Six, Seven and Eight of the WPT. In return foronline and event presence, Blue Diamond will pay $150,000 per season.  We also signed an agreement with SouthwestAirlines to be the official airline of the World Poker Tour for Season Six.

 

In February 2006, we launched an events division offering help indesigning special programs for corporations, meeting planners and charitableorganizations for entertainment purposes only.

 

*WPT Online* includes theinternational real money gaming website at WorldPokerTour.com and contentwebsite at WorldPokerTour.com, which includes poker tournament coverage andlive updates thereof, statistics, poker player information, an onlinemerchandise store, and ClubWPT.com which launched in January 2008.

 

In 2006, wedecided to commission the development of our own software for our online pokerroom. We licensed a software platform from CyberArts Licensing, LLC, and hiredapproximately thirty employees in Israel to develop the software and supportinfrastructure. However, the development of the CyberArts-based site ceased on April 23,2007, when we entered into a three year software supply and support agreement(the “Agreement”) with CryptoLogic Inc., and its wholly-owned subsidiaryWagerLogic Limited, (collectively referred to as “CryptoLogic”). As a result ofthe decision to utilize CryptoLogic and move away from the internally-developedonline gaming platform based on CyberArts software, we wrote off certainproperty and equipment and related capitalized costs of approximately $2.3million during the second quarter of 2007. In addition to the write-off ofassets, we curtailed 

 

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our Israeloperations and closed one of our two offices there during the second quarter of2007, and in the fourth quarter of 2007, we closed the remaining office inIsrael.

 

Pursuant to theAgreement, CryptoLogic operates an online gaming site for us featuring a pokerroom and casino games utilizing its proprietary software, in exchange for 20%of the net gaming revenues (as defined below) generated from the site.  Under the Agreement, we are also a member ina centralized online gaming network (the “Network”) with several otherlicensees of CryptoLogic, pursuant to which players are able to play on ourbranded gaming site on the Network.

 

On June 14,2007, CryptoLogic delivered the poker software to us and the online poker roombecame operational on June 28, 2007; on July 26, 2007, CryptoLogicdelivered ten casino games (the “Initial Casino”) and effective March 5,2008, we executed an amendment to the Agreement, exercising our option for afull suite of casino games (the “Full Casino”) with an annual minimum guaranteepayable to CryptoLogic from us of $750,000. We also exercised our option tohave CryptoLogic develop two additional poker language rooms in Spanish andGerman for $100,000. In a separate amendment to the Agreement dated March 5,2008, we agreed to extend the term of the License Agreement with CryptoLogicthrough June 30, 2011.

 

As a result of theamendments, we are now entitled to the following percentages of net gamingrevenue: (a) One Hundred percent (100%) of the first $37,500 per month, (b) Seventy-ninepercent (79%) of revenue in excess of $37,500 but less than $500,000 per month;and (d) Eighty percent (80%) of the revenue in excess of $500,000 permonth.  CryptoLogic is entitled to earnminimum guaranteed revenue associated with the Initial Casino of $500,000 peryear or $125,000 per quarter and upon the launch of the Full Casino, expectedin the fourth quarter, CryptoLogic will then be entitled to a minimum revenueguarantee of $750,000 per year or $187,500 per quarter. For the six monthsended June 29, 2008, there was a shortfall associated with the minimumrevenue guarantee to CryptoLogic of approximately $172,000, which is nettedagainst settlements due from CryptoLogic.

 

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

 

For the six months ended June 29,2008, our online gaming business generated approximately $538,000 in netrevenues, compared to costs of revenues of approximately $384,000. Onlinerevenues are presented gross of CryptoLogic costs and net of networkpromotions, bonuses, and cash incentives provided to patrons. In addition,we incurred $1.4 million in sales and marketing costs during the six monthsended June 29, 2008.

 

The non-gaming website at WorldPokerTour.com includespoker tournament coverage and live updates thereof, statistics, poker playerinformation, an online merchandise store and ClubWPT.com.  ClubWPT.com offers a monthly subscriptionpackage for $19.95 per month, as well as discounted quarterly and annualoptions. In return, members receive exclusive club benefits and points whichmake them eligible to enter into over 5,000 live poker and eliminationblackjack tournaments, sit-n-go poker tournaments and poker ring games for achance to win over $100,000 in cash and prizes each month, which could includea $10,000 seat into a WPT televised main event. Accordingly, non-subscriberswho do not wish to purchase the other club benefits are offered a free oralternative means of entry.

 

We use a third party service provider, Ultimate Blackjack Tour, LLC (“UBT”),to operate our subscription-based online service for ClubWPT.com, whichincludes supporting the software, technical operations and customerservice.  In return for UBT’s services,UBT earns a percentage of net revenues which is calculated as subscriber feesless certain costs (which are allocated on a customer-by-customer basis)including chargebacks, prize pool, Club content, financial charges andcompliance fees.

