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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 28, 2009

OR

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

For the transition period from                    to                  

Commission File No. 0-50848

WPT ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

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

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

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

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

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

As of August 12, 2009, there were 20,603,333 shares of Common Stock, $0.001 par value per share outstanding.

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WPT ENTERPRISES, INC.

INDEX

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PART 1 — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WPT ENTERPRISES, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

See notes to unaudited condensed consolidated financial statements.

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WPT ENTERPRISES, INC.

Condensed Consolidated Statements of Net Earnings (Loss) and Comprehensive Earnings (Loss)

(Unaudited)

See notes to unaudited condensed consolidated financial statements.

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WPT ENTERPRISES, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See notes to unaudited condensed consolidated financial statements.

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WPT ENTERPRISES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

1. BUSINESS AND BASIS OF PRESENTATION

These condensed consolidated financial statements have been prepared by management of WPT Enterprises, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission applicable to interim financial information. Accordingly, certain information normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America has been condensed or omitted. For further information, 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-K for the fiscal year ended December 28, 2008, from which the information as of that date is derived. Events through August 12, 2009 were evaluated to determine if adjustments to or disclosure in these condensed consolidated financial statements were necessary. Prior period revenues for ClubWPT and online gaming were reclassified in order to conform to the current period presentation.

In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results for the current interim periods are not necessarily indicative of the results to be expected for the full year. The accounting estimates that require the most significant, difficult and subjective judgments include:

·                  the valuation of investments in debt securities and put rights;

·                  the valuation of non-marketable equity investments;

·                  the determination of current and deferred income taxes;

·                  the ultimate amount of estimated television revenues and costs;

·                  the recognition of revenues; and

·                  the valuation of share-based compensation.

The Game Show Network licensed Season Six of the World Poker Tour (“WPT”) and represented 0% and 41% of the Company’s total revenue for the three months ended June 28, 2009 and June 29, 2008, respectively and 0% and 45% of the Company’s total revenue for the six months ended June 28, 2009 and June 29, 2008, respectively. Fox Sports Net (“FSN”) is broadcasting Season Seven of the WPT television series in 2009 and FullTiltPoker.net is the sponsor of the television series in the U.S. and Mexico. FullTiltPoker.net represented 30% and 0% of the Company’s total revenue for the three months ended June 28, 2009 and June 29, 2008, respectively and 29% and 0% of the Company’s total revenue for the six months ended June 28, 2009 and June 29, 2008, respectively. PartyGaming Plc (“PartyGaming”) is one international sponsor of the Season One of the Professional Poker Tour (“PPT”) and Seasons Four through Six of the WPT. PartyGaming represented 35% and 12% of the Company’s total revenue for the three months ended June 28, 2009 and June 29, 2008, respectively and 30% and 13% of the Company’s total revenue for the six months ended June 28, 2009 and June 29, 2008.

Included in accounts receivable at June 28, 2009 are amounts billed to FullTiltPoker.net, PartyGaming and Hands-On Mobile that are 28%, 32% and 16% of the total balance, respectively. Included in accounts receivable at December 28, 2008 are amounts billed to FullTiltPoker.net, PartyGaming and Hands-On Mobile that are 39%, 24% and 15% of the total balance, respectively.

2. RECENT ACCOUNTING PRONOUNCEMENTS

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

In April 2009, the FASB issued FSP 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That are Not Orderly. FSP 157-4 provides guidance in the application of SFAS 157 when the volume and level of activity for an asset or liability have significantly decreased and when circumstances indicate that a transaction is not orderly. In April 2009, the FASB also issued FSP 115-2 and FSP 124-2, Recognition and Presentation of Other-Than-Temporary-Impairments. FSP 115-2 and FSP 124-2 amend the other-than-temporary impairment guidance for debt securities and the presentation and disclosure requirements of other-than-temporary impairments of debt and equity securities. In April 2009, the FASB also issued FSP 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. FSP 107-1 amends SFAS 107 to require disclosures about the fair value of financial instruments for interim reporting periods and in annual financial statements and also amends APB Opinion 28 to require disclosures in summarized financial information for interim reporting periods. FSP 157-4, FSP 115-2 and FSP 124-2, and FSP 107-1 and APB 28-1 were adopted in the second quarter of 2009 and the adoption of these new accounting standards did not have a significant impact on the consolidated financial statements.

