<PAGE>

                                  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 September 28, 2003

                                       OR

                  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. 0-24993



                            LAKES ENTERTAINMENT, INC.
             (Exact name of registrant as specified in its charter)

                 Minnesota                                      41-1913991
        (State or other jurisdiction                        (I.R.S. Employer
        of incorporation or organization)                   Identification No.)

             130 Cheshire Lane
           Minnetonka, Minnesota                                   55305
   (Address of principal executive offices)                      (Zip Code)

                                 (952) 449-9092
              (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.

                Yes [X]                 No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

As of November 5, 2003, there were 10,730,429 shares of Common Stock, $0.01 par
value per share, outstanding.



<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                                      INDEX


<Table>
<Caption>
                                                                                               PAGE OF
                                                                                              FORM 10-Q
                                                                                              ---------
<S>                                                                                           <C>
PART I. FINANCIAL INFORMATION

        ITEM 1.  FINANCIAL STATEMENTS

                 Condensed Consolidated Balance Sheets as of                                       3
                 September 28, 2003 and December 29, 2002

                 Condensed Consolidated Statements of Loss for the three                           4
                 months ended September 28, 2003 and September 29, 2002

                 Condensed Consolidated Statements of Comprehensive                                5
                 Loss for the three months ended September 28, 2003
                 and September 29, 2002

                 Condensed Consolidated Statement of Loss for                                      6
                 the nine months ended September 28, 2003 and
                 September 29, 2002

                 Condensed Consolidated Statements of Comprehensive                                7
                 Loss for the nine months ended September 28, 2003
                 and September 29, 2002

                 Condensed Consolidated Statements of Cash Flows for                               8
                 the nine months ended September 28, 2003 and
                 September 29, 2002

                 Notes to Condensed Consolidated Financial Statements                              9

        ITEM 2.  MANAGEMENT'S DISCUSSION AND                                                      19
                 ANALYSIS OF FINANCIAL CONDITION
                 AND RESULTS OF OPERATIONS

        ITEM 3.  QUANTITATIVE AND QUALITATIVE                                                     31
                 DISCLOSURES ABOUT MARKET RISK

        ITEM 4.  CONTROLS AND PROCEDURES                                                          31

PART II.  OTHER INFORMATION

        ITEM 1.  LEGAL PROCEEDINGS                                                                32

        ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                                 34
</Table>



                                        2


<PAGE>


                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
                                   (UNAUDITED)



<Table>
<Caption>
                                                                        SEPTEMBER 28, 2003  DECEMBER 29, 2002
                                                                        ------------------  -----------------
<S>                                                                     <C>                 <C>
ASSETS
Current Assets:
    Cash and cash equivalents                                                 $ 31,292            $ 14,106
    Accounts receivable, net                                                       610                 116
    Deferred tax asset                                                           2,640               6,771
    Other current assets                                                           961                 547
                                                                              --------            --------
Total Current Assets                                                            35,503              21,540
                                                                              --------            --------
Property and Equipment-Net                                                       6,598               6,962
                                                                              --------            --------
Other Assets:
    Land held under contract for sale                                            4,967              28,832
    Land held for development                                                   14,375              27,791
    Notes receivable-less current installments                                  80,360              70,955
    Cash and cash equivalents-restricted                                            --               8,300
    Investments in and notes from unconsolidated affiliates                      8,597               1,013
    Deferred tax asset                                                           6,125               3,835
    Other long-term assets                                                       8,927               6,657
                                                                              --------            --------
Total Other Assets                                                             123,351             147,383
                                                                              --------            --------
TOTAL ASSETS                                                                  $165,452            $175,885
                                                                              ========            ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
    Accounts payable                                                          $    178            $    226
    Income taxes payable                                                         2,941               5,564
    Litigation and claims accrual                                                  148               5,847
    Accrued payroll and related                                                    603                 252
    Other accrued expenses                                                       2,895               3,486
                                                                              --------            --------
Total Current Liabilities                                                        6,765              15,375
                                                                              --------            --------
TOTAL LIABILITIES                                                                6,765              15,375
                                                                              --------            --------

COMMITMENTS AND CONTINGENCIES
Shareholders' Equity:
    Capital stock, $.01 par value; authorized 100,000 shares;
    10,640 and 10,638 common shares issued and outstanding
    at September 28, 2003, and December 29, 2002, respectively                     106                 106
    Additional paid-in-capital                                                 131,542             131,525
    Retained Earnings                                                           27,039              28,879
                                                                              --------            --------
Total Shareholders' Equity                                                     158,687             160,510
                                                                              --------            --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                    $165,452            $175,885
                                                                              ========            ========
</Table>


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

                                        3



<PAGE>
                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                         CONSOLIDATED STATEMENTS OF LOSS
                    (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)


<Table>
<Caption>
                                                                       (UNAUDITED)
                                                                    THREE MONTHS ENDED
                                                          ---------------------------------------
                                                          SEPTEMBER 28, 2003   SEPTEMBER 29, 2002
                                                          ------------------   ------------------
<S>                                                       <C>                  <C>
REVENUES:
     License fee income                                         $    377             $     --
                                                                --------             --------
         Total Revenues                                              377                   --
                                                                --------             --------

COSTS AND EXPENSES:
     Selling, general and administrative                           2,504                2,700
     Depreciation and amortization                                   135                  130
                                                                --------             --------
         Total Costs and Expenses                                  2,639                2,830
                                                                --------             --------

LOSS FROM OPERATIONS                                              (2,262)              (2,830)
                                                                --------             --------
OTHER INCOME (EXPENSE):
     Interest income                                                  98                  134
     Interest expense                                                 --                  (23)
     Equity in loss of unconsolidated affiliates                     (50)                 (85)
                                                                --------             --------
         Total other income, net                                      48                   26
                                                                --------             --------

Loss before income taxes                                          (2,214)              (2,804)
Benefit for income taxes                                            (912)              (1,150)
                                                                --------             --------

NET LOSS                                                        ($ 1,302)            ($ 1,654)
                                                                ========             ========

BASIC LOSS PER SHARE                                            ($  0.12)            ($  0.16)
                                                                ========             ========

DILUTED LOSS PER SHARE                                          ($  0.12)            ($  0.16)
                                                                ========             ========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                        10,639               10,638
DILUTIVE EFFECT OF STOCK COMPENSATION PROGRAMS                        --                   --
                                                                --------             --------
WEIGHTED AVERAGE COMMON AND DILUTED
  SHARES OUTSTANDING                                              10,639               10,638
                                                                ========             ========
</Table>



THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

                                        4



<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                                 (IN THOUSANDS)


<Table>
<Caption>
                                                                                                     (UNAUDITED)
                                                                                                   THREE MONTHS ENDED
                                                                                        ----------------------------------------
                                                                                        SEPTEMBER 28, 2003    SEPTEMBER 29, 2002
                                                                                        ------------------    ------------------
<S>                                                                                           <C>                 <C>
NET LOSS                                                                                      ($1,302)            ($1,654)

OTHER COMPREHENSIVE EARNINGS (LOSS), NET OF TAX:
          Unrealized gains (losses) on securities:
          Unrealized holding gains during the period                                               --                  21
          Reclassification adjustment for losses included
             in net loss                                                                           --                   2
                                                                                              -------             -------
COMPREHENSIVE LOSS                                                                            ($1,302)            ($1,631)
                                                                                              =======             =======
</Table>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

