##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-Q


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 
|           |  | For the quarterly period ended April 2, 2006                                                
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|           |  | For the transition period
    from           to                                             

Commission File No. 0-24993


LAKES ENTERTAINMENT, INC.


(Exact name of registrant as specified in its charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Minnesota                                                          |  | 41-1913991                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)
|130 Cheshire Lane, Suite 101                                       |  | 55305                                   
|Minnetonka, Minnesota                                              |  | (Zip Code)                              
|(Address of principal executive offices)                           |  |                                         

(952) 449-9092


(Registrants telephone number, including area code)


þ o


12b-2


o þ o


12b-2 o þ












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##### 










LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


INDEX


|                                                     |  |                                                                                                                                                 |  |           |    | 
|---------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | -- | 
|                                                     |  |                                                                                                                                                 |  | Page of   |   
|                                                     |  |                                                                                                                                                 |  | Form 10-Q |   
|                                                     |  |                                                                                                                                                 |  |           |   
|PART I. FINANCIAL INFORMATION                       
|ITEM 1.                                              |  | FINANCIAL STATEMENTS                                                                                                                            |  |           |    | 
|                                                     |  | Condensed Consolidated Balance Sheets as of
    April 2, 2006 (unaudited) and January 1, 2006                                                   |  |           | 3  | 
|                                                     |  | Unaudited Condensed Consolidated Statements
    of Earnings (Loss) for the three months ended April 2, 2006
    and April 3, 2005               |  |           | 4  | 
|                                                     |  | Unaudited Condensed Consolidated Statements
    of Comprehensive Earnings (Loss) for the three months ended
    April 2, 2006 and April 3, 2005 |  |           | 5  | 
|                                                     |  | Unaudited Condensed Consolidated Statements
    of Shareholders Equity for the three months ended
    April 2, 2006                            |  |           | 6  | 
|                                                     |  | Unaudited Condensed Consolidated Statements
    of Cash Flows for the three months ended April 2, 2006 and
    April 3, 2005                    |  |           | 7  | 
|                                                     |  | Notes to Unaudited Condensed Consolidated
    Financial Statements                                                                              |  |           | 8  | 
|ITEM 2.                                              |  | MANAGEMENTS DISCUSSION AND ANALYSIS
    OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                                       |  |           | 23 | 
|ITEM 3.                                              |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES
    ABOUT MARKET RISK                                                                                  |  |           | 61 | 
|ITEM 4.                                              |  | CONTROLS AND PROCEDURES                                                                                                                         |  |           | 62 | 
|PART II. OTHER INFORMATION                          
|ITEM 1.                                              |  | LEGAL PROCEEDINGS                                                                                                                               |  |           | 63 | 
|ITEM 1A                                              |  | RISK FACTORS                                                                                                                                    |  |           | 65 | 
|ITEM 6.                                              |  | EXHIBITS                                                                                                                                        |  |           | 65 | 
|Certification of CEO Pursuant to Section 302        
|Certification of CFO Pursuant to Section 302        
|Certification of CEO and CFO Pursuant to Section 906



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Condensed Consolidated Balance Sheets