 

On July 31, 2008, we announced anadditional agreement with FSN to jointly create a new poker program focused ondriving awareness and traffic to our online subscription website,ClubWPT.com.  The parties have agreed tothe production and distribution of an initial run of 13 one-hour televisionprograms (“the Initial Programming”). Subsequent to the delivery of the Initial Programming, FSN will have anoption to broadcast future episodes and the number of future episodes to bebroadcast will depend upon the number of shows we deliver, up to forty hoursper year. FSN may also terminate the relationship upon thirty days writtennotice.

 

We will be obligated to: 1) manage all aspects of ClubWPT.com includingrunning all tournaments and identifying winners that will participate in thetelevision program, 2) ensure that television participants are brought to thetelevision studio and are set up to play in the event, and 3) pay FSN apercentage of net profits and pay for the costs of television production(production costs of the initial 13 programs are recoupable against netprofits). In addition to providing the distribution channel, discussed above,FSN will be obligated to promote ClubWPT.com through in-show title sponsorship,in-show billboards, audio mentions, website logo on poker table, commercialinventory and website presence on the main page of FSN’s website,FoxSports.com.

 

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*WPT China.* On August 6, 2007, we enteredinto a Cooperation Agreement (the “Cooperation Agreement”) with the ChinaLeisure Sports Administrative Center (the “CLSAC”), a Chinesegovernment-sanctioned body with authority over certain leisure sports,including the popular Chinese national card game “Traktor Poker” or “Tuo La Ji.”Pursuant to the Cooperation Agreement, we have the right to brand and exploitthe WPT China National Traktor Poker Tour (the “Traktor Poker Tour”) during thefive (5) year term of the Cooperation Agreement. Additionally, we areafforded certain marketing and sponsorship rights in conjunction with the WPTChina National Traktor Poker Tour, including the right to sanction and deriverevenue from third-party branding at tour events, the right to exploit filmsand other content generated in conjunction with the WPT China National TraktorPoker Tour in all media and the right to obtain online and mobile subscriptionrevenues. Furthermore, the CLSAC agreed to organize no less than fifteen (15)Traktor Poker Tour events each year during the term, to secure placement of thechampionship finals on a major Chinese television station, and to promote the WPTChina National Traktor Poker Tour. In exchange, we pay a yearly fee to theCLSAC, which started at Five Hundred and Five Thousand Dollars ($505,000) forthe first year and increases by ten percent (10%) annually for the remainingfour years of the term.  We also have aunilateral option to extend the agreement for an additional five years,provided that the yearly fee, for the first year of the renewed term, willincrease by 25% from the fifth year of the term.

 

On October 12, 2007, we officially launched theinaugural season of the WPT China National Traktor Poker Tour in Lanzhou,Gansu, and we have completed the 15 regional preliminary tournaments.   Season One culminated at the Grand Finalsheld in Nanjing, Jiangsu on June 22-25, 2008, where the first evernational championship team was crowned. We are currently negotiating withseveral Chinese broadcasters to distribute the Season One Championship eventand several events for Season Two.

 

**Results ofOperations**

 

**Six Months Ended June 29, 2008Compared to the Six Months Ended July 1, 2007**

 

*Revenues.*Ourtotal revenues decreased by $2.2 million (18%) during the six months ended June 29,2008, compared to the six months ended July 1, 2007. Domestic televisionlicensing revenues decreased $2.2 million (33%) in the first six months of 2008compared to the 2007 period. The decrease was a result of the lower perepisode license fee under the GSN agreement governing 2008 revenues, ascompared to the Travel Channel agreement in effect during the prior yearperiod.  Product licensing revenues decreased by approximately $0.6million (32%) in the first six months of 2008 compared to the 2007 period primarilydue to higher license revenues from Take-Two Interactive, Jakks Pacific andHands-On Mobile in the 2007 period. Online gaming revenues decreased $0.3million (34%) primarily a result of lower levels of player activity on our siteon the CryptoLogic network in the 2008 period versus the site operated byWagerWorks in the 2007 period.  Eventhosting and sponsorshiprevenues increased $0.9 million (58%), due primarily to internationaltelevision sponsorship revenues from Party Gaming that had just begun to berecognized in the 2007 period.

 

*Cost of revenues*. Cost of revenues increasedby approximately $0.2 million (4%) in the first six months of 2008, compared tothe 2007 period.  The increase wasprimarily a result of the delivery of fifteen episodes of Season Six in thecurrent period versus the delivery of fourteen episodes of Season Five in theprior year period.  Higher costs ininternational television sponsorship, a result of increased sponsorshiprevenues, also contributed to the overall increase in cost of revenues.

 

*Gross margins.*  Overall gross margins were 46% in the first six months of2008, compared to 57% in the first six months of 2007.  Domestic television licensing margins were 7%in the first six months of 2008 compared to 40% in the same period in2007.  This decrease was principallybecause of the lower fees per episode under the GSN contract discussedabove.  The lower domestic television margins in the 2008 periodwere partially offset by increased margin contribution from internationalsponsorship.

 

*Selling,general and administrative expense.*Selling, generaland administrative expense increased $0.7 million (6%) during the six monthsended June 29, 2008, compared to the six months ended July 1, 2007.The increase was primarily due to the Company’s increased efforts in marketingits online gaming, WPT China and ClubWPT.com businesses, which was partiallyoffset by decreased headcount expenses Company-wide.

