UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the quarterly period ended October 3, 2004

OR

For the transition period from                     to                    

Commission File No. 0-24993

WPT ENTERPRISES, INC.

(323) 850-2888
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

As of November 8, 2004, there were 19,480,000 shares of Common Stock, $0.001 par value per share, outstanding.

WPT ENTERPRISES, INC.

INDEX

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WPT ENTERPRISES, INC.

The accompanying notes are an integral part of these condensed financial statements.

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     WPT ENTERPRISES, INC.

The accompanying notes are an integral part of these condensed financial statements.

4

WPT ENTERPRISES, INC.

The accompanying notes are an integral part of these condensed financial statements.

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WPT ENTERPRISES, INC.
Statements of Shareholders’ Equity
For the Nine Months Ended October 3, 2004
(In thousands)
(Unaudited)

The accompanying notes are an integral part of these condensed financial statements.

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WPT ENTERPRISES, INC.

The accompanying notes are an integral part of these condensed financial statements.

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WPT ENTERPRISES, INC.
Notes to Condensed Financial Statements
(Unaudited)

1. BUSINESS

WPT Enterprises, Inc. (WPTE or the Company) is a media and entertainment company engaged in the creation of branded entertainment through the development, production and marketing of televised programming based on poker and other gaming themes. To date, our operations have principally revolved around the creation of our World Poker Tour brand through the production and licensing of a reality television series exhibited on the Travel Channel that is based on the circuit of previously-established high-stakes poker tournaments that we have affiliated under the “World Poker Tour” name.

Organization - World Poker Tour, LLC was formed on March 1, 2002 as a majority-owned indirect subsidiary of Lakes Entertainment, Inc. (Lakes or Parent) through Lakes Poker Tour, LLC, Lakes’ wholly-owned subsidiary. On July 28, 2004, World Poker Tour, LLC converted into a Delaware corporation, WPT Enterprises, Inc.

The company concluded its initial public offering in August 2004 and sold 4,000,000 shares of WPTE common stock while raising approximately $28.0 million, net of offering expenses and underwriting discounts. In September 2004, the underwriters exercised their over-allotment option to acquire an additional 600,000 common shares resulting in additional net proceeds of $4.4 million to the Company. Lakes remains as the company’s majority shareholder.

In March 2003, WPTE entered into an agreement with the Travel Channel, L.L.C. (TRV), granting TRV the right to broadcast the first season of the WORLD POKER TOUR® (WPT) series which has now been completed. Under the agreement, TRV has the exclusive right, license, and privilege to exhibit, market, distribute, transmit, perform and otherwise exploit each of the first season’s thirteen two-hour programs produced by WPTE for an unlimited number of times over a four year period within the United States. During July 2003, WPTE reached an agreement with TRV for a second season with TRV being granted options for five additional seasons. In July 2004, WPTE began filming Season Three, which will include 15 regular tour stops and 6 specials. Substantially all of WPTE’s revenues are derived from television license fees and related casino hosting fees and accordingly WPTE is presented as a single segment.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation — The condensed financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information, in accordance with the rules and regulations of the Securities and Exchange Commission. Pursuant to such rules and regulations, certain financial information and footnote disclosures normally included in the condensed financial statements have been condensed or omitted.

In the opinion of management, the unaudited financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the financial position and the results of operations as of the date and for such periods. Results of interim periods are not necessarily indicative of the results to be expected for the entire fiscal year. The condensed financial statements should be read in conjunction with the financial statements and notes thereto on pages F-1 to F-17 included in the Company’s Registration Statement No. 333-114479 dated August 9, 2004 filed with the Securities Exchange Commission.

Investments — The cost method of accounting is used for investments in which WPTE has less than a 20% ownership interest and the Company does not have the ability to exercise significant influence. Significant influence is generally deemed to exist when the Company has an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors, voting rights and the impact of commercial arrangements, are considered in determining whether the cost or equity method of accounting is appropriate. WPTE’s investments are carried at cost and are adjusted only for other-than-temporary declines in fair value. The carrying value of these investments is reported in other assets.

Investments represent the Company’s equity investment with PokerTek, a company that offers “PokerPro”, an automated poker system. As WPT has less than 20% ownership interest and does not have the ability to exercise significant influence over PokerTek, this investment is accounted for under the cost method. At October 3, 2004, the carrying value of this investment is approximately $207,000, and is reported in other assets.