April 2, 2006 and January 1, 2006


|                                                         |                                                                                                                                                                                 |                |         |         |            |   |         |         | 
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | ------- | ---------- | - | ------- | ------- | 
|                                                         |                                                                                                                                                                                 | April 2,       |         |         | January 1, |  
|                                                         |                                                                                                                                                                                 | 2006           |         |         | 2006       |  
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|                                                         |                                                                                                                                                                                 | (Unaudited)    |         |         |           
|                                                         |                                                                                                                                                                                 | (In thousands) |        
|ASSETS                                                  
|Current Assets:                                          |                                                                                                                                                                                 |                |         |         |            |   |         |        
|                                                         | Cash and cash equivalents                                                                                                                                                       |                | $       | 19,329  |            |   | $       | 9,912   | 
|                                                         | (balance includes $3.7 million and $1.7 million of WPT
    Enterprises, Inc. cash)                                                                                              |                |         |         |            |   |         |         | 
|                                                         | Short-term investments                                                                                                                                                          |                |         | 35,907  |            |   |         | 26,735  | 
|                                                         | (balance includes $35.9 million and $26.7 million of
    WPT Enterprises, Inc. short-term investments)                                                                          |                |         |         |            |   |         |         | 
|                                                         | Accounts receivable, net of allowance of $0.1 million and
    $0.1 million                                                                                                      |                |         | 2,633   |            |   |         | 3,072   | 
|                                                         | Prepaid expenses                                                                                                                                                                |                |         | 991     |            |   |         | 614     | 
|                                                         | Other current assets                                                                                                                                                            |                |         | 2,606   |            |   |         | 2,130   | 
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Total current assets                                     |                                                                                                                                                                                 |                | 61,466  |         |            |   | 42,463  |        
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Property and equipment, net                              |                                                                                                                                                                                 |                | 13,621  |         |            |   | 13,451  |        
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Long-term assets related to Indian casino projects:      |                                                                                                                                                                                 |                |         |         |            |   |         |        
|                                                         | Notes receivable from Indian tribes                                                                                                                                             |                |         | 105,402 |            |   |         | 87,062  | 
|                                                         | Land held for development                                                                                                                                                       |                |         | 16,248  |            |   |         | 16,248  | 
|                                                         | Intangible assets related to acquisition of management
    contracts, net                                                                                                       |                |         | 48,528  |            |   |         | 46,088  | 
|                                                         | Other                                                                                                                                                                           |                |         | 4,807   |            |   |         | 3,360   | 
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Total long-term assets related to Indian casino projects |                                                                                                                                                                                 |                | 174,985 |         |            |   | 152,758 |        
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Other assets:                                            |                                                                                                                                                                                 |                |         |         |            |   |         |        
|                                                         | Investments                                                                                                                                                                     |                |         | 5,395   |            |   |         | 10,640  | 
|                                                         | Deferred tax asset                                                                                                                                                              |                |         | 5,883   |            |   |         | 6,852   | 
|                                                         | Debt issuance costs, net of amortization of $0.1 million and
    $0.0 million                                                                                                   |                |         | 2,611   |            |   |         | 19      | 
|                                                         | Other long-term assets                                                                                                                                                          |                |         | 4,502   |            |   |         | 4,427   | 
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Total other assets                                       |                                                                                                                                                                                 |                | 18,391  |         |            |   | 21,938  |        
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Total Assets                                             |                                                                                                                                                                                 | $              | 268,463 |         |            | $ | 230,610 |        
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|                                                        
|LIABILITIES AND SHAREHOLDERS EQUITY                    
|Current Liabilities:                                     |                                                                                                                                                                                 |                |         |         |            |   |         |        
|                                                         | Accounts payable                                                                                                                                                                |                | $       | 9,183   |            |   | $       | 8,394   | 
|                                                         | Income taxes payable                                                                                                                                                            |                |         | 11,353  |            |   |         | 10,933  | 
|                                                         | Accrued payroll and related costs                                                                                                                                               |                |         | 790     |            |   |         | 1,125   | 
|                                                         | Deferred revenue                                                                                                                                                                |                |         | 9,400   |            |   |         | 5,150   | 
|                                                         | Other accrued expenses                                                                                                                                                          |                |         | 2,326   |            |   |         | 2,159   | 
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Total current liabilities                                |                                                                                                                                                                                 |                | 33,052  |         |            |   | 27,761  |        
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Long-term Liabilities:                                   |                                                                                                                                                                                 |                |         |         |            |   |         |        
|                                                         | Long-term debt, related party                                                                                                                                                   |                |         |        |            |   |         | 10,000  | 
|                                                         | Long-term debt, other, net of unamortized discount of
    $4.5 million and $0.0 million                                                                                         |                |         | 20,411  |            |   |         |        | 
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Long-term liabilities                                    |                                                                                                                                                                                 |                | 20,411  |         |            |   | 10,000  |        
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Total Liabilities                                        |                                                                                                                                                                                 |                | 53,463  |         |            |   | 37,761  |        
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Commitments and Contingencies                            |                                                                                                                                                                                 |                |         |         |            |   |         |        
|Minority interest in subsidiary                          |                                                                                                                                                                                 |                | 15,133  |         |            |   | 14,466  |        
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Shareholders Equity:                                    |                                                                                                                                                                                 |                |         |         |            |   |         |        
|                                                         | Series A preferred stock, $.01 par value; authorized
    7,500,000 shares; 4,457,751 and 0 issued and outstanding at
    April 2, 2006 and January 1, 2006, respectively        |                |         | 45      |            |   |         |        | 
|                                                         | Common stock, $.01 par value; authorized
    200,000 shares; 22,850 and 22,300 common shares issued and
    outstanding at April 2, 2006, and January 1, 2006,
    respectively |                |         | 228     |            |   |         | 223     | 
|                                                         | Additional paid-in capital                                                                                                                                                      |                |         | 169,298 |            |   |         | 154,301 | 
|                                                         | Retained earnings                                                                                                                                                               |                |         | 25,093  |            |   |         | 13,410  | 
|                                                         | Accumulated other comprehensive earnings                                                                                                                                        |                |         | 5,203   |            |   |         | 10,449  | 
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Total shareholders equity                               |                                                                                                                                                                                 |                | 199,867 |         |            |   | 178,383 |        
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Total Liabilities and Shareholders Equity               |                                                                                                                                                                                 | $              | 268,463 |         |            | $ | 230,610 |        
|                                                         |                                                                                                                                                                                 |                |         |         |            |  