 

 

**Three Months Ended June 29, 2008Compared to the Three Months Ended July 1, 2007**

 

*Revenues.*Ourtotal revenues decreased by $2.6 million (34%) during the three months ended June 29,2008, compared to the three months ended July 1, 2007. Domestic televisionlicensing revenues decreased $1.9 million (44%) in the second quarter of 2008compared to the 2007 period. The decrease was primarily a result of thelower per episode license fee under the GSN agreement governing 2008 revenues,as compared to the Travel Channel agreement in effect during the prior yearperiod. Internationaltelevision licensing revenues decreased by $0.4 million (47%) in the secondquarter of 2008 compared to the 2007 period, a result of lower fees associatedwith international distribution agreements. Product licensing revenues decreased by approximately $0.4million (41%) in the second quarter of 2008 primarily due to higher licenserevenues in the second quarter of 2007 relating to final royalty payments fromTake-Two Interactive and Jakks Pacific, and lower revenues from Hands-on Mobilein the current quarter as compared to the 2007 period.  Event hosting and sponsorship revenuesdecreased $0.1 million (5%) in the second quarter of 2008, due 

 

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primarily to higher domestic sponsorship revenues fromBudweiser in the prior period, partially offset by increased internationalsponsorship revenues in the current period. Online gaming revenues rosemodestly in the second quarter of 2008 compared to the second quarter of2007.  There were lower levels of playeractivity on our site on the CryptoLogic network in the 2008 period versus thesite operated by WagerWorks in the 2007 period, however, 2007 revenues werereduced as we transitioned our operations from the WagerWorks network to theCryptoLogic network in June 2007.

 

*Cost of revenues*. Cost of revenues decreasedby approximately $0.3 million (10%) in the second quarter of 2008, compared tothe 2007 period.  The decrease wasprimarily a result of the delivery of eight episodes of Season Six in the currentperiod versus the delivery of nine episodes of Season Five in the prior yearperiod.

 

*Gross margins.*  Overall gross margins were 45% in the second quarter of2008 compared to 60% in the second quarter of 2007.  Domestic television licensing margins were 9%in the second quarter of 2008, compared to 40% in the same period in 2007.  This decrease was principally becauseof the lower fees per episode under the GSN contract. The lower domestic television margins in the 2008 periodwere partially offset by increased margin contribution from internationalsponsorship.

 

*Selling,general and administrative expense.*Selling, generaland administrative expense increased $0.5 million (8%) during the three monthsended June 29, 2008, compared to the prior year period. The increase wasprimarily due to the Company’s increased efforts in marketing its onlinegaming, WPT China and ClubWPT.com businesses, which was partially offset bydecreased headcount expenses Company-wide.

 

**Third Quarter and 2008 Outlook**

** **

Forthe third quarter of 2008, revenues are expected to be in therange of $2.2– $2.6 million.  We alsoexpect:

 

·                  Todeliver the remaining three episodes of Season Six of the WPT television seriesin the third quarter of 2008.

·                  Lowergross margins for domestic television in 2008 versus 2007 as a result of theterms of the agreement with GSN.

·                  Torecognize host fee and sponsorship revenues as remaining WPT Season Sixdomestic episodes are premiered during the third quarter of 2008.

·                  Increasedsubscribers to ClubWPT.com as a result of creating a new poker program, whichis expected to begin airing on FSN in September 2008, to drive awarenessand traffic to the website.

·                  Torecognize international sponsorship revenues as episodes are aired during thethird and fourth quarters of 2008.

·                  To notobtain license fees relating to Season Seven of the WPT television series,which is expected to begin airing in December 2008.

·                  To seeksponsorship revenues relating to Season Seven of the WPT television series.

·                  To launchSeason Two of the WPT China National Traktor Poker Tour and begin to recognizerevenue from China-related activities by the fourth quarter of 2008.

 

Regarding expenses, we expect:

 

·                  To incurproduction costs relating to Season Seven of the WPT television series whileseeking sponsorship revenues.

·                  Lower selling, general and administrativecosts in online gaming.

·                  Highersales and marketing costs associated with producing the new ClubWPT.com pokerprogram.

·                  Increasedcosts associated with launching Season Two of the WPT China National Traktor PokerTour and to have a fully integrated online and mobile platform by the end ofthe third quarter of 2008.

 

At the end of the second quarter and inthe beginning of the third quarter of 2008, we began implementing headcountreductions and other cost cutting measures.

 

**Liquidity and Capital Resources**

 

During the first six months of 2008, cash and cash equivalents andinvestments in marketable securities decreased by $6.7 million to a combinedbalance of $24.3 million. Cash was used to support operating activities and topurchase property and equipment. Our principal cash requirements consist of thefollowing costs:

 

·                  televisionproduction,

 

·                  online gamingoperations,

 

·                  payroll andbenefits,

 

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·                  professional andconsulting fees,

 

·                  sales andmarketing,

 

·                  businessinsurance and

 

·                  office leases

 

We intend to use funds currently on hand for working capital and capitalexpenditures associated with the expansion of our online gaming, media andother businesses and for general corporate purposes. We anticipate our overallselling, general and administrative expenses to decrease in future periods.Specifically we anticipate reducing sales and marketing expenditures related toour online gaming site, in addition to reductions in certain general andadministrative costs as we continue to implement cost-cutting measurescompany-wide. However, we anticipate increasing expenditures relating to oursubscription-based online site in order to drive significantly more traffic toClubWPT.com and we expect to continue to invest in our China efforts bydeveloping and marketing the WPT China National Traktor Poker Tour.