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WPT ENTERPRISES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51 which establishes accounting and reporting standards for the noncontrolling or minority interest in a subsidiary and for the deconsolidation of a subsidiary. Among the effects of SFAS 160 is the exclusion from net income (loss) of the noncontrolling or minority interest therein and the relocation of such noncontrolling or minority interest to the stockholders’ equity section of the balance sheet. SFAS 160 was adopted in the first quarter of 2009 and the new accounting standard did not have a significant impact on the consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133. SFAS 161 expands the disclosure requirements in SFAS 133, Accounting for Derivative Instruments and Hedging Activities, regarding derivative instruments and hedging activities. SFAS 161 was adopted in the first quarter of 2009 and the new accounting standard did not have a significant impact on the consolidated financial statements.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events. SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. SFAS 165 is effective for interim periods ending after June 15, 2009. SFAS 165 was adopted in the second quarter of 2009 and the new accounting standard did not have a significant impact on the consolidated financial statements.

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162. The FASB Accounting Standards Codification (the “Codification”) will become the authoritative source of U.S. accounting standards and is effective in the third quarter of 2009. The Codification changes the referencing of U.S. accounting standards but is not intended to change existing U.S. accounting standards.

3. INVESTMENTS IN DEBT SECURITIES AND PUT RIGHTS

As of June 28, 2009, investments in debt securities and put rights consist of the following (in thousands):

Investments in debt securities and put rights that are classified as available for sale or trading securities are the only assets or liabilities that the Company is required to measure at their estimated fair value on a recurring basis. The estimated fair value is determined using inputs from among the three levels of the fair value hierarchy set forth in SFAS 157 as follows:

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

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

Level 3 inputs — Unobservable inputs that reflect management’s estimates about the assumptions that market participants would use in pricing the asset or liability in an orderly market. Management develops these inputs based on the best information available, including internally-developed data and third party valuation models.

In estimating fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. None of the Company’s financial instruments are measured based on Level 2 inputs.

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WPT ENTERPRISES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

As of June 28, 2009, financial assets that are measured and recorded at fair value on a recurring basis consist of the following (in thousands):

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

The following table summarizes activity in the Company’s ARS portfolio and put rights (in thousands):

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

UBS’s obligations under the Put Rights are not secured by its assets and do not require UBS to obtain any financing to support its performance obligations under the Put Rights. UBS has disclaimed any assurance that it will have sufficient financial resources to satisfy its obligations under the Put Rights and UBS’s obligations are not guaranteed by any other party.

The Put Rights represent an asset that is separate from the ARS. The Company initially recorded $605,000 as the fair value of the Put Rights asset in interest income. The Company also elected to measure the Put Rights at fair value under SFAS 159, which permits an entity to elect the fair value option for recognized financial assets. As a result, unrealized gains and losses are included in interest income and the value of the Put Rights increased by $61,000 in the three months ended June 28, 2009 and decreased by $150,000 in the six months ended June 28, 2009. The Company did not elect the fair value option for its other financial assets and liabilities.

In connection with the acceptance of the UBS offer in November 2008, the Company transferred the ARS from investments available-for-sale to trading securities in accordance with SFAS 115. The transfer to trading securities reflects management’s intent to exercise the Put Rights during the period June 30, 2010 to July 3, 2012. Prior to the agreement with UBS, the Company’s intent was to hold the ARS until the market recovered. At the time of transfer, the $605,000 unrealized loss on ARS was included in accumulated other comprehensive gain (loss). Upon transfer to trading securities, the Company recognized a $605,000 reduction in interest income. Unrealized gains and losses are included in interest income and the value of the ARS portfolio decreased by $61,000 in the three months ended June 28, 2009 and increased by $150,000 in the six months ended June 28, 2009. Prior to accepting the UBS offer, the ARS were recorded as investments available-for-sale.

UBS provided the Company with a line of credit, secured by ARS held by UBS, equal to 75% of the estimated fair value of the ARS. The Company borrowed $2,661,000 under the line of credit from UBS in February 2009. Interest is charged at the actual interest rate earned by the ARS. The line of credit is due upon demand. At June 28, 2009, $2,647,000 was outstanding under the line of credit.

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WPT ENTERPRISES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

4. FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying amount of cash equivalents and restricted cash approximates fair value as measured using level 1 inputs due to the short period of time to maturity. Investments in debt securities and put rights are measured and recorded at fair value on a recurring basis and information about these investments is in Note 3. The investment in Cecure Gaming was fully impaired in the first quarter of 2009 and information about the impairment of this investment is in Note 5. The fair value of the Company’s line of credit is not practicable to estimate because the line of credit, the ARS collateral, the Put rights and the settlement of certain litigation rights are all interrelated and result from a settlement by UBS with regulators, attorneys general and others.