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Condensed Consolidated Statements of Earnings (Loss)


Three months ended April 2, 2006 and April 3,
2005


|                                                                                                                                                       |                                     |                           |        |       |               |   |        |       |       | 
|------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------- | ------------------------- | ------ | ----- | ------------- | - | ------ | ----- | ----- | 
|                                                                                                                                                       |                                     | Three Months Ended        |       
|                                                                                                                                                       |                                     |                           |       
|                                                                                                                                                       |                                     | April 2, 2006             |        |       | April 3, 2005 |  
|                                                                                                                                                       |                                     |                           |        |       |               |  
|                                                                                                                                                       |                                     | (In thousands, except per |       
|                                                                                                                                                       |                                     | share data)               |       
|                                                                                                                                                       |                                     | (Unaudited)               |       
|Revenues:                                                                                                                                              |                                     |                           |        |       |               |   |        |      
|                                                                                                                                                       | License fee income                  |                           | $      | 4,677 |               |   | $      | 3,463 |      
|                                                                                                                                                       | Host fees, sponsorship and other    |                           |        | 1,954 |               |   |        | 641   |      
|                                                                                                                                                       |                                     |                           |        |       |               |  
|                                                                                                                                                       |                                     | Total Revenues            |        |       | 6,631         |   |        |       | 4,104 | 
|                                                                                                                                                       |                                     |                           |        |       |               |  
|Costs and Expenses:                                                                                                                                    |                                     |                           |        |       |               |   |        |      
|                                                                                                                                                       | Selling, general and administrative |                           |        | 9,176 |               |   |        | 6,463 |      
|                                                                                                                                                       | Production costs                    |                           |        | 2,420 |               |   |        | 3,187 |      
|                                                                                                                                                       | Depreciation and amortization       |                           |        | 269   |               |   |        | 92    |      
|                                                                                                                                                       |                                     |                           |        |       |               |  
|                                                                                                                                                       |                                     | Total Costs and Expenses  |        |       | 11,865        |   |        |       | 9,742 | 
|                                                                                                                                                       |                                     |                           |        |       |               |  
|Net unrealized gain on notes receivable                                                                                                                |                                     |                           | 15,476 |       |               |   | 2,836  |      
|                                                                                                                                                       |                                     |                           |        |       |               |  
|Earnings (Loss) From Operations                                                                                                                        |                                     |                           | 10,242 |       |               |   | (2,802 | )    
|                                                                                                                                                       |                                     |                           |        |       |               |  
|Other Income (Expense):                                                                                                                                |                                     |                           |        |       |               |   |        |      
|                                                                                                                                                       | Interest income                     |                           |        | 433   |               |   |        | 449   |      
|                                                                                                                                                       | Interest expense, related party     |                           |        | (137  | )             |   |        |      |      
|                                                                                                                                                       | Interest expense, other             |                           |        | (531  | )             |   |        |      |      
|                                                                                                                                                       | Realized gain on sale of investment |                           |        | 5,675 |               |   |        |      |      
|                                                                                                                                                       | Other                               |                           |        | 78    |               |   |        |      |      
|                                                                                                                                                       |                                     |                           |        |       |               |  
|                                                                                                                                                       |                                     | Total other income, net   |        |       | 5,518         |   |        |       | 449   | 
|                                                                                                                                                       |                                     |                           |        |       |               |  
|Earnings (loss) before income taxes, equity in earnings of
    unconsolidated investees and minority interest in net earnings
    (loss) of subsidiary |                                     |                           | 15,760 |       |               |   | (2,353 | )    
|Income taxes                                                                                                                                           |                                     |                           | 2,710  |       |               |   | 355    |      
|                                                                                                                                                       |                                     |                           |        |       |               |  
|Earnings (loss) before equity in earnings of unconsolidated
    investees and minority interest in net earnings (loss) of
    subsidiary               |                                     |                           | 13,050 |       |               |   | (2,708 | )    
|Equity in earnings of investees, net of tax                                                                                                            |                                     |                           |       |       |               |   | 13     |      
|Minority interest in net (earnings) loss of subsidiary                                                                                                 |                                     |                           | (1,367 | )     |               |   | 576    |      
|                                                                                                                                                       |                                     |                           |        |       |               |  
|Net earnings (loss)                                                                                                                                    |                                     | $                         | 11,683 |       |               | $ | (2,119 | )    
|                                                                                                                                                       |                                     |                           |        |       |               |  
|Earnings (loss) per share  basic                                                                                                                      |                                     | $                         | 0.52   |       |               | $ | (0.10  | )    
|                                                                                                                                                       |                                     |                           |        |       |               |  
|Earnings (loss) per share  diluted                                                                                                                    |                                     | $                         | 0.48   |       |               | $ | (0.10  | )    
|                                                                                                                                                       |                                     |                           |        |       |               |  
|Weighted average common shares outstanding 
    basic                                                                                                 |                                     |                           | 22,406 |       |               |   | 22,267 |      
|                                                                                                                                                       |                                     |                           |        |       |               |  
|Dilutive effect of common stock equivalents                                                                                                            |                                     |                           | 1,709  |       |               |   |       |      
|                                                                                                                                                       |                                     |                           |        |       |               |  
|Weighted average common shares outstanding 
    diluted                                                                                               |                                     |                           | 24,115 |       |               |   | 22,267 |      
|                                                                                                                                                       |                                     |                           |        |       |               |  