 

As of June 29, 2008, we hadapproximately $11.4 million invested in auction rate securities (“ARS”), whichis net of a $1.0 million writedown in the first six months of 2008, for what webelieve is a temporary decline in fair value. Historically, these types of ARS investments have been liquid, withinterest rates resetting every 7 to 35 days by an auction process. However,beginning in February 2008, auctions for ARS held by us failed, as aresult of liquidity issues experienced in the global credit and capitalmarkets.  An auction failure means thatthe amount of securities submitted for sale exceeds the amount of purchaseorders, and the parties wishing to sell the securities are instead required tohold the investment until a successful auction is completed. The ARS continueto pay interest in accordance with the terms of the underlying security;however, liquidity will continue to be limited until there is a successfulauction or until such time as other markets for ARS develop.

 

Our ARS portfolio is collateralized by student loans that had AAA orAaa ratings at the time of purchase and the majority of these investmentsmaintain these ratings through the date of this filing, and the majority ofwhich are guaranteed under the Federal Family Education Loan Program (“FFELP”).We believe that the credit quality of these assets has not been impacted;however, at the end of the second quarter of 2008, it was determined that theestimated fair value of our ARS had temporarily declined due to the currentlack of liquidity in the marketplace.  Asa result, as of June 29, 2008, we have classified all ARS as non-currentinvestments in marketable securities, with the estimated decline in fair valuerecorded as an unrealized loss of $1.0 million, which is included in AccumulatedOther Comprehensive Loss on the balance sheet.

 

We expect that cash, cash equivalents and our short-term investments inmarketable securities on hand will be sufficient to fund our working capitaland capital expenditure requirements for at least the next year evenconsidering the current liquidity issues with the ARS.  If these securities remain illiquid for aperiod greater than one year, then we may be required to seek additional workingcapital to fund our operations or fund our expansion plans. To raise workingcapital, we may seek to sell additional equity securities, issue debt orconvertible securities, or seek to obtain credit facilities through financialinstitutions.  During the second quarterof 2008, we obtained a $4 million line of credit collateralized by ourARS.  We have not drawn on the line and donot anticipate needing these funds during fiscal 2008.

 

The table belowsets forth our known contractual obligations as of June 29, 2008 (inthousands):

 
| ** **                       | ** ** | **Payments due by period (in thousands)** | ** ** |
|----------------------------------|------------|--------------------------------------------------------------------|------------|
| **Contractual obligations** | ** ** | **Total**                                                          | ** ** | **Year 1** | ** ** | **Years 2-3** | ** ** | **Years 4-5** | ** ** | **Years 6  and Beyond** | ** ** |
| Operating leases(1)              |       | $                                                                  | 2,674      |   | $ | 889 |   | $ | 1,785 |   | $ | — |   | $ | — |   |
| Purchase obligations(2),(3),(4)  |       | 3,907                                                              |       | 2,721 |   | 1,186 |   |   |   |   |   |
| Employee obligation(5)           |       | 250                                                                |       | 250 |   | — |   | — |   | — |   |
|                             |       | $                                                                  | 6,831      |   | $ | 3,860 |   | $ | 2,971 |   | $ | — |   | $ | — |   |

 

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| (1) |   | Operating lease  obligations include rent payments for our corporate offices pursuant to two  lease agreements. For the first lease, monthly lease payments are  approximately $40,000 and escalate to approximately $45,000 over the  remaining lease term. For the second lease, monthly lease payments are  approximately $31,000 and escalate up to approximately $33,000 over the  remaining lease term. The lease obligations presented also include rent  payments for our office facility in London. The amounts set forth in the  table above include monthly lease payments through June 2011. |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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| (2)    |   | Includes the  operational expenses associated with the development of WorldPokerTour.com.  These expenses relate to the gaming and non-gaming aspects of the website.  Operational expenses associated with WPT China are also included.  Additionally, included in purchase obligations are open purchase orders of  approximately $390,000 as of June 29, 2008. These liabilities are  included in Other Accrued Expenses. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (3)    |   | Includes a three year  base retainer with Antonio Esfandiari, who serves as our spokesperson for  both online gaming and ClubWPT.com.                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (4)    |   | Includes minimum  guaranteed revenue to CryptoLogic associated with the Initial Casino of  $500,000 per year or $125,000 per quarter. Upon launch of the Full Casino,  projected to be delivered by October 2008, CryptoLogic will be entitled  to a minimum revenue guarantee of $750,000 per year or $187,500 per quarter.                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (5)    |   | Employee obligations  include the base salary payable to Steven Lipscomb under his employment  agreement.                                                                                                                                                                                                                                                                                                                         |

 

**Critical Accounting Estimates and Policies**

 

Although our financialstatements necessarily make use of certain accounting estimates by management,except as described below, we believe there are no matters that are the subjectof such estimates that are so highly uncertain or susceptible to change as topresent a significant risk of a material impact on our financial condition oroperating performance. Moreover, except as described below, we do not employany critical accounting policies that are selected from among availablealternatives or require the exercise of significant management judgment toapply.