As of June 28, 2009, the estimated fair values of financial instruments are as follows (in thousands):

5. ASSET IMPAIRMENT

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

6. SHARE-BASED COMPENSATION

Share-based compensation expense was $64,000 and $124,000 for the three and six months ended June 28, 2009, respectively and $303,000 and $617,000 for the three and six months ended June 29, 2008, respectively.

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

The following values represent the average per grant assumptions used to value options granted during the three and six months ended June 28, 2009 and June 29, 2008. There have been no significant changes to the assumptions thus far in 2009 and none are expected during the remainder of 2009.

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WPT ENTERPRISES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The following table summarizes stock option activity during the six months ended June 28, 2009:

The following table summarizes significant ranges of outstanding and exercisable options as of June 28, 2009:

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $1.25 on June 28, 2009, which would have been received by the option holders had they exercised their options as of that date. As of June 28, 2009, there were no exercisable “in-the-money” stock options. The total intrinsic value of options exercised during the three and six months ended June 28, 2009 was $0 and $44,000, respectively.

As of June 28, 2009, total unrecognized compensation cost related to non-vested options was $690,000, which is expected to be recognized over the next 40 months on a weighted-average basis.

7. DISCONTINUED WPT CHINA OPERATIONS

In January 2009, the Company began searching for a strategic partner to invest in the WPT China business. The cash needs to support the growth in that business was greater than the Company was willing to expend. In March 2009, the Company shut down the operations of WPT China while continuing to look for a strategic partner to acquire the WPT China assets. The financial results of WPT China have been reclassified as discontinued operations.

The Company incurred $306,000 of costs to shutdown the WPT China business during the six months ended June 28, 2009, consisting of $30,000 of employee severance, $170,000 of contract termination costs and $106,000 of software write down costs. During the three months ended June 28, 2009, the Company incurred $95,000 of shutdown costs.

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

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

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WPT ENTERPRISES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

8. INCOME TAXES

The Company expects to pay federal alternative minimum tax on the utilization of federal net operating losses in 2009 and California income taxes due to the suspension of the availability of California net operating losses in 2009. The Company utilizes net operating losses from operations before utilizing net operating losses generated from the exercise of stock options. The income tax benefit/provision for the three and six months ended June 28, 2009 is based on the estimated effective income tax rate for 2009. There was no income tax benefit for the three and six months ended June 29, 2008 due to the net losses for the periods. Based on the Company’s relatively limited and volatile earnings history, the Company recorded a full valuation allowance for the net deferred tax assets as management currently believes it is more likely than not that deferred tax assets will be realized in the foreseeable future.

9. NET EARNINGS (LOSS) PER COMMON SHARE

Basic net earnings (loss) per common share is calculated by dividing net earnings (loss) by the weighted-average number of common shares outstanding during the period. Shares for certain stock options granted to Company employees are included in the computation after the options have vested when the shares are issuable for minimal cash consideration in relation to the fair value of the options. Diluted earnings per common share is calculated by adjusting weighted-average outstanding shares, assuming the conversion of all potentially dilutive stock options and awards (common stock equivalents). However, common stock equivalents are not used to calculate diluted earnings per share for loss periods because the effect would be anti-dilutive. There were 468,000 and 1,000 common stock equivalents for the three months ended June 28, 2009 and June 29, 2008, respectively. There were 209,000 and 2,000 common stock equivalents for the six months ended June 28, 2009 and June 29, 2008, respectively. The Company excluded 274,000 and 2,916,000 of weighted average outstanding stock options for the three months ended June 28, 2009 and June 29, 2008, respectively, and excluded 569,000 and 2,921,000 of weighted average outstanding stock options for the six months ended June 28, 2009 and June 29, 2008, respectively, from the calculation of diluted net earnings (loss) per common share because the exercise prices of these stock options were greater than the average market value of the Company’s common stock. These stock options could be included in the calculation in the future if the average market value of the Company’s common stock exceeds the exercise price of these stock options.

10. CONTINGENCIES

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

11. SEGMENT INFORMATION

The operating segments reported below are the segments of the Company for which separate financial information is available and for which operating results are evaluated by the chief operating decision maker in deciding how to allocate resources and assess performance.

Three months ended June 28, 2009 (in thousands):

Revenues attributed to domestic and international operations were $2.7 million and $1.9 million, respectively.

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Notes to Unaudited Condensed Consolidated Financial Statements

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

(1)         The total excludes $94 of total assets and $8 of depreciation and amortization for discontinued WPT China operations.

Revenues attributed to domestic and international operations were $3.8 million and $1.3 million, respectively.

Six months ended June 28, 2009 (in thousands):