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Condensed Consolidated Statements of Comprehensive Earnings
(Loss)


Three months ended April 2, 2006 and April 3,
2005


|                                                 |                                                     |                    |        |     |          |   |        |     |  
|------------------------------------------------ | --------------------------------------------------- | ------------------ | ------ | --- | -------- | - | ------ | --- | -
|                                                 |                                                     | Three Months Ended |       
|                                                 |                                                     |                    |       
|                                                 |                                                     | April 2,           |        |     | April 3, |  
|                                                 |                                                     | 2006               |        |     | 2005     |  
|                                                 |                                                     |                    |        |     |          |  
|                                                 |                                                     | (In thousands)     |       
|                                                 |                                                     | (Unaudited)        |       
|Net earnings (loss)                              |                                                     | $                  | 11,683 |     |          | $ | (2,119 | )  
|Other comprehensive earnings (loss), net of tax: |                                                     |                    |        |     |          |   |        |    
|                                                 | Unrealized gains (losses) on marketable securities: |                    |        | 429 |          |   |        | (42 | )
|                                                 |                                                     |                    |        |     |          |  
|Comprehensive Earnings (Loss)                    |                                                     | $                  | 12,112 |     |          | $ | (2,161 | )  
|                                                 |                                                     |                    |        |     |          |  



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Condensed Consolidated Statements of Shareholders
Equity


Three months ended April 2, 2006


|                          |                                                              |                 |       |       |              |   |    |            |  |             |          |     |       |               |     |       |               |   |         |                 |  |   |        |        |  |   |        |        |   |   |         |        |  
|------------------------- | ------------------------------------------------------------ | --------------- | ----- | ----- | ------------ | - | -- | ---------- |  | ----------- | -------- | --- | ----- | ------------- | --- | ----- | ------------- | - | ------- | --------------- |  | - | ------ | ------ |  | - | ------ | ------ | - | - | ------- | ------ | -
|                          |                                                              |                 |       |       |              |   |    |            |  | Accumulated |          |     |      
|                          |                                                              | Preferred Stock |       |       | Common Stock |   |    | Additional |  |             |          |     | Other |               |     | Total |              
|                          |                                                              |                 |       |       |              |   |    | Paid-In    |  |             | Retained |     |       | Comprehensive |     |       | Shareholders |  
|                          |                                                              | Shares          |       |       | Amount       |   |    | Shares     |  |             | Amount   |     |       | Capital       |     |       | Earnings      |   |         | Earnings (Loss) |  |   | Equity |       
|                          |                                                              |                 |       |       |              |   |    |            |  |             |          |     |       |               |     |       |               |   |         |                 |  |   |        |       
|                          |                                                              | (In thousands)  |      
|                          |                                                              | (Unaudited)     |      
|Balances, January 1, 2006 |                                                              |                 |      |       |              |   |   |            |  |             | 22,300   |     |       | $             | 223 |       |               | $ | 154,301 |                 |  | $ | 13,410 |        |  | $ | 10,449 |        |   | $ | 178,383 |       
|                          | Other comprehensive earnings                                 |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         |                |  |   |        |       |  |   |        | 429    |   |   |         | 429    |  
|                          | Realized gain on sale of investment                          |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         |                |  |   |        |       |  |   |        | (5,675 | ) |   |         | (5,675 | )
|                          | Issuance of preferred stock warrants                         |                 |       | 4,458 |              |   | $  | 45         |  |             |          |    |       |               |     |      |               |   |         | 4,709           |  |   |        |       |  |   |        |       |   |   |         | 4,754  |  
|                          | Issuance of stock on options exercised  net                 |                 |       |      |              |   |    |           |  |             |          | 550 |       |               |     | 5     |               |   |         | 3,107           |  |   |        |       |  |   |        |       |   |   |         | 3,112  |  
|                          | Subsidiary stock options issued to consultants and employees |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         | 1               |  |   |        |       |  |   |        |       |   |   |         | 1      |  
|                          | Shareholder trading settlement                               |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         | 2,805           |  |   |        |       |  |   |        |       |   |   |         | 2,805  |  
|                          | Share-based compensation expense                             |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         | 2,381           |  |   |        |       |  |   |        |       |   |   |         | 2,381  |  
|                          | Income taxes                                                 |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         | 1,294           |  |   |        |       |  |   |        |       |   |   |         | 1,294  |  
|                          | Net increase in minority interest in subsidiary              |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         | 700             |  |   |        |       |  |   |        |       |   |   |         | 700    |  
|                          | Net earnings                                                 |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         |                |  |   |        | 11,683 |  |   |        |       |   |   |         | 11,683 |  
|                          |                                                              |                 |       |       |              |   |    |            |  |             |          |     |       |               |     |       |               |   |         |                 |  |   |        |       
|Balances, April 2, 2006   |                                                              |                 | 4,458 |       |              | $ | 45 |            |  |             | 22,850   |     |       | $             | 228 |       |               | $ | 169,298 |                 |  | $ | 25,093 |        |  | $ | 5,203  |        |   | $ | 199,867 |       
|                          |                                                              |                 |       |       |              |   |    |            |  |             |          |     |       |               |     |       |               |   |         |                 |  |   |        |       