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WPT ENTERPRISES, INC.
Notes to Condensed Financial Statements (Continued)
(Unaudited)

Revenue Recognition — Domestic Television: Revenue from the distribution of the domestic television series to the Travel Channel (TRV) is recognized as earned under the following criteria established by the American Institute of Certified Public Accountants Statement of Position (SOP) No. 00-2, Accounting by Producers or Distributors of Films:

	•		Persuasive evidence of an arrangement exists
	•		The show/episode is complete, and in accordance with the terms of the arrangement, has been delivered or is available for immediate and unconditional delivery
	•		The license period has begun and the customer can begin its exploitation, exhibition or sale
	•		The seller’s price to the buyer is fixed and determinable
	•		Collectibility is reasonably assured

Revenue is recognized upon the receipt and acceptance of completed episodes by TRV in accordance with the terms of the contract.

International Television: Revenue for international distribution of the television series is recognized as earned under the criteria of SOP 00-2, which is noted above. WPTE presents international distribution license fee revenues net of the distributor’s fees.

Product Licensing: Product licensing revenues are recognized when the underlying royalties from the sales of the related products are earned. The Company recognizes minimum revenue guarantees ratably over the term of the license or as earned royalties based on actual sales of the related products, if greater.

Host Fees: Host fee revenues paid by host casinos are recognized as episodes are aired.

Sponsorship: Sponsorship revenues are recognized as episodes are aired.

Cash Equivalents and Short-Term Investments —The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents consist of short-term U.S. Treasury debt securities, municipal bonds and notes, preferred securities and money market funds. Short-term investments consist of Federal Agency debt securities and notes with original maturities beyond three months.

All of the Company’s cash equivalents and short-term investments are considered available-for-sale. Such securities are carried at fair market value based on market quotes. Unrealized gains and losses, net of tax, on securities in this category are reported as a separate component of shareholders’ equity. Interest earned on securities is included in interest income.

Restricted cash of $244,000 at October 3, 2004 represents collateral for a letter of credit to guarantee new office space.

Television Costs — The Company accounts for its television costs pursuant to SOP No. 00-2. Television costs include capitalizable direct costs, production overhead and development costs and are stated at the lower of cost or net realizable value based on anticipated revenue. Production overhead costs include costs that are directly related to production and are incremental costs. These costs primarily include office facilities and insurance related to production. Production overhead office facilities costs are determined based on percentage of space used and are allocated to television costs based on number of episodes. Production overhead insurance costs are allocated to television costs based on number of episodes. The Company has not currently anticipated any revenues in excess of those subject to existing contractual relationships. Capitalized television

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WPT ENTERPRISES, INC.
Notes to Condensed Financial Statements (Continued)
(Unaudited)

production costs for each episode are expensed as revenues are recognized upon delivery and acceptance of the completed episode.

Capitalized television costs at October 3, 2004 and December 28, 2003 consist of the following:

Overhead costs of $81,000 and $103,726 were included in the above capitalized television costs at October 3, 2004 and December 28, 2003, respectively. Management currently estimates that approximately 95% and 100% of capitalized television costs at October 3, 2004 are expected to be expensed by the end of fiscal 2004 and 2005, respectively.

Income Taxes — Prior to the Company’s conversion from World Poker Tour, LLC to a C-Corporation, the Company was not a tax-paying entity for federal and state income tax purposes. The members’ allocable share of the Company’s taxable income (loss) was taxed on the member’s income tax returns. Therefore, no provision or liability for federal or state income taxes had been included in the financial statements. Upon conversion, the Company became liable for federal and state taxes on taxable income earned to the conversion. Losses accumulated prior to the conversion have been passed-through to the unit holders.

The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Under this method, the Company determines deferred tax assets and liabilities based upon the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. The tax consequences of most events recognized in the current year’s consolidated financial statements are included in determining income taxes currently payable. However, because tax laws and financial accounting standards differ in their recognition and measurement of assets, liabilities, equity, revenue, expenses, gains and losses, differences arise between the amount of taxable income and pretax financial income for a year and between the tax bases of assets or liabilities and their reported amounts in the consolidated financial statements. Because it is assumed that the reported amounts of assets and liabilities will be recovered and settled, respectively, a difference between the tax basis of an asset or a liability and its reported amount in the balance sheet will result in a taxable or a deductible amount in some future years when the related liabilities are settled or the reported amounts of the assets are recovered, hence giving rise to deferred tax assets and liabilities. The Company must then assess the likelihood that deferred tax assets will be recovered from future taxable income and to the extent management believes that recovery is not likely, they must establish a valuation allowance. No income tax benefit has been recorded for losses subsequent to the conversion due to the uncertainty of realizability.

Deferred Revenue — Licensing advances and guaranteed payments collected, but not yet earned by the Company, as well as host fee and sponsorship receipts, collected prior to the airing of episodes, are classified as deferred revenue in the accompanying balance sheets. Deferred revenue is derived from three primary sources: Domestic Television, Product Licensing and Host Fees. Deferred revenue represents advanced payments received from TRV and product licensees, and deposits paid by casinos in order to secure a poker tournament date with the World Poker Tour as a host site. Deferred revenue was $4,067,000 and $505,000 at October 3, 2004 and December 28, 2003, respectively. Deferred revenue at October 3, 2004 included $3,230,000 from domestic television, $537,000 from product licensing and $300,000 from host fees. The $505,000 balance at December 28, 2003 related to host fees.