                                        5



<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                         CONSOLIDATED STATEMENTS OF LOSS
                    (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)

<Table>
<Caption>
                                                                          (UNAUDITED)
                                                                       NINE MONTHS ENDED
                                                           ------------------------------------------
                                                           SEPTEMBER 28, 2003      SEPTEMBER 29, 2002
                                                           ------------------      ------------------
<S>                                                        <C>                     <C>
REVENUES:
     Management fee income                                        $     --             $  1,502
     License fee income                                              3,881                   --
                                                                  --------             --------
         Total Revenues                                              3,881                1,502
                                                                  --------             --------

COSTS AND EXPENSES:
     Selling, general and administrative                             7,221               14,371
     Depreciation and amortization                                     394                  349
                                                                  --------             --------
         Total Costs and Expenses                                    7,615               14,720
                                                                  --------             --------

LOSS FROM OPERATIONS                                                (3,734)             (13,218)
                                                                  --------             --------

OTHER INCOME (EXPENSE):
     Interest income                                                   649                1,306
     Interest expense                                                   --                  (70)
     Equity in loss of unconsolidated affiliates                      (197)                (316)
     Other                                                             158                   --
                                                                  --------             --------
         Total other income, net                                       610                  920
                                                                  --------             --------

Loss before income taxes                                            (3,124)             (12,298)
Benefit for income taxes                                            (1,284)              (3,401)
                                                                  --------             --------

NET LOSS                                                          ($ 1,840)            ($ 8,897)
                                                                  ========             ========

BASIC LOSS PER SHARE                                              ($  0.17)            ($  0.84)
                                                                  ========             ========

DILUTED LOSS PER SHARE                                            ($  0.17)            ($  0.84)
                                                                  ========             ========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                          10,639               10,638
DILUTIVE EFFECT OF STOCK COMPENSATION PROGRAMS                          --                   --
                                                                  --------             --------
WEIGHTED AVERAGE COMMON AND DILUTED
  SHARES OUTSTANDING                                                10,639               10,638
                                                                  ========             ========
</Table>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

                                        6



<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                                 (IN THOUSANDS)


<Table>
<Caption>
                                                                                             (UNAUDITED)
                                                                                           NINE MONTHS ENDED
                                                                                 SEPTEMBER 28, 2003   SEPTEMBER 29, 2002
                                                                                 ------------------   ------------------
<S>                                                                              <C>                  <C>
NET LOSS                                                                               ($1,840)            ($8,897)

OTHER COMPREHENSIVE LOSS, NET OF TAX:
          Unrealized gains (losses) on securities:
          Unrealized holding gains during the period                                        --                  10
          Reclassification adjustment for losses included
             in net loss                                                                    --                  50
                                                                                       -------             -------
COMPREHENSIVE LOSS                                                                     ($1,840)            ($8,837)
                                                                                       =======             =======
</Table>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

                                        7



<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<Table>
<Caption>
                                                                                              (UNAUDITED)
                                                                                           NINE MONTHS ENDED
                                                                               SEPTEMBER 28, 2003     SEPTEMBER 29, 2002
                                                                               ------------------     ------------------
<S>                                                                            <C>                    <C>
OPERATING ACTIVITIES:
     Net loss                                                                         ($ 1,840)            ($ 8,897)
     Adjustments to reconcile net loss to net cash
       used in operating activities:
      Depreciation and amortization                                                        394                  349
      Equity in loss of unconsolidated affiliates                                          197                  316
      Impairment of land held under contract for sale                                       --                3,000
      Write down of related party receivables                                               --                4,000
      Changes in operating assets and liabilities:
           Accounts receivable                                                            (494)               3,510
           Income taxes                                                                   (782)              (4,719)
           Accounts payable                                                                (48)                 185
           Accrued expenses                                                             (2,818)                 570
           Other                                                                          (414)                 280
                                                                                      --------             --------
Net Cash Used in Operating Activities                                                   (5,805)              (1,406)
                                                                                      --------             --------

INVESTING ACTIVITIES:
     Short-term investments, sales/maturities                                               --                2,130
     Payments for land held under contract for sale                                       (629)                (783)
     Payments received on land held under contract for sale                             16,766                   --
     Payments received (made) for land held for development                             13,416               (3,748)
     Advances on notes receivable                                                      (12,382)             (15,257)
     Proceeds from repayment of notes receivable                                         1,000                   67
     Investment in and notes receivable from unconsolidated affiliates                    (704)                (165)
     Decrease (increase) in restricted cash, net                                         5,907                 (579)
     Increase in other long-term assets                                                   (370)              (1,420)
     Payments for property and equipment, net                                              (30)              (1,127)
                                                                                      --------             --------
Net Cash Provided by (Used in) Investing Activities                                     22,974              (20,882)
                                                                                      --------             --------

FINANCING ACTIVITIES:
     Payments on capital lease obligations                                                  --               (5,714)
     Proceeds from issuance of common stock                                                 17                   --
     Payments on long-term debt                                                             --                 (350)
                                                                                      --------             --------
Net Cash Used in Financing Activities                                                       17               (6,064)
                                                                                      --------             --------

Net increase (decrease) in cash and cash equivalents                                    17,186              (28,352)
Cash and cash equivalents - beginning of period                                         14,106               42,638
                                                                                      --------             --------
CASH AND CASH EQUIVALENTS - END OF PERIOD                                             $ 31,292             $ 14,286
                                                                                      ========             ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid during the period for:
      Interest                                                                        $     --             $     74
      Income taxes                                                                           6                    9
</Table>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

                                        8


<PAGE>


                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1. BUSINESS

Lakes Entertainment, Inc., a Minnesota corporation ("Lakes" or the "Company")
was established as a public corporation on December 31, 1998, via a distribution
(the "Distribution") of its common stock, par value $.01 per share (the "Common
Stock") to the shareholders of Grand Casinos, Inc. ("Grand").

Lakes currently has development and management agreements with four separate
tribes for four new casino operations, one in Michigan, two in California and
one with the Nipmuc Nation on the east coast. The Company also has agreements
for the development of one additional casino on Indian owned land in California
through a joint venture which is currently being disputed by the tribe. Each of
these projects is currently in the development phase.

The Company has also formed a joint venture with a producer to launch the World
Poker Tour ("WPT") and establish poker as the next significant televised
mainstream sport. During March of 2003, the WPT signed an agreement with the
Travel Channel, LLC (TRV), granting TRV the right to broadcast the first season
of the WPT series which has now been completed. During July of 2003, WPT reached
an agreement with TRV for a second season with TRV being granted options for
five additional seasons. WPT receives a series of fixed license payments from
TRV, subject in each case to satisfaction of production milestones and other
conditions. Revenue is recognized ratably as production milestones and other
conditions are met.

LAND HELD UNDER CONTRACT FOR SALE

On December 28, 2001, the Company transferred title and ownership obligations of
the Polo Plaza shopping center property to Metroflag Polo, LLC. In conjunction
with this transaction, Lakes transferred to Metroflag BP, LLC, rights to and
obligations of the adjacent Travelodge property consisting of a long-term land
lease and a motel operation.