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Condensed Consolidated Statements of Cash Flows


Three months ended April 2, 2006 and April 3,
2005


|                                                    |                                                                                                          |                                                               |                      |         |          |        |        |        |        |       |  
|--------------------------------------------------- | -------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | -------------------- | ------- | -------- | ------ | ------ | ------ | ------ | ----- | -
|                                                    |                                                                                                          | Three Months Ended                                            |                     
|                                                    |                                                                                                          |                                                               |                     
|                                                    |                                                                                                          | April 2,                                                      |                      |         | April 3, |       
|                                                    |                                                                                                          | 2006                                                          |                      |         | 2005     |       
|                                                    |                                                                                                          |                                                               |                      |         |          |       
|                                                    |                                                                                                          | (In thousands)                                                |                     
|                                                    |                                                                                                          | (Unaudited)                                                   |                     
|OPERATING ACTIVITIES:                               |                                                                                                          |                                                               |                      |         |          |        |        |       
|                                                    | Net earnings (loss)                                                                                      |                                                               | $                    | 11,683  |          |        | $      | (2,119 | )     
|                                                    | Adjustments to reconcile net earnings (loss) to net cash
    provided by (used in) operating activities: |                                                               |                      |         |          |        |        |        |       
|                                                    |                                                                                                          | Depreciation and amortization                                 |                      |         | 269      |        |        |        | 92     |      
|                                                    |                                                                                                          | Amortization of deferred financing costs and discount on debt |                      |         | 165      |        |        |        |       |      
|                                                    |                                                                                                          | Share-based compensation                                      |                      |         | 2,381    |        |        |        | 425    |      
|                                                    |                                                                                                          | Net unrealized gains on notes receivable                      |                      |         | (15,476  | )      |        |        | (2,836 | )    
|                                                    |                                                                                                          | Realized gain on sale of investment                           |                      |         | (5,675   | )      |        |        |       |      
|                                                    |                                                                                                          | Minority interest in net earnings (loss) of subsidiary        |                      |         | 1,367    |        |        |        | (576   | )    
|                                                    |                                                                                                          | Equity in earnings of unconsolidated investees                |                      |         |         |        |        |        | (13    | )    
|                                                    |                                                                                                          | Deferred income taxes                                         |                      |         | 2,264    |        |        |        | (29    | )    
|                                                    |                                                                                                          | Increases in operating (assets) and liabilities:              |                      |         |          |        |        |        |        |      
|                                                    |                                                                                                          |                                                               | Accounts receivable  |         |          | 440    |        |        |        | 815   |  
|                                                    |                                                                                                          |                                                               | Prepaid expenses     |         |          | (377   | )      |        |        | 225   |  
|                                                    |                                                                                                          |                                                               | Other                |         |          | (476   | )      |        |        | (714  | )
|                                                    |                                                                                                          |                                                               | Income taxes payable |         |          | 420    |        |        |        | 4,569 |  
|                                                    |                                                                                                          |                                                               | Accounts payable     |         |          | (1,122 | )      |        |        | (348  | )
|                                                    |                                                                                                          |                                                               | Deferred revenue     |         |          | 4,250  |        |        |        | 321   |  
|                                                    |                                                                                                          |                                                               | Accrued expenses     |         |          | (167   | )      |        |        | 668   |  
|                                                    |                                                                                                          |                                                               |                      |         |          |       
|Net Cash Provided by (Used in) Operating Activities |                                                                                                          |                                                               | (54                  | )       |          |        | 480    |       