 

*Investments in marketable securities.* We account for our long-term investments inmarketable securities in accordance with SFAS No. 115, *Accounting for Certain Investments in Debt and EquitySecurities*.  Our investment portfolio includes primarilyinvestments in ARS. The types of ARS investments that we own are backed bystudent loans, the majority of which are guaranteed under the FFELP, andprimarily all have credit ratings of AAA or Aaa.  As a result of theliquidity issues surrounding our ARS, they have been classified as long-terminvestments in marketable securities as of June 29, 2008.

 

Dueto the lack of observable market quotes on our ARS portfolio, we utilizevaluation models that are based on management’s estimates of expected cash flowstreams and collateral values, default risk underlying the security, discountrates and overall capital market liquidity. The valuation of our ARS portfoliois subject to uncertainties and evolving market conditions that are difficultto predict. Factors that may impact the estimated fair value include changes tocredit ratings of the ARS as well as to the assets collateralizing thesecurities, rates of default of the underlying assets, underlying collateralvalue, discount rates, and evolving market conditions affecting the liquidityof the ARS.

 

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 incur additional impairments to our ARSinvestment portfolio, which could negatively affect our financial condition,cash flow and/or reported earnings.

 

*Revenue recognition.* Revenue from the domesticand international distribution of our television series is recognized as earnedunder the following criteria established by the American Institute of CertifiedPublic Accountants Statement of Position (“SOP”) No. 00-2, *Accounting by Producers or Distributors of Films*(“SOP 00-2”):

 

·                                          Persuasiveevidence of an arrangement exists;

 

·                                          Theshow/episode is complete, and in accordance with the terms of the arrangement,has been delivered or is available for immediate and unconditional delivery;

 

·                                          Thelicense period has begun and the customer can begin its exploitation,exhibition or sale;

 

·                                          Theseller’s price to the buyer is fixed and determinable; and

 

·                                          Collectibilityis reasonably assured.

 

In accordance with theterms of the WPT agreements, we recognized domestic television license revenuesupon the receipt and acceptance of completed episodes by the Travel Channel andGSN. However, due to restrictions and practical limitations applicable to ouroperating relationships with foreign networks, we do not considercollectibility of international television license revenues to be “reasonablyassured,” and accordingly, we do not recognize such revenue unless payment hasbeen received. Additionally, we presentcertain international distribution license fee revenues net of the distributor’sfees, as the distributor is the primary obligor in the 

 

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transaction with the ultimate customer pursuant toEmerging Issues Task Force (“EITF”) 99-19, *Reporting Revenue Gross asa Principal versus Net as an Agent*(“EITF 99-19”).

 

Product licensingrevenues are recognized when the underlying royalties from the sales of therelated products are earned. We recognize minimum revenue guarantees, if any,ratably over the term of the license or as earned based on actual sales of therelated products, if greater. We present product licensing fees gross oflicensing commissions, which are recorded as selling and administrativeexpenses since we are the primary obligor in the transaction with the ultimatecustomer pursuant to EITF 99-19.

 

Online gaming revenuesare recognized monthly based on detailed statements received from CryptoLogic,our online gaming service provider for online poker and casino activity. Inaccordance with EITF 99-19, we present online gaming revenues gross of serviceprovider costs (including the service provider’s management fee, royalties andcredit card processing that are recorded as cost of revenues) as we have theability to adjust price and specifications of the online gaming site, we bearthe majority of the credit risk and we are responsible for the sales andmarketing of the gaming site.**We include certain cash promotionalexpenses related to free bets and deposit bonuses along with customerchargebacks as direct reductions of revenue. All other promotional expenses aregenerally recorded as sales and marketing expenses.

 

Event hosting fees arepaid by host casinos for the privilege of hosting the events and are recognizedas the episodes that feature the host casino are aired. Sponsorship revenuesare recognized as the episodes that feature the sponsor are aired. Licensingadvances and guaranteed payments collected, but not yet earned, as well ascasino host fees and sponsorship receipts collected prior to the airing ofepisodes, are classified as deferred revenue in the accompanying balancesheets.

 

*Travel Channel participation.***We account forroyalty payments to the Travel Channel (“TRV”) in accordance with the WPTagreement, pursuant to which TRV retains a right to 12.5% of adjusted grossrevenues from the exploitation of the World Poker Tour brand, after specifiedminimum amounts are met. We record these amounts in cost of revenues asrevenues from international television, consumer products licensing, homeentertainment and merchandise are recognized.