During 2002, Lakes and Metroflag restructured the terms of the Polo Plaza and
Travelodge property transactions due to deteriorating economic conditions. The
parties reduced the purchase price for the Polo Plaza property from $23.8
million to $21.8 million.

                                        9


<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)


During March of 2003, Lakes and Metroflag agreed to additional revisions to the
terms of the Polo Plaza and Travelodge property transactions. The parties have
increased the price of the Polo Plaza property from $21.8 million to $25.8
million and extended the payment date to May 15, 2003. On the payment date,
$16.8 million of the purchase price was paid to Lakes in cash, $4.0 million was
paid through the issuance to Lakes of a preferred membership interest in
Metroflag and $4.0 million was paid through the issuance to Lakes of a
subordinated membership interest in Metroflag. On or before April 30, 2004,
Metroflag Polo may elect to distribute to Lakes $3.0 million plus interest in
cash as full return of Lakes' preferred interest. If paid after April 30, 2004,
and in no event later than December 24, 2006, the entire $4.0 million plus
interest will be payable. The subordinated interest must be repurchased for $4.0
million at the time of repayment of an outstanding $3.5 million contractual
commitment in connection with the Travelodge property, which is scheduled on or
before December 28, 2004. In March of 2003, the parties decreased the sale price
of the Travelodge property from $7.5 million to $3.5 million. At that time, the
contractual commitment to pay Lakes was also decreased from $7.5 million to $3.5
million. If the Travelodge commitment is not repaid by December 28, 2004,
ownership of the Travelodge lease rights would revert back to Lakes. If at any
time the Polo Plaza property is sold and the Travelodge commitment has not been
repaid, Metroflag is required to repurchase the subordinated interest for the
lesser of $4.0 million or any portion of the net cash proceeds from such sale or
refinancing that exceeds $60.0 million.

LAND HELD FOR DEVELOPMENT

On April 7, 2003, Lakes announced that it had signed a Letter of Intent to sell
the approximate 3.5 acre undeveloped site, known as the Shark Club Parcel, for a
purchase price of $15.0 million in cash. The transaction closed on July 1, 2003.
In addition to the $15.0 million payment, Lakes received $1.0 million as
repayment of a loan previously made by Lakes to Chateaux, LLC, a joint venture
entity originally formed by Lakes and a time-share developer for the purpose of
developing the Shark Club Parcel as an upscale time-share project.

Also included in land held for development is land held for possible transfer to
Indian tribes for use in future casino resort projects in the amount of $14.4
million and $12.8 million as of September 28, 2003 and December 29, 2002,
respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

The FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" in November 2002. This interpretation elaborates on the disclosures to
be made by a guarantor in its financial statements about its obligations under
certain guarantees that it has issued. It also clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee.

                                       10


<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)




The initial recognition and initial measurement provisions of this
interpretation are applicable to all guarantees and modification to guarantees
made after December 31, 2002. The Company's disclosure of the indemnification
and guarantee agreements of the Company is in compliance with the
interpretation. The disclosure requirements in this interpretation are effective
for financial statements of interim or annual periods ended after December 15,
2002. The adoption of the interpretation did not have a material impact on the
Company's results of operations, financial position and cash flows. The Company
does have an indemnification agreement with Grand Casinos which is fully
described in Note 6 Commitments and Contingencies.

In January 2003, the FASB issued Interpretation No. 46 (FIN46), "Consolidation
of Variable Interest Entities", which addresses the consolidation of variable
interest entities. The interpretation applicable immediately to variable
interest entities created after January 31, 2003, and to variable interest
entities in which a Company obtains an interest after that date. For variable
interests in variable interest entities acquired before February 1, 2003, the
interpretation applicable applies in the first interim period beginning after
December 15, 2003. The Company has determined that it has no investments or
other interests in entities that may be deemed variable interest entities under
the provisions of FIN 46, as the development projects subject to the management
agreements with the Indian Tribes are not separate entities or legal structures.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123". SFAS No. 148 provides alternative transition methods for companies that
make a voluntary change to the fair-value-based method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The Company has adopted the disclosure provisions of SFAS No. 148 and
its adoption had no impact on the Company's consolidated financial position or
results of operations.

2. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include
the accounts of Lakes and its wholly-owned and majority-owned subsidiaries.
Investments in unconsolidated affiliates representing 50% or less of voting
interests are accounted for on the equity method. All significant intercompany
balances and transactions have been eliminated in consolidation.

Lakes' investments in unconsolidated affiliates include a 50 percent ownership
interest in PCG Santa Rosa, LLC, a joint venture formed to develop a casino on
Indian-owned land in California.




                                       11


<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)



The condensed consolidated 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 consolidated financial statements
have been condensed or omitted.

In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for fair presentation have been included.
Operating results for the nine months ended September 28, 2003 are not
necessarily indicative of the results that may be expected for the year ending
December 28, 2003. The condensed consolidated financial statements should be
read in conjunction with the condensed consolidated financial statements and
notes thereto included in the Company's annual report on Form 10-K for the year
ended December 29, 2002.

3. STOCK-BASED COMPENSATION

At September 28, 2003, the Company has two stock-based employee compensation
plans. The Company accounts for those plans under the recognition and
measurement principles of APB Option No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. No stock-based employee compensation
cost is reflected in net income, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on the
date of grant. The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value recognition
provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation,
to stock-based employee compensation.


<Table>
<Caption>
                                                        NINE MONTHS ENDED                        THREE MONTHS ENDED
                                                -----------------------------------      ----------------------------------
                                                SEPT. 28, 2003       SEPT. 29, 2002      SEPT. 28, 2003      SEPT. 29, 2002
                                                --------------       --------------      --------------      --------------
<S>                                             <C>                  <C>                 <C>                 <C>
Net loss:
    As reported                                   $   (1,840)         $   (8,897)         $   (1,302)         $   (1,654)
    Less:  Total stock-based compensation
        expense determined under the fair
        value method, net of related
        tax effects                                   (1,150)             (1,276)               (383)               (426)
    Pro forma                                         (2,990)            (10,173)             (1,685)             (2,080)
Net loss per share:
    As reported -- Basic                          $    (0.17)         $    (0.84)         $    (0.12)         $    (0.16)
    Pro forma -- Basic                                 (0.28)              (0.96)              (0.16)              (0.20)
    As reported -- Diluted                             (0.17)              (0.84)              (0.12)              (0.16)
    Pro forma -- Diluted                               (0.28)              (0.96)              (0.16)              (0.20)
</Table>




                                       12


<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)


4. MANAGEMENT CONTRACTS FOR INDIAN-OWNED CASINOS

The ownership, management and operation of gaming facilities are subject to
extensive federal, state, provincial, tribal and/or local laws, regulation, and
ordinances, which are administered by the relevant regulatory agency or agencies
in each jurisdiction. These laws, regulations and ordinances vary from
jurisdiction to jurisdiction, but generally concern the responsibility,
financial stability and character of the owners and managers of gaming
operations as well as persons financially interested or involved in gaming
operations. The Company is prohibited by the Indian Gaming Regulatory Act
("IGRA") from having an ownership interest in any casino it manages for Indian
tribes.