|                                                    |                                                                                                          |                                                               |                      |         |          |       
|INVESTING ACTIVITIES:                               |                                                                                                          |                                                               |                      |         |          |        |        |       
|                                                    | Redemption (purchase) of short-term investment securities                                                |                                                               |                      | (9,183  | )        |        |        | 9,441  |       
|                                                    | Increases in long-term assets related to Indian casino projects                                          |                                                               |                      | (4,340  | )        |        |        | (2,074 | )     
|                                                    | Advances to unconsolidated investees                                                                     |                                                               |                      |        |          |        |        | (10    | )     
|                                                    | Distributions from unconsolidated investees                                                              |                                                               |                      |        |          |        |        | 850    |       
|                                                    | Proceeds from sale of investment                                                                         |                                                               |                      | 5,686   |          |        |        |       |       
|                                                    | Payments for other long-term assets                                                                      |                                                               |                      | (77     | )        |        |        | (199   | )     
|                                                    | Decrease in other long-term assets                                                                       |                                                               |                      |        |          |        |        | 197    |       
|                                                    | Purchase of property and equipment                                                                       |                                                               |                      | (804    | )        |        |        | (607   | )     
|                                                    |                                                                                                          |                                                               |                      |         |          |       
|Net Cash Provided by (Used in) Investing Activities |                                                                                                          |                                                               | (8,718               | )       |          |        | 7,598  |       
|                                                    |                                                                                                          |                                                               |                      |         |          |       
|FINANCING ACTIVITIES:                               |                                                                                                          |                                                               |                      |         |          |        |        |       
|                                                    | Proceeds from issuance of common and preferred stock                                                     |                                                               |                      | 3,157   |          |        |        | 154    |       
|                                                    | Shareholder trading settlement                                                                           |                                                               |                      | 2,805   |          |        |        |       |       
|                                                    | Repayments of long-term debt, related party                                                              |                                                               |                      | (10,000 | )        |        |        |       |       
|                                                    | Proceeds from issuance of long-term debt, other, net                                                     |                                                               |                      | 22,227  |          |        |        |       |       
|                                                    |                                                                                                          |                                                               |                      |         |          |       
|Net Cash Provided by Financing Activities           |                                                                                                          |                                                               | 18,189               |         |          |        | 154    |       
|                                                    |                                                                                                          |                                                               |                      |         |          |       
|Net Increase in Cash and Cash Equivalents           |                                                                                                          |                                                               | 9,417                |         |          |        | 8,232  |       
|Cash and Cash Equivalents  Beginning of Period     |                                                                                                          |                                                               | 9,912                |         |          |        | 28,717 |       
|                                                    |                                                                                                          |                                                               |                      |         |          |       
|Cash and Cash Equivalents  End of Period           |                                                                                                          | $                                                             | 19,329               |         |          | $      | 36,949 |       
|                                                    |                                                                                                          |                                                               |                      |         |          |       



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##### Table of Contents






LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements




|   |                       
|-- | ----------------------
|1. | Basis of Presentation:

10-K








|   |                              
|-- | -----------------------------
|2. | Managements Financial Plans:







8



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




|   |                       
|-- | ----------------------
|3. | Long-Term Investments:



Accounting for Certain Investments
in Debt and Equity Securities.




|   |                
|-- | ---------------
|4. | Long-Term Debt:







9



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)


one-to




|   |                                                                       
|-- | ----------------------------------------------------------------------
|5. | Development Financing and Services Agreement With The Jamul
    Tribe:







|   |                                              
|-- | ---------------------------------------------
|6. | Settlement Agreement with a Beneficial Owner:





|   |                     
|-- | --------------------
|7. | Kickapoo Settlement:



10



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




|   |                                                                      
|-- | ---------------------------------------------------------------------
|8. | Regulatory Approval of Management Contract with the Pokagon
    Band:





|   |                          
|-- | -------------------------
|9. | Stock Options and Awards:



| |                          
| | -------------------------
| | Lakes Stock Option Plans:







| |                         
| | ------------------------
| | WPTE Stock Option Plans:







| |                                                        
| | -------------------------------------------------------
| | Valuation and Expense Information under
    SFAS 123(R)

Share-Based Payment




11



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)


Accounting for Stock-Based
Compensation Accounting for Stock Issued to Employees




|                                                          |  |                    |       | 
|--------------------------------------------------------- |  | ------------------ | ----- | 
|                                                          |  | Three Months Ended |      
|                                                          |  | April 2, 2006      |      
|                                                          |  |                    |      
|                                                          |  | (In thousands)     |      
|Total cost of share-based payment plans                   |  | $                  | 2,252 | 
|Amounts capitalized in deferred television costs          |  |                    | 34    | 
|Amounts charged against income, before income tax benefit |  |                    | 2,218 | 
|Amount of related income tax benefit recognized in income |  |                    |      | 







| |                                     
| | ------------------------------------
| | Lakes valuation assumption summary:

|                                |  |                    |           |  
|------------------------------- |  | ------------------ | --------- | -
|                                |  | Three Months Ended |          
|                                |  | April 2, 2006      |          
|                                |  |                    |          
|Expected volatility             |  |                    | 66.2      | %
|Expected dividend yield         |  |                    |          |  
|Average risk-free interest rate |  |                    | 4.5       | %
|Expected term (in years)        |  |                    | 8.2 years |  
|Weighted-average fair value     |  | $                  | 7.01      |  

12



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)












| |                                   
| | ----------------------------------
| | WPTE valuation assumption summary:

|                                |  |                    |           |  
|------------------------------- |  | ------------------ | --------- | -
|                                |  | Three Months Ended |          
|                                |  | April 2, 2006      |          
|                                |  |                    |          
|Expected volatility             |  |                    | 84.22     | %
|Expected dividend yield         |  |                    |          |  
|Average risk-free interest rate |  |                    | 4.31      | %
|Expected term (in years)        |  |                    | 6.5 years |  
|Weighted-average fair value     |  | $                  | 4.68      |  





| |   |                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Annualized volatility  As WPTE has limited operating
    history and no definitive peer or peer groups, expected
    volatility was based on historical volatility of WPTEs
    stock price since it began trading                        
|
| |  | Forfeiture rate  WPTE used historical data to
    estimate employee departure behavior in estimating future
    forfeitures                                                                                                                
|
| |  | Expected term  Due to WPTEs limited operating
    history including stock option exercises and forfeitures, WPTE
    calculated expected term using the Simplified Method
    in accordance with Staff Accounting Bulletin 107, Topic 14
|
| |  | Risk free interest rate  For periods within the
    expected term of the share option, risk free interest rate is
    based on the U.S. Treasury yield curve in effect at the
    time of grant                                            

13



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)


The status of Lakes stock option plans during the
three months ended April 2, 2006 and April 3, 2005 is
as follows:


|     |                            |                             |  |                         |             |          |           |           |  |          |       |         |          |   |   |      |       | 
|---- | -------------------------- | --------------------------- |  | ----------------------- | ----------- | -------- | --------- | --------- |  | -------- | ----- | ------- | -------- | - | - | ---- | ----- | 
|     |                            |                             |  | Number of Common Shares |            
|     |                            |                             |  |                         |            
|     |                            |                             |  |                         |             | Weighted |          
|     |                            |                             |  |                         |             | Avg.     |          
|     |                            | Options                     |  |                         |             |          | Available |           |  | Exercise |      
|     |                            | Outstanding                 |  |                         | Exercisable |          |           | for Grant |  |          | Price |        
|     |                            |                             |  |                         |             |          |           |           |  |          |       |        
|2006 |                            |                             |  |                         |             |          |           |           |  |          |       |         |          |   |   |     
|     | Balance at January 1, 2006 |                             |  | 5,307,626               |             |          |           | 4,153,476 |  |          |       | 94,500  |          |   | $ | 6.03 |      
|     |                            | Authorized                  |  |                         |             |          |           |           |  |          |       |         |          |   |   |      |       | 
|     |                            | Granted                     |  |                         | 30,000      |          |           |           |  |          |       |         | (30,000  | ) |   |      | 9.77  | 
|     |                            | Forfeited/cancelled/expired |  |                         |            |          |           |           |  |          |       |         |         |   |   |      |      | 
|     |                            | Exercised                   |  |                         | (550,000    | )        |           |           |  |          |       |         |          |   |   |      | 5.65  | 
|     |                            |                             |  |                         |             |          |           |           |  |          |       |        
|     | Balance at April 2, 2006   |                             |  | 4,787,626               |             |          |           | 3,711,626 |  |          |       | 64,500  |          |   | $ | 6.10 |      
|     |                            |                             |  |                         |             |          |           |           |  |          |       |        
|2005 |                            |                             |  |                         |             |          |           |           |  |          |       |         |          |   |   |     
|     | Balance at January 2, 2005 |                             |  | 5,193,676               |             |          |           | 3,591,276 |  |          |       | 266,000 |          |   | $ | 5.72 |      
|     |                            | Authorized                  |  |                         |             |          |           |           |  |          |       |         |          |   |   |      |       | 
|     |                            | Granted                     |  |                         | 155,000     |          |           |           |  |          |       |         | (155,000 | ) |   |      | 15.75 | 
|     |                            | Forfeited/cancelled/expired |  |                         |            |          |           |           |  |          |       |         |         |   |   |      |      | 
|     |                            | Exercised                   |  |                         | (57,550     | )        |           |           |  |          |       |         |          |   |   |      | 5.67  | 
|     |                            |                             |  |                         |             |          |           |           |  |          |       |        
|     | Balance at April 3, 2005   |                             |  | 5,291,126               |             |          |           | 3,641,326 |  |          |       | 111,000 |          |   | $ | 6.01 |      
|     |                            |                             |  |                         |             |          |           |           |  |          |       |        