 

*Deferred television costs.* We account fordeferred television costs in accordance with SOP 00-2. Deferred televisioncosts include direct production, overhead and development costs stated at thelower of cost or net realizable value based on anticipated revenue. Productionoverhead includes incremental costs associated with the productions such asoffice facilities and insurance. Shared facilities costs are allocated toepisodes based on headcount. Production overhead insurance costs are allocatedto television costs based on number of episodes. We have not currentlyanticipated any revenues in excess of those subject to existing contractualrelationships. Capitalized television production costs for each episode areexpensed as revenues are recognized upon delivery and acceptance of thecompleted episode. Management currently estimates that 100% of the $0.7 millionin capitalized deferred television costs at June 29, 2008, are expected tobe expensed in connection with episode deliveries by the end of fiscal 2008,and are therefore presented as current assets.

 

*Investment in unconsolidated investee.***On July 31, 2006, wepaid approximately $2.9 million in cash to acquire an approximate 10% ownershipinterest in Cecure Gaming, Inc. (“Cecure”). Cecure has developed software and other productswhich enable Cecure or its licensees to offer real money gaming services tocustomers via mobile devices. As we have less then 20% ownership interest anddo not have the ability to exercise significant influence over Cecure, weaccount for this investment under the cost method and periodically evaluate thecarrying value for impairment. As of June 29, 2008, management iscurrently unaware of any circumstances that might trigger an impairmentadjustment.

 

*Share-based compensation.**On January 2, 2006, we adoptedSFAS No. 123(R) using the*“modified prospectivetransition” method, which requires recognition of expense for all awardsgranted after the date of adoption and for the unvested portion of previouslygranted awards outstanding as of the date of adoption.

 

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

#####  

InSeptember 2006, the FASB SFAS 157, *FairValue Measurements.*SFAS 157 defines fair value and establishes aframework for measuring fair value and expands disclosures about fair valuemeasurements. In February 2007, the FASB issued SFAS No. 159, *The**FairValue Option for Financial Assets and Financial Liabilities – including an**amendment of FAS 115.*SFAS No. 159allows entities to choose, at specified election dates, to measure eligiblefinancial assets and liabilities at fair value in situations when they are notrequired to be measured at fair value. Although SFAS No.157 is effective nowand has been adopted for financial assets and liabilities carried at fairvalue, it will become effective in fiscal 2009 for nonfinancial assets andliabilities, and SFAS 159 is optional, and we have no present intent to adoptit. We do not believe the adoption of the nonfinancial provisions of SFAS No. 157or SFAS No.159 will have a material impact on our future financial position,results of operations or cash flows.

 

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InDecember 2007, the FASB issued SFAS 160, *Noncontrolling Interests in**ConsolidatedFinancial Statements – an Amendment of ARB No. 51* whichestablishes accounting and reporting standards for the noncontrolling orminority interest in a subsidiary and for the deconsolidation of a subsidiary.SFAS 160 is effective for fiscal years beginning after December 15,2008, and early adoption is prohibited. We understand that among the effects ofSFAS 160 will be the future exclusion from net income (loss) of thenoncontrolling or minority interest therein and the relocation of suchnoncontrolling or minority interest to the stockholders’ equity section of thebalance sheet, and we are currently evaluating other effects, if any, thatSFAS No. 160 will have on our future financial position, results ofoperations and operating cash flows.

 

Also in December 2007, the FASB issued SFAS No. 141 (Revised2007), *Business Combinations (“SFAS No. 141R”),*SFAS No. 141R will significantly change the accounting for businesscombinations. SFAS No. 141R is to be applied prospectively to businesscombinations for which the acquisition date is on or after January 1,2009. However, we presently have no near-term expectation of engaging in anybusiness combination transactions.

 

In March 2008, the FASB issued SFAS 161, *DisclosuresAbout Derivative Instruments and Hedging Activities – an amendment of FASBStatement No. 133*.  SFAS No. 161expands the disclosure requirements in SFAS 133, *Accountingfor Derivative Instruments and Hedging Activities*, regardingderivative instruments and hedging activities. SFAS 161 will be effective forthe Company’s fiscal year and interim periods beginning after November 15,2008. We do not currently expect that SFAS 161 will have an impacton our future financial condition, results of operations or cash flows.

 

 

**Off-Balance Sheet Arrangements**

 

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.

 

**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.  Our forward-looking statements generallyrelate to plans for future expansion and other business development activities,expected levels of capital spending, potential sources of future financing andthe possible effects on our business of gaming, tax and other regulation and ofcompetition.  Although it is not possibleto foresee all of the factors that may cause actual results to differ from ourforward-looking statements, these factors include, among others, the followingrisks:

 

·                  Our new television licensingagreement with FSN does not provide for the payment of any television licensefees for broadcast of our television show for Season Seven of the World PokerTour.  We expect to cover costs and makeprofits from broadcasting future seasons of the WPT through sponsorshiprevenue.  If we are unable to obtainsponsors for the broadcasts, we will be required to pay all of the necessaryexpenses to produce the shows, which would have a negative impact on our abilityto generate profits;

 

·                The change of laws in various states orcountries in regard to sweepstakes, promotions and giveaways or a negativefinding of law regarding the characterization of the type of online activitycarried out on ClubWPT.com could result in our inability to take subscribers inthose jurisdictions, which in turn could significantly impact our ability togenerate revenue;

 

·                Our ClubWPT.com business is heavilydependent upon television as a primary source for the generation of newsubscribers, which if not achieved could materially and adversely affect ourresults of operations;