The management contracts govern the relationship between the Company and the
tribes with respect to the construction and management of the casinos. The
construction or remodeling portion of the agreements commenced with the signing
of the respective contracts and continued until the casinos opened for business;
thereafter, the management portion of the respective management contracts
continues for a period up to seven years. Under the terms of the contracts, the
Company, as manager of the casino, receives a percentage of the distributable
profits (as defined in the contract) of the operations as a management fee after
payment of certain priority distributions, a cash contingency reserve, and
guaranteed minimum payments to the tribes.

Lakes has a contract to be the exclusive developer and manager of an
Indian-owned gaming resort near New Buffalo, Michigan with the Pokagon Band of
Potawatomi Indians. The Company has formed partnerships that hold contracts to
develop and manage two casinos to be owned by Indian tribes in California, one
near San Diego with the Jamul Indian Village, and the other near Sacramento with
the Shingle Springs Band of Miwok Indians. Lakes and another company have formed
a partnership with a contract to finance the construction of an Indian-owned
casino 60 miles north of San Francisco, California for the Cloverdale Rancheria
of Pomo Indians. The Rancheria is currently disputing the agreement with the
partnership and has notified the partnership that it wishes to terminate the
contract. The Company has also signed contracts with the Nipmuc Nation of
Massachusetts for development and management of a potential future gaming resort
in the eastern United States; however, this tribe has received a negative
finding regarding federal recognition from the Bureau of Indian Affairs (BIA).
The tribe has submitted additional information for reconsideration.

5. NOTES RECEIVABLE

The notes receivable from Indian Tribes are generally for the development of
gaming properties to be managed by the Company. The repayment terms are specific
to each tribe and are largely dependent upon the operating performance of each
gaming property. Repayments of the aforementioned notes receivable are required
to be made only if distributable profits are available from the operation of the
related casinos. Repayments are also the subject of certain distribution
priorities specified in the management contracts. In addition, repayment of the
notes receivable and the manager's fees under the management contracts are
subordinated to certain other financial obligations of the respective tribes.
Through September 28, 2003, no amounts have been withheld under these
provisions.

                                       13


<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)


Notes receivable consist of the following (in thousands):

<Table>
<Caption>
                                                                                    September 28, 2003    December 29, 2002
                                                                                    ------------------    -----------------
<S>                                                                                 <C>                   <C>
Properties under development:

Notes from the Pokagon Band of Potawatomi Indians with variable interest rates
(not to exceed 10%) (5.00% at September 28, 2003), receivable in 60 monthly
installments subsequent to commencement date                                                 $41,450         $39,470

Notes from the Shingle Springs Band of Miwok Indians with variable interest
rates (6.00% at September 28, 2003), receivable in varying monthly installments
based on contract terms subsequent to commencement date                                       21,304          14,035

Notes from Jamul Indian Village with variable interest rates (6.00% at September
28, 2003), receivable in 12 monthly installments subsequent to commencement date              11,744           9,492

Notes from the Nipmuc Nation with variable interest rates (6.00% at September
28, 2003) receivable in varying installments based on contract
terms subsequent to commencement date                                                          4,323           3,814

Other                                                                                          1,539           4,144
                                                                                             -------         -------

Total notes receivable                                                                       $80,360         $70,955
                                                                                             =======         =======
</Table>


Interest income on notes receivable from Indian Tribes related to casino
development projects is deferred because realizability of the interest is
contingent upon the completion and positive cash flow from operation of the
casino. Interest deferred during the development period is recognized over the
remaining life of the note using the effective interest method. As of September
28, 2003 and December 29, 2002, $13.7 million and $10.1 million of interest on
notes related to properties under development has been deferred.

Management periodically evaluates the recoverability of such notes receivable
based on the current and projected operating results of the underlying facility
and historical collection experience. No impairment losses on such notes
receivable have been recognized through September 28, 2003.

The terms of these notes require the casinos to be constructed and to generate
positive cash flows prior to the Company receiving repayment. As such, an
estimate of the fair value of these notes requires an assessment of the timing
of the construction of the related casinos and the profitability of the related
casinos. Due to the significant uncertainty involved in such an assessment, the
Company does not believe that it is practicable to accurately estimate the fair
value of these notes with the degree of precision necessary to make such
information meaningful.


                                       14


<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)




6. COMMITMENTS AND CONTINGENCIES:

LEASES

The Company leases certain property and equipment, including an airplane, under
a non-cancelable operating lease. The airplane lease expired May 1, 2003 and was
renewed for a one-year period. The lease provides for one additional one-year
renewal term. Approximate future minimum lease payments, due under this lease as
of September 28, 2003, assuming the second one-year renewal is exercised, are as
follows (in thousands):

<Table>
<Caption>
              Operating Leases
              ----------------
<S>           <C>
      2003         $150
      2004          600
      2005          200
                   ----
                   $950
                   ====
</Table>


PURCHASE OPTIONS

The Company has the right to purchase the airplane it leases during the renewal
terms for approximately $8 million.

INDEMNIFICATION AGREEMENT

As a part of the transaction establishing Lakes as a separate public company on
December 31, 1998, the Company has agreed to indemnify Grand against all costs,
expenses and liabilities incurred in connection with or arising out of certain
pending and threatened claims and legal proceedings to which Grand and certain
of its subsidiaries are likely to be parties. The Company's indemnification
obligations include the obligation to provide the defense of all claims made in
proceedings against Grand and to pay all related settlements and judgments.




                                       15


<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)






As part of the indemnification agreement, Lakes has agreed that it will not
declare or pay any dividends, make any distribution on account of Lakes' equity
interests, or otherwise purchase, redeem, defease or retire for value any equity
interests in Lakes without the written consent of Park Place.







                                       16


<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)


LEGAL PROCEEDINGS

WILLARD EUGENE SMITH LITIGATION

On October 24, 2003, Lakes announced that it had been named as one of a number
of defendants in a counterclaim filed in state court in Harris County, Texas by
Willard Eugene Smith involving Kean Argovitz Resorts, LLC (KAR), related persons
and entities. In the counterclaim, Smith asserts that, under an alleged oral
agreement with Kevin Kean, he is entitled to a percentage of fees to be received
by the KAR entities or their principals relating to the Shingle Springs and
Jamul casinos that Lakes' subsidiaries are developing in California. Smith also
seeks recovery of damages and other relief from the KAR entities, Lakes and
certain affiliates based on their conduct with respect to the alleged agreement.

Lakes believes the counterclaim against it is without merit. Lakes understands
that the alleged oral agreement upon which Smith bases his claim was rendered
null and void in a prior judgment issued against Smith by the Harris County,
Texas state court in October 2000. However, in September 2003, the court vacated
the prior judgment against Smith. Lakes acquired KAR's interests in the Shingle
Springs and Jamul projects on January 30, 2003. In the buyout agreements between
Lakes and certain KAR entities and related principals, the KAR entities
represented to Lakes that the KAR entities and their affiliates had no
continuing agreements with any third party relating to the Shingle Springs and
Jamul projects and agreed to indemnify Lakes and its affiliates from damages
resulting from prior dealings of the KAR entities and related principals
concerning the projects. Lakes will vigorously defend against the allegations
made against it and will pursue its indemnification rights against the KAR
entities and their principals under the buyout agreements if necessary.

OTHER LITIGATION

Lakes is involved in various other inquiries, administrative proceedings, and
litigation relating to contracts and other matters arising in the normal course
of business. While any proceeding or litigation has an element of uncertainty,
management currently believes that the final outcome of these matters is not
likely to have a material adverse effect upon the Company's consolidated
financial position or results of operations.