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WPT ENTERPRISES, INC.
Notes to Condensed Financial Statements (Continued)
(Unaudited)

Common Shares Subject to Repurchase — The Company violated certain securities laws in connection with its initial public offering by sending out written e-mail communications to individuals that did not contain all of the information required to be in a prospectus and were not preceded or accompanied by a prospectus meeting the requirements for a prospectus. These violations could require the Company to repurchase shares sold in the offering to direct recipients of the e-mail communications for a period of up to one year at the offering price plus interest. The Company sold 75,200 shares in the offering that are subject to such repurchase rights, and these shares are classified as common shares subject to repurchase.

It is possible that indirect recipients of the written e-mail communications would assert that they have shares subject to repurchase rights with respect to shares purchased in the offering. Management believes that the repurchase rights do not extend to indirect recipients and would contest any such assertion vigorously; therefore, no such shares have been recorded in the common shares subject to repurchase.

Related Party Transactions — Lakes provides general and administrative services to the Company that include accounting, finance and treasury, tax, human resources/personnel, employee benefits, retail, systems support and marketing support. As reimbursement for these services, Lakes bills the Company an amount equal to the gross wages of the Lakes’ employees that provide services to the Company based upon the actual time incurred on Company matters. Costs of these services totaled $241,000 for the nine months ended October 3, 2004 and are included as selling and administrative expenses and due to parent of $53,000 as of October 3, 2004 in the accompanying financial statements. Operations of the Company may not be indicative of those that would have occurred if it had operated as an independent company.

The Company has entered into an exclusive license agreement with Lakes. Under this agreement, Lakes obtained a license to utilize the World Poker Tour name and logo in connection with casino table games developed by Lakes using certain intellectual property rights of Sklansky Games, LLC. Under the terms of the proposed agreement, if Lakes elects to proceed with its development of casino table games, the Company would be entitled to receive a specified minimum annual royalty payment or 10% of the gross revenue received by Lakes from its sale or lease of the game, whichever is greater.

Stock-Based Compensation — The Company’s predecessor entity, World Poker Tour, LLC, adopted the 2002 Option Plan (the 2002 Plan) which was approved to issue up to an aggregate of 1,120,000 shares in connection with option grants to employees and consultants. The options become exercisable in quarterly installments on each of the first four anniversaries of the date of the grant and expire six years after being exercisable. The employee must be employed by the Company on the anniversary date in order to vest in any shares that year. If the employee is terminated (voluntarily or involuntarily) prior to vesting of any unit option, any options remaining to vest as of the date of termination will be forfeited.

In connection with the conversion to a corporation, the Company adopted the 2004 Stock Incentive Plan that is authorized to grant stock awards to purchase up to 3,120,000 shares of common stock, including the options to purchase up to 1,120,000 shares of common stock issued to employees and consultants that were previously outstanding under the 2002 Plan at the time of conversion. Under the stock options granted in 2004 under the 2004 option plan, the options vest in equal installments over a three year period, beginning on the first anniversary of the date of each grant and will continue on each subsequent anniversary date until the option is fully vested. The employee must be employed by the Company on the anniversary date in order to vest in any shares that year. If the employee is terminated (voluntarily or involuntarily) prior to vesting of any stock option, any options remaining to vest as of the date of termination will be forfeited. To the extent options are vested, the option shall be exercisable for ten years from the date of grant.

On August 9, 2004, WPTE granted stock options to purchase an additional 1,372,000 shares, including 1,300,000 shares to employees and 72,000 shares to non-employee directors. On September 17, 2004, WPTE granted stock options to purchase an additional 40,000 shares to employees.

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WPT ENTERPRISES, INC.
Notes to Condensed Financial Statements (Continued)
(Unaudited)

The company accounts for equity-based employee compensation under APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. For unit options and stock options issued to employees, deferred stock compensation for the options is measured at the stocks’ fair value in excess of the exercise price on the date of grant and is being amortized over the vesting period of four years. In connection with these grants, the Company recorded deferred compensation of $2,500, as options granted under the 2002 plan had an exercise price less than the fair value of the underlying share on the date of grant. Deferred equity-based employee compensation cost of $469 in the nine months ended October 3, 2004 is included in selling and administrative expenses in the statement of operations.

The fair value of each award under the option plans are estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used to estimate the fair value of the options granted during 2002 and 2004 under the Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, method of accounting for the purpose of the pro forma expense disclosure below:

The Company accounts for equity-based consu