 

·                Our business arrangements withCryptoLogic (with respect to online gaming) and Ultimate Blackjack Tour, LLC(with respect to our online subscription model at ClubWPT.com) are relativelynew arrangements that will likely be a significant source of our futurerevenue, and there is no guarantee that our relationships with any of them willbe successful or long-term;

 

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

 

·                Our television programming may fail tomaintain a sufficient audience for a variety of reasons, many of which arebeyond our control;

 

·                 Our competitors (many of whom havegreater financial resources or marketplace presence) have developed televisionprogramming that directly competes with our television programming;

 

·                 A decline in general economicconditions or the popularity of our brand of televised poker tournaments maynegatively impact our business;

 

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

 

·                 We depend on third parties to developand market our operations in China, and we have little control over theirday-to-day operations and have no way to ensure that we can monetize our Chinaoperations effectively;

 

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

 

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

 

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

 

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

 

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

 

Our financial instruments include cash and cash equivalents andmarketable securities. 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.

 

Our cash and cash equivalents are not subject to significant interestrate risk due to the short maturities of these instruments. As of June 29,2008, the carrying value of our cash and cash equivalents approximates fairvalue. We also hold short-term investments consisting of marketable debtsecurities (principally consisting of commercial paper, corporate bonds, andgovernment securities) having a weighted-average duration of one year or less.Consequently, such securities are not subject to significant interest raterisk. We also hold long-term investments in marketable securities which consistof ARS. The types of ARS investments that we own are backed by student loans,the majority of which are guaranteed under the FFELP, and are primarily AAA orAaa rated.

 

Historically, these types of ARS investments have been highly liquidusing an auction process that resets the applicable interest rate atpredetermined intervals, typically every 7 to 35 days, to provideliquidity at par. However, as a result of the liquidity issues experienced inthe global credit and capital markets, the auctions for all of our ARS failedbeginning in February 2008. The failures of these auctions do not affectthe value of the collateral underlying the ARS, and we continue to earn andreceive interest on our ARS at contractually set rates. However, we will not beable to liquidate our ARS until the issuer calls the security, a successfulauction occurs, a buyer is found outside of the auction process or the securitymatures. During July 2008, we received account statements for the end ofthe second quarter of 2008, from the firms managing our ARS which estimated thefair value of our ARS. We analyzed these statements and have concluded that forthe six month period ended June 29, 2008, a decrease of $1.0 millionin the estimated fair value of the ARS we hold has occurred as a result of thecurrent lack of liquidity. We consider declines in the estimated fair value ofour ARS due to lack of liquidity to be temporary impairments that have beenrecorded as an unrealized loss in the shareholders’ equity section of ourbalance sheet as of June 29, 2008.

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

Underthe supervision and with the participation of our management, including ourChief Executive Officer and Chief Financial Officer, we conducted an evaluationof our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) orRule 15d-15(e) promulgated under the Securities Exchange Act of 1934,as amended, as of the end of the period covered by this quarterly report. Basedon their evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures are effective.

 

Therehave been no significant changes (including corrective actions with regard tosignificant deficiencies or material weaknesses, if any) in our internalcontrols or in other factors that could significantly affect these controlssubsequent to the date of the evaluation referenced above.

 

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**WPTENTERPRISES, INC. Part II**

**OtherInformation**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

On July 19, 2006, a legal action wascommenced against us by seven poker players that alleged, among other things,an unfair business practice of the Company. On April 18, 2008, we settled the lawsuit by agreeing to implementa new standard player release form that will be provided to all players at allWPT tournaments and events going forward. No monetary compensation was exchanged between the parties as a resultof the settlement.  We are also involvedin various inquiries, administrative proceedings, and litigation relating toother matters arising in the normal course of our business. While anyproceeding or litigation has an element of uncertainty, management currentlybelieves that the final outcome of these matters is not likely to have amaterial adverse effect upon our future financial position or results ofoperations.

 

**ITEM 1A. RISK FACTORS**

 

In addition to the other information set forth in this report, youshould carefully consider the factors discussed in Part I, “Item 1A. RiskFactors” in our Annual Report on Form 10-K for the year ended December 30,2007.  Additional risks and uncertaintiesnot currently known to us or that we currently deem to be immaterial also maymaterially adversely affect our business, financial condition and/or operatingresults.

 

***GSN did not exercise its right to broadcastfuture seasons of the WPT and our new broadcast agreement with FSN does notprovide for any broadcast fees to be paid to us, which could materially andadversely affect our results of operations.***

 

OnJune 7, 2008, GSN notified us that it would not exercise its option tobroadcast future seasons of the WPT. The license fees we have received fromdomestic broadcasters have been our most significant source of revenue,comprising approximately 73% of our total historical revenues. Due to thesignificance of programming license fees on our historical revenues, theelection by GSN not to exercise its option will require us to develop otherareas of our business to make up for that decrease in broadcast licensingrevenue. Although we entered into an agreement with FSN on July 17, 2008to broadcast Season Seven of the WPT series, the FSN agreement does not providefor any fees to be paid to WPT for the broadcast rights, and we intend togenerate fees through identifying sponsors for the integration in the programsand around the broadcast of the shows. There is no assurance that we will be able to find sponsors for theshow, or to the extent we do find sponsors, that the fees paid will be equal tothe amounts paid to us by GSN.  Thedecision by GSN not to exercise its option, and the lack of fees from the FSNagreement could be detrimental to the viability of the WPT brand and,consequently, could have a material adverse effect on our business, prospects,financial condition, results of operations, cash flow and, ultimately, theprice of our common stock.