                                       17


<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)



7. RELATED PARTY TRANSACTIONS

Previously, Lakes formed two joint venture partnerships with KAR, a limited
liability company based in Houston, Texas, for the purpose of developing and
managing casino resort projects with the Shingle Springs Band of Miwok Indians
and the Jamul Indian Village, both in California. On January 30, 2003, Lakes
restructured a series of arrangements with KAR and its individual members such
that Lakes has effectively acquired 100% ownership of the joint ventures in
exchange for restructuring indebtedness of $1.8 million from the joint venture
partnerships to Lakes and an agreement to make certain conditional payments to
the individual KAR members from profits received under the respective management
contracts. While these conditional payments could total up to $2 million per
year for each project, Lakes believes these payments will be substantially less
than KAR would have received under their original interest. The individual KAR
members have options to repurchase their interest or obtain a comparable
financial interest, in the event they are found suitable by relevant gaming
regulatory authorities.

A subsidiary of Lakes and Land Baron West, LLC are partners in a joint venture
formed to develop or sell land purchased by the joint venture near San Diego,
California. Land Baron West, LLC owed the joint venture $0.6 million, and $0.2
million, as of September 28, 2003 and December 29, 2002, respectively. These
amounts are included in accounts receivable on the accompanying condensed
consolidated balance sheets.



                                       18


<PAGE>







                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

OVERVIEW

Lakes Entertainment, Inc., a Minnesota corporation ("Lakes" or the "Company")
was established as a public corporation on December 31, 1998, via a distribution
(the "Distribution") of its Common Stock, to the shareholders of Grand Casinos,
Inc. ("Grand").

As a result of the Distribution, Lakes operates the Indian casino management
business and holds various other assets previously owned by Grand. Lakes' main
business is the development, construction and management of casinos and related
hotel and entertainment facilities in emerging and established gaming
jurisdictions. Lakes has entered into the following contracts for the
development, management and/or financing of new casino operations, all of which
are subject to various regulatory approvals before construction can begin: (1)
Lakes has a contract to be the exclusive developer and manager of an
Indian-owned gaming resort near New Buffalo, Michigan for the Pokagon Band of
Potawatomi Indians. (2) Lakes has entered into contracts to develop and manage
two casinos to be owned by Indian tribes in California, one near San Diego with
the Jamul Indian Village and the other near Sacramento with the Shingle Springs
Band of Miwok Indians. (3) Lakes and another company have formed a partnership
with a contract to finance the construction of an Indian-owned casino 60 miles
north of San Francisco, California. The Cloverdale Rancheria has notified the
partnership that the Rancheria wishes to terminate the relationship between the
two parties. The partnership has advised the Rancheria that the partnership
believes the contract is enforceable. The Rancheria acknowledges that the
partnership has loaned the Rancheria money and that the Rancheria will endeavor
to repay the money in a timely manner. (4) Lakes has also signed contracts with
the Nipmuc Nation, a Massachusetts Indian tribe, for development and management
of a potential future gaming resort in the eastern United States; however, this
tribe has received a negative finding regarding federal recognition from the
Bureau of Indian Affairs (BIA). The tribe has submitted additional information
to the BIA for reconsideration.

In addition, Lakes owns options to purchase various new casino games and is
actively marketing these new games to the casino industry in an attempt to have
a casino accept the games for use in their operations. Lakes has also formed a
joint venture with another company to develop approximately 2,000 acres owned by
the joint venture in eastern San Diego County in California. It is possible the
land will be sold in lieu of a development by the joint venture. Lakes has also
formed a joint venture with a producer to launch the World Poker Tour ("WPT")
and establish poker as the next significant televised mainstream sport. The
joint venture signed an agreement with the Travel Channel ("TRV") in March 2003,
for broadcast of the first season of the WPT series which has now been
completed. During July of 2003, WPT reached an agreement with TRV for a second
season with TRV being granted options for five additional seasons. Revenue is
recognized ratably as production milestones and other conditions are met. During
the first three quarters of 2003, Lakes recognized approximately $3.9 million in
revenue related to the World Poker Tour. Revenues related to the second season
will be recognized during 2004.



                                       19
<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)



Lakes' growth strategy contemplates the development of existing projects, the
pursuit of opportunities to develop and manage additional gaming facilities and
the pursuit of new business opportunities. The successful implementation of this
growth strategy is contingent upon the satisfaction of various conditions,
including obtaining governmental approvals, the impact of increased competition,
and the occurrence of certain events, many of which are beyond the control of
Lakes.

SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies, which Lakes believes are the most critical
to aid in fully understanding and evaluating its reported financial results,
include the following: revenue recognition and realizability of notes
receivable.

REVENUE RECOGNITION: Revenue from the management of Indian-owned casino gaming
facilities is recognized when earned according to the terms of the management
contracts. Currently all of the Indian-owned casino projects that Lakes is
involved with are in development stages and are not yet open. Therefore, until a
project is open and operating, Lakes will not recognize revenue related to
Indian casino management. Interest income on notes receivable for Indian tribes
related to casino development projects is deferred because realizability of the
interest is contingent upon the completion and generation of cash flow from the
operation of the casino. Interest deferred during the development period is
recognized over the remaining life of the note using the effective interest
method. Revenue from the World Poker Tour series is recognized ratably as
production milestones and other conditions are met.

IMPAIRMENT OF LONG-TERM ASSETS: The Company's notes receivable from Indian
Tribes are generally for the development of gaming properties to be managed by
the Company. The repayment terms are specific to each tribe and are largely
dependent upon the operating performance of each gaming property. Repayments of
the notes receivable are required to be made only if distributable profits are
available from the operation of the related casinos. Repayments are also the
subject of certain distribution priorities specified in the management
contracts. In addition, repayment of the notes receivable and the manager's fees
under the management contracts may be subordinated to certain other financial
obligations of the respective tribes. Through September 28, 2003, no impairments
have been recorded under these provisions. Management periodically evaluates the
recoverability of such notes receivable based on the current and projected
operating results of the underlying facility and historical collection
experience.

The Company currently holds land held for development and land held under
contract for sale. The Company periodically evaluates whether events and
circumstances have occurred that may affect the recoverability of the net book
value of these assets. If such events or circumstances indicate that the
carrying amount of an asset may not be recoverable, the Company estimates the
future cash flows expected to result from the use of the asset. If the sum of
the expected future undiscounted cash flows does not exceed the carrying value
of the asset, the Company will recognize an impairment loss.


                                       20
<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)



The following discussion and analysis should be read in conjunction with the
condensed consolidated financial statements and notes thereto and management's
discussion and analysis included in the Company's Annual Report on Form 10-K for
the year ended December 29, 2002.

RECENT ACCOUNTING PRONOUNCEMENTS

The FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" in November 2002. This interpretation elaborates on the disclosures to
be made by a guarantor in its financial statements about its obligations under
certain guarantees that it has issued. It also clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee.

The initial recognition and initial measurement provisions of this
interpretation are applicable to all guarantees and modification to guarantees
made after December 31, 2002. The Company's disclosure of the indemnification
and guarantee agreements of the Company is in compliance with the
interpretation. The disclosure requirements in this interpretation are effective
for financial statements of interim or annual periods ended after December 15,
2002. The adoption of the interpretation did not have a material impact on the
Company's results of operations, financial position and cash flows. The Company
does have an indemnification agreement with Grand Casinos which is fully
described in the Financial Condition section of this Management's Discussion and
Analysis.

In January 2003, the FASB issued Interpretation No. 46 (FIN46), "Consolidation
of Variable Interest Entities", which addresses the consolidation of variable
interest entities. The interpretation applicable immediately to variable
interest entities created after January 31, 2003, and to variable interest
entities in which a Company obtains an interest after that date. For variable
interests in variable interest entities acquired before February 1, 2003, the
interpretation applicable applies in the first interim period beginning after
December 15, 2003. The Company has determined that it has no investments or
other interests in entities that may be deemed variable interest entities under
the provisions of FIN 46, as the development projects subject to the management
agreements with the Indian Tribes are not separate entities or legal structures.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123". SFAS No. 148 provides alternative transition methods for companies that
make a voluntary change to the fair-value-based method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The Company has adopted the disclosure provisions of SFAS No. 148 and
its adoption had no impact on the Company's consolidated financial position or
results of operations.



                                       21
<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)




RESULTS OF OPERATIONS

Revenues are calculated in accordance with accounting principles generally
accepted in the United States of America and are presented in a manner
consistent with industry practice. Historically, net distributable profits by
the Indian casinos were computed using a modified cash basis of accounting in
accordance with the management contracts to calculate management fees. Under
this modified cash basis of accounting prescribed by the management contracts,
the write-off of capital equipment and leased assets for the casino operations
was accelerated, which thereby impacted the timing of net distributable profits.

NINE MONTHS ENDED SEPTEMBER 28, 2003 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
29, 2002

Revenues

Total revenues were $3.9 million for the nine months ended September 28, 2003
compared to $1.5 million for the same period in the prior year. Revenues for the
current year period were derived entirely from license fees related to the WPT
series, which has completed its first full season. An agreement for a WPT second
season was reached during July of 2003. Under the new agreement, WPT will
receive a series of fixed license payments for the second season. These payments
will commence in 2004 and are subject to satisfaction of production milestones
and other conditions. WPT is also entitled to a portion of the revenues from
other sources including international distribution, merchandising and certain
sponsorships, and WPT is currently exploring these opportunities. Revenues for
the prior year period were derived entirely from management fees from the
management of Grand Casino Coushatta. The management contract with the Coushatta
Tribe of Louisiana for Grand Casino Coushatta expired on January 16, 2002. The
Company currently has no other management contracts from which it will derive
revenues in 2003.

Costs and Expenses

Total costs and expenses were $7.6 million for the nine months ended September
28, 2003, compared to $14.7 million for the same period in the prior year.
Selling, general and administrative expenses decreased from $14.4 million for
the nine months ended September 29, 2002 to $7.2 million for the nine months
ended September 28, 2003. This decrease is the result of impairment charges
taken in the prior year period of $4.0 million relating to a note receivable
from Living Benefits, LLC, and $3.0 million relating to the Polo Plaza and
Travelodge properties, which was partially offset by an increase in professional
fees of approximately $1.4 million related to the property sales in Las Vegas,
Nevada, as well as an increase in costs incurred associated with WPT in the
amount of $2.5 million during the current year period. Also during the current
year period, the Company reversed a reserve assessment related to Stratosphere
litigation which exceeded the final judgment amount resulting in a reversal of
litigation and claims accrual in the amount of $3.2 million.



                                       22
<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)



Other

Interest income was $0.6 million for the nine months ended September 28, 2003
compared to $1.3 million for the same period in the prior year. This decrease is
primarily due to lower market rates during the period as well as a decrease in
interest earned on amounts owed to Lakes by Metroflag related to the properties
sold to Metroflag by Lakes in Las Vegas, Nevada.

Losses Per Common Share and Net Losses

For the nine months ended September 28, 2003, basic and diluted losses per
common share were $0.17, compared to basic and diluted losses of $0.84 per
common share, for the same period in the prior year. Losses for the period ended
September 28, 2003 were $1.8 million compared to $8.9 million for the nine
months ended September 29, 2002. This decrease in losses is primarily due to the
impairment charges of $7.0 million taken in the prior year period discussed
above.

THREE MONTHS ENDED SEPTEMBER 28, 2003 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 29, 2002

Revenues

Total revenues were $0.4 million for the three months ended September 28, 2003.
There were no revenues in the same period in the prior year. Revenues for the
current year period were derived entirely from license fees related to the WPT
series, which has now completed its first full season. An agreement for a WPT
second season was reached during July 2003. Revenue from the second season will
be recognized in 2004 as production milestones and other conditions are met.

Costs and Expenses

Total costs and expenses were $2.6 million for the three months ended September
28, 2003, compared to $2.8 million for the same period in the prior year.
Selling, general and administrative expenses remained nearly constant at $2.5
million for the three months ended September 28, 2003 compared to $2.7 million
for the three months ended September 29, 2002.

Other

Interest income was $0.1 million for the three months ended September 28, 2003
and September 29, 2002.








                                       23
<PAGE>


                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)




Earnings Per Common Share and Net Earnings

For the three months ended September 28, 2003, basic and diluted losses per
common share were $0.12, compared to basic and diluted losses of $0.16 per
share, for the same period in the prior year. Losses for the three months ended
September 28, 2003 were $1.3 million compared to losses of $1.7 million for the
three months ended September 29, 2002. This decrease in losses relates primarily
to revenue recognized during the current year period of $0.4 million related to
the WPT. No revenue was recognized during the prior year period.

Outlook

It is currently contemplated that there will be no operating revenues for the
remainder of 2003 from existing casino development projects or from the World
Poker Tour. Although none of the existing casino development projects are
expected to produce revenue in 2003, Lakes continues to evaluate potential new
revenue-generating business opportunities. The Company recently signed an
agreement with TRV for a second season of the WPT series. Costs associated with
WPT are expected to remain primarily consistent during the third and fourth
quarters of 2003. However, revenues related to the second season will not be
recognized until 2004, as production milestones and other conditions are met.
Lakes anticipates that second season revenues from all sources will allow WPT to
be profitable in 2004 and future years, thereby being incremental to Lakes'
earnings and reducing financial risks associated with this venture. Lakes
continues to closely monitor its operating expenses.

FINANCIAL CONDITION

At September 28, 2003, Lakes had $31.3 million in unrestricted cash and cash
equivalents. Lakes considers its cash position adequate to cover expected
remaining 2003 operating expenses. For the nine months ended September 28, 2003,
net cash used in operating activities totaled $5.8 million. For the nine months
ended September 29, 2002, net cash used in operating activities totaled $1.4
million. For the current year period, net cash provided by investing activities
totaled $23.0 million. For the nine months ended September 29, 2002, net cash
used in investing activities totaled $20.9 million. Included in these investing
activities for the periods ended September 28, 2003 and September 29, 2002 are
advances on notes receivable of $12.4 million and $15.3 million, respectively.
Net receipts from land held under contract for sale were $16.1 million during
the nine months ended September 28, 2003. Payments for land held under contract
for sale were $0.8 million for the nine months ended September 29, 2002.