 

***Our broadcasting agreement with FSN is anew business arrangement, and there is no assurance FSN will be a viablebusiness partner or that they will exercise rights to broadcast future seasonsof the WPT, which would materially and adversely affect our results ofoperations.***

 

OnJuly 17, 2008, we entered into an agreement with the Fox Sports Network, pursuantto which FSN will broadcast Season Seven of the WPT. Although the FSN agreementdoes not provide for any payments to us for the right to broadcast SeasonSeven, it does provide that we can seek sponsors for integration within theprograms and can insert a limited amount of commercial advertising around thebroadcast of the shows.  If in thefuture, FSN elects not to continue airing the WPT series and we cannot maintainor replace our agreement with FSN with a comparable agreement, it may bedifficult for us to obtain sponsorship funds, it will be detrimental to theviability of the WPT brand and, consequently, would have a material adverseeffect on our business, prospects, financial condition, results of operations,cash flow and, ultimately, the price of our common stock.

 

***Our ClubWPT.com businesswill be heavily dependent upon television as a primary source for thegeneration of new subscribers, which if not achieved could materially andadversely affect our results of operations.***

 

We will be incurring significant television production costs for atelevision poker program focused on driving awareness and traffic to our onlinesubscription website.  In the event thatsufficient subscribers do not result from television broadcast, this could havea material impact on the value of the online subscription business and ourability to generate profits.

 

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***We may be adversely impacted by economic factors beyond our control andmay incur******additional impairment charges to ourinvestment portfolio.***

 

Asof June 29, 2008, we had $12.4 million of principal invested inauction rate securities (“ARS”). The types of ARS investments that we own arebacked by student loans, the majority of which are guaranteed under the FederalFamily Education Loan Program, and are primarily AAA or Aaa rated. We do notown any other type of ARS investments. The estimated fair value of our ARS holdingsat June 29, 2008, was $11.4 million, which reflects a$1.0 million adjustment to the principal value of $12.4 million. Werecorded an unrealized pre-tax loss of $1.0 million in Accumulated Other ComprehensiveLoss as a reduction in shareholders’ equity, reflecting an impairment to ourARS holdings that we have concluded as a temporary decline in value.

 

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 incur additional impairments to our ARSinvestment portfolio, which could negatively affect our financial condition,cash flow and/or reported earnings.

 

 

**ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**

 

We held our annual meeting of stockholders on May 22, 2008.  At the meeting, our stockholders took thefollowing actions:

 

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

 
| **Nominee**                | ** ** | **Votes For** | ** ** | **Votes Withheld** |
|----------------------------|------------|---------------|------------|--------------------|
|                       |       |          |       |               |
| Lyle Berman                |       | 16,566,633    |       | 354,589            |
| Michael Beindorff          |       | 16,600,520    |       | 320,702            |
| Bradley Berman             |       | 16,550,203    |       | 371,019            |
| Joseph S. Carson, Jr. |       | 16,491,665    |       | 429,557            |
| Timothy J. Cope            |       | 16,573,570    |       | 347,652            |
| Steven Lipscomb            |       | 16,529,633    |       | 391,589            |
| Ray M. Moberg              |       | 16,490,885    |       | 430,337            |
| Glenn Padnick              |       | 16,600,670    |       | 320,552            |
| Mimi Rodgers               |       | 16,490,490    |       | 430,732            |

 

(ii)      Thestockholders ratified the appointment of Piercy, Bowler, Taylor & Kernas our independent registered public accounting firm for the 2008 fiscal year.There were 16,755,212 votes cast for the proposal; 146,988 votes were castagainst the proposal; 19,022 votes abstained; and there were no brokernon-votes.

 

**ITEM 6. EXHIBITS**

 
| 31.1   |   | Certification of Chief Executive Officer pursuant to  Securities Exchange Act Rules 13a-15(e) and 15d-15(e) as  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                  |
| 31.2   |   | Certification of 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 pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                         |
|   |   |                                                                                                                                                                                                  |
| 32.2   |   | Certification of Chief Financial Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                         |

 

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**SIGNATURES**

 

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

 
| Dated: August 7, 2008 |   | WPT ENTERPRISES, INC.   |
|----------------------------|--------|-------------------------|
|                       |   | Registrant              |
|                       |   |                    |
|                       |   |                    |
|                       |   | / s/ Steven Lipscomb    |
|                       |   | Steven Lipscomb         |
|                       |   | Chief Executive Officer |
|                       |   |                    |
|                       |   |                    |
|                       |   | /s/ Scott A. Friedman   |
|                       |   | Scott A. Friedman       |
|                       |   | Chief Financial Officer |

 

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