Unrestricted cash increased by $5.9 million during the 2003 period as a result
of the reclassification of restricted cash as unrestricted. During the nine
months ended September 28, 2003, net payments received for land held for
development were $13.4 million. During the prior year period, payments for land
held for development amounted to $3.7 million.




                                       24
<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)




Lakes plans to use its cash for continuing operations, loans to current joint
ventures and tribal partners to develop existing and anticipated Indian casino
operations, the pursuit of additional business opportunities, and settlement of
pending litigation matters. The amount and timing of Lakes' cash outlays for
casino development loans will depend on the timing of the regulatory approval
process and the availability of external financing. When approvals are received,
additional financing will be needed to complete the projects. It is currently
planned that this third-party financing will be obtained by each individual
tribe. However, there can be no assurance that if third-party financing is not
available, Lakes will not be required to finance these projects directly. If
Lakes must provide this financing, Lakes expects to obtain debt or equity
financing which it would loan to the respective tribes as necessary. In the
alternative, Lakes may be required to guarantee the tribes' debt financing or
otherwise provide support for the tribes' obligations. Any guarantees by Lakes
or similar off-balance sheet liabilities will increase Lakes' potential exposure
in the event of a default by any of these tribes.

At September 28, 2003, Lakes had approximately $80.4 million in notes receivable
from Indian tribes and other parties. Most of these amounts are advances made to
the tribes for the development of gaming properties managed by Lakes. See Note 5
to the Consolidated Financial Statements included in Item 1.

The joint venture entities that hold the management contracts for the San Diego
and Sacramento area casino resorts were previously jointly owned with two LLC's
owned by Kevin M. Kean and Jerry A. Argovitz, (the "KAR Entities"). On January
30, 2003, subsidiaries of Lakes purchased the respective joint venture interests
of the KAR Entities for nominal consideration, at which time the joint venture
entities became indirect wholly owned subsidiaries of Lakes. At the time of the
purchase, Lakes or its subsidiaries had notes receivable from the KAR Entities
and a long-term receivable from Kevin M. Kean that, as of December 29, 2002,
were in the amounts of $1.8 million and $1.9 million, respectively. In
connection with the purchase transactions, Lakes and certain of its subsidiaries
entered into separate agreements with Kevin M. Kean and Jerry A. Argovitz, the
two individual owners of the KAR Entities. Under these agreements, Lakes and its
subsidiaries have forgiven the notes receivable from the KAR Entities, subject
to the agreements of Messrs. Kean and/or Argovitz to assume the obligations
under the notes in certain circumstances.

Under the agreements with Kevin M. Kean, Mr. Kean may elect to serve as a
consultant to Lakes' subsidiaries during the term of each subsidiary's casino
management contract if he is found suitable by relevant gaming regulatory
authorities. In such event, Mr. Kean will be entitled to receive annual
consulting fees equal to 20% of the management fees from the San Diego area
casino operations and 15% of the management fees from the Sacramento area casino
operations, less certain costs of these operations.





                                       25
<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)



If Mr. Kean is found suitable by relevant gaming regulatory authorities and
elects to serve as a consultant, he will be obligated to repay 50% of the notes
receivable from the KAR Entities. If Mr. Kean is not found suitable by relevant
gaming regulatory authorities or otherwise elects not to serve as a consultant,
he will be entitled to receive annual payments of $1 million from each of the
San Diego and Sacramento area casino projects during the term of the respective
casino management contracts (but not during any renewal term of such management
contracts). Regardless of whether Mr. Kean serves as a consultant, a Lakes
subsidiary has agreed to loan up to $1.25 million to Mr. Kean, $1 million of
which must be used to fund certain obligations of Mr. Kean related to a separate
joint venture formed to acquire land in the San Diego area. Mr. Kean's personal
indebtedness to Lakes remained outstanding. Mr. Kean has agreed that 50% of the
consulting fees or other payments payable to him under the agreements with Lakes
and its subsidiaries shall be applied toward repayment of his indebtedness to
Lakes. In the event of a default under the agreements, 100% of the fees and
payments will be applied toward repayment of his indebtedness to Lakes.

Under the agreements with Jerry A. Argovitz, if Mr. Argovitz is found suitable
by relevant gaming regulatory authorities, he will be entitled to purchase for
nominal consideration a 20% equity interest in the Lakes subsidiary holding a
management contract with the San Diego area casino and a 15% equity interest in
the Lakes subsidiary holding a management contract with the Sacramento area
casino. Upon such purchase, Mr. Argovitz will become obligated to repay 50% of
the notes receivable from the KAR Entities. If he is not found suitable or does
not elect to purchase equity interests in the Lakes subsidiaries, Mr. Argovitz
may elect to receive annual payments of $1 million from each of the San Diego
and Sacramento area casino projects from the date of election through the term
of the respective casino management contracts (but not during any renewal term
of such management contracts).

As part of the formation of WPT, the Company invested $0.1 million for an
approximately 80% ownership position in the joint venture during 2002. The
Company is also required to loan up to $3.2 million to WPT as needed. As of
September 28, 2003, the Company had made net loans totaling $2.0 million to WPT.





                                       26
<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)






On July 1, 2003, Lakes completed the sale of its Shark Club property in Las
Vegas, Nevada to an entity to be managed and operated by Marriott Ownership
Resorts, Inc. As consideration for this sale, Lakes received $15.0 million in
cash, plus $1.0 million as repayment of a loan previously made to Chateaux by
Lakes.








                                       27
<PAGE>


                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)





As a part of the agreements resulting from Lakes' spin-off from Grand Casinos
and related transactions, Lakes has agreed to indemnify Grand Casinos against
all costs, expenses and liabilities incurred in connection with or arising out
of certain pending and threatened claims and legal proceedings to which Grand
Casinos and certain of its subsidiaries are likely to be parties. The Company's
indemnification obligations include the obligation to provide the defense of all
claims made in proceedings against Grand Casinos and to pay all related
settlements and judgments. Subsequent indemnification obligations to Grand
Casinos, if any, will be paid directly by Lakes.

SEASONALITY

The Company believes that the operations of all casinos to be managed by the
Company will be affected by seasonal factors, including holidays, weather and
travel conditions.

REGULATION AND TAXES

The Company is subject to extensive regulation by state gaming authorities. The
Company will also be subject to regulation, which may or may not be similar to
current state regulations, by the appropriate authorities in any jurisdiction
where it may conduct gaming activities in the future. Changes in applicable laws
or regulations could have an adverse effect on the Company.





                                       28
<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)


The gaming industry represents a significant source of tax revenues. From time
to time, various federal legislators and officials have proposed changes in tax
law, or in the administration of such law, affecting the gaming industry. It is
not possible to determine the likelihood of possible changes in tax law or in
the administration of such law. Such changes, if adopted, could have a material
adverse effect on the Company's results of operations and financial results.



                                       29
<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)





PRIVATE SECURITIES LITIGATION REFORM ACT

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Form 10-K
and other materials filed or to be filed by the Company with the Securities and
Exchange Commission (as well as information included in oral statements or other
written statements made or to be made by the Company) contain statements that
are forward-looking, such as plans for future expansion and other business
development activities as well as other statements regarding capital spending,
financing sources and the effects of regulation (including gaming and tax
regulation) and competition.

Such forward looking information involves important risks and uncertainties that
could significantly affect the anticipated results in the future and,
accordingly, actual results may differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company.

These risks and uncertainties include, but are not limited to, those relating to
possible delays in completion of Lakes' casino projects, including various
regulatory approvals and numerous other conditions which must be satisfied
before completion of these projects; possible termination or adverse
modification of management contracts; continued indemnification obligations to
Grand Casinos; highly competitive industry; possible changes in regulations;
reliance on continued positive relationships with Indian tribes and repayment of
amounts owed to Lakes by Indian tribes; possible need for future financing to
meet Lakes' expansion goals; risks of entry into new businesses; and reliance on
Lakes' management. For further information regarding the risks and
uncertainties, see the "Business -- Risk Factors" section of the Company's
Annual Report on Form 10-K for the fiscal year ended December 29, 2002.



















                                       30
<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                    QUANTITATIVE AND QUALITATIVE DISCLOSURES
                   ABOUT MARKET RISK; CONTROLS AND PROCEDURES



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's financial instruments include cash and cash equivalents,
marketable securities and long-term debt. The Company's main investment
objectives are the preservation of investment capital and the maximization of
after-tax returns on its investment portfolio. Consequently, the Company invests
with only high-credit-quality issuers and limits the amount of credit exposure
to any one issuer. The Company does not use derivative instruments for
speculative or investment purposes.

The Company's cash and cash equivalents are not subject to significant interest
rate risk due to the short maturities of these instruments. As of September 28,
2003, the carrying value of the Company's cash and cash equivalents approximates
fair value. The Company has in the past and may in the future obtain marketable
debt securities (principally consisting of commercial paper, corporate bonds,
and government securities) having a weighted average duration of one year or
less. Consequently, such securities would not be subject to significant interest
rate risk.

The Company's primary exposure to market risk associated with changes in
interest rates involves the Company's notes receivable related to loans for the
development and construction of Native American owned casinos. The loans and
related note balances earn various interest rates based upon a defined reference
rate. The floating rate receivables will generate more or less interest income
if interest rates rise or fall. Interest income is deferred during development
of the casinos because realizability of the interest is contingent upon the
completion and positive cash flow from operation of the casino. As of September
28, 2003, Lakes had $80.4 million of floating rate notes receivables. Based on
the applicable current reference rates and assuming all other factors remain
constant, deferred interest income for a twelve month period would be $4.4
million. A reference rate increase of 100 basis points would result in an
increase in deferred interest income of $0.8 million. A 100 basis point decrease
in the reference rate would result in a decrease of $0.8 million in deferred
interest income over the same twelve month period.

ITEM 4.  CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including
our chief executive officer and chief financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) or Rule 15d - 15(e) promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as of the end of the
period covered by this quarterly report. Based on their evaluation, our chief
executive officer and chief financial officer concluded that Lakes
Entertainment, Inc.'s disclosure controls and procedures are effective.

There have been no significant changes (including corrective actions with regard
to significant deficiencies or material weaknesses) in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of the evaluation referenced above.



                                       31
<PAGE>


                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                                     PART II
                                OTHER INFORMATION








ITEM 1. LEGAL PROCEEDING


WILLARD EUGENE SMITH LITIGATION

On October 24, 2003, Lakes announced that it had been named as one of a number
of defendants in a counterclaim filed in state court in Harris County, Texas by
Willard Eugene Smith involving Kean Argovitz Resorts, LLC (KAR), related persons
and entities. In the counterclaim, Smith asserts that, under an alleged oral
agreement with Kevin Kean, he is entitled to a percentage of fees to be received
by the KAR entities or their principals relating to the Shingle Springs and
Jamul casinos that Lakes' subsidiaries are developing in California. Smith also
seeks recovery of damages and other relief from the KAR entities, Lakes and
certain affiliates based on their conduct with respect to the alleged agreement.







                                       32
<PAGE>


                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                                     PART II
                          OTHER INFORMATION (CONTINUED)





Lakes believes the counterclaim against it is without merit. Lakes understands
that the alleged oral agreement upon which Smith bases his claim was rendered
null and void in a prior judgment issued against Smith by the Harris County,
Texas state court in October 2000. However, in September 2003, the court vacated
the prior judgment against Smith. Lakes acquired KAR's interests in the Shingle
Springs and Jamul projects on January 30, 2003. In the buyout agreements between
Lakes and certain KAR entities and related principals, the KAR entities
represented to Lakes that the KAR entities and their affiliates had no
continuing agreements with any third party relating to the Shingle Springs and
Jamul projects and agreed to indemnify Lakes and its affiliates from damages of
the KAR entities and related principals concerning the projects. Lakes will
vigorously defend against the allegations made against it and will pursue its
indemnification rights against the KAR entities and their principals under the
buyout agreements if necessary.

OTHER LITIGATION

Lakes is involved in various other inquiries, administrative proceedings, and
litigation relating to contracts and other matters arising in the normal course
of business. While any proceeding or litigation has an element of uncertainty,
management currently believes that the final outcome of these matters is not
likely to have a material adverse effect upon the Company's consolidated
financial position or results of operations.
































                                       33
<PAGE>



                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                                     PART II
                          OTHER INFORMATION (CONTINUED)



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         10.1     Amendment dated July 25, 2003 to Acquisition Master Agreement
                  dated January 22, 2003, by and between The Travel Channel, LLC
                  and World Poker Tour, LLC (portions of this exhibit have been
                  omitted pursuant to a request for confidential treatment and
                  have been filed separately with the Commission pursuant to
                  Rule 24b-2 of the Securities Exchange Act of 1934)

         31.1     Certification of CEO pursuant to Securities Exchange Act Rules
                  13a-15(e) and 15d-15(e) as adopted pursuant to Section 302 of
                  the Sarbanes-Oxley Act of 2002

         31.2     Certification of CFO pursuant to Securities Exchange Act Rules
                  13a-15(e) and 15d-15(e) as adopted pursuant to Section 302 of
                  the Sarbanes-Oxley Act of 2002

         32.1     Certification of Chief Executive Officer pursuant to 18 U.S.C.
                  Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002

         32.2     Certification of Chief Financial Officer pursuant to 18 U.S.C.
                  Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002

(b)      Reports on Form 8-K

         (i)      A Form 8-K, Item 5. Other Events, and Item 7. Financial
                  Statements, Pro Forma Financial Information and Exhibits, was
                  filed on July 2, 2003

         (ii)     A Form 8-K, Item 5. Other Events, and Item 7. Financial
                  Statements, Pro Forma Financial Information and Exhibits, was
                  filed on July 24, 2003

         (iii)    A Form 8-K, Item 5. Other Events, and Item 7. Financial
                  Statements, Pro Forma Financial Information and Exhibits, was
                  filed on August 7, 2003



                                       34
<PAGE>










                                   SIGNATURES


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



Dated:  November 12, 2003                    LAKES ENTERTAINMENT, INC.
                                             -------------------------
                                             Registrant


                                             / s/ Lyle Berman
                                             -----------------------------------
                                             Lyle Berman
                                             Chairman of the Board and
                                             Chief Executive Officer


                                             /s/ Timothy J. Cope
                                             -----------------------------------
                                             Timothy J. Cope
                                             President and
                                             Chief Financial Officer






















                                       35