The following table summarizes significant ranges of Lakes
outstanding and exercisable options as of April 2,
2006


|                         |  |                                      |           |           |                                      |  |           |                  |           |   |           |  |  |             |            |  |               |  |           |           |  |   |       |  |  |   |            | 
|------------------------ |  | ------------------------------------ | --------- | --------- | ------------------------------------ |  | --------- | ---------------- | --------- | - | --------- |  |  | ----------- | ---------- |  | ------------- |  | --------- | --------- |  | - | ----- |  |  | - | ---------- | 
|                         |  | Options Outstanding at April 2, 2006 |           |           | Options Exercisable at April 2, 2006 | 
|                         |  |                                      |           |           |                                      | 
|                         |  |                                      |           | Weighted- |                                      |  |           |                  |          
|                         |  |                                      |           | Average   |                                      |  |           |                  | Aggregate |   |           |  |  | Aggregate   |           
|                         |  | Number                               |           |           | Remaining                            |  |           | Weighted-Average |           |   | Intrinsic |  |  | Number      |            |  | Weighted-     |  |           | Intrinsic | 
|Range of Exercise Prices |  | Outstanding                          |           |           | Contractual Life                     |  |           | Exercise Price   |           |   | Value     |  |  | Exercisable |            |  | Average Price |  |           | Value     | 
|                         |  |                                      |           |           |                                      |  |           |                  |           |   |           |  |  |             |            |  |               |  |           |           | 
|$ (3.25   3.63)         |  |                                      | 289,000   |           |                                      |  | 5.3 years |                  |           | $ | 3.45      |  |  | $           | 2,146,000  |  |               |  | 255,600   |           |  | $ | 3.48  |  |  | $ | 1,891,000  | 
|(3.63   5.45)           |  |                                      | 2,535,700 |           |                                      |  | 3.0 years |                  |           |   | 4.24      |  |  |             | 16,840,000 |  |               |  | 2,499,700 |           |  |   | 4.24  |  |  |   | 16,588,000 | 
|(5.45   7.26)           |  |                                      | 106,426   |           |                                      |  | 4.7 years |                  |           |   | 6.52      |  |  |             | 464,000    |  |               |  | 76,426    |           |  |   | 6.26  |  |  |   | 353,000    | 
|(7.26   9.08)           |  |                                      | 1,533,000 |           |                                      |  | 7.3 years |                  |           |   | 8.13      |  |  |             | 4,219,000  |  |               |  | 814,000   |           |  |   | 8.13  |  |  |   | 2,240,000  | 
|(9.08  10.90)           |  |                                      | 77,000    |           |                                      |  | 8.9 years |                  |           |   | 10.44     |  |  |             | 34,000     |  |               |  | 10,400    |           |  |   | 10.60 |  |  |   | 3,000      | 
|(10.90  12.71)          |  |                                      | 81,500    |           |                                      |  | 8.6 years |                  |           |   | 11.43     |  |  |             |           |  |               |  | 18,750    |           |  |   | 11.34 |  |  |   |           | 
|(12.71  14.53)          |  |                                      | 95,000    |           |                                      |  | 8.9 years |                  |           |   | 14.00     |  |  |             |           |  |               |  | 20,750    |           |  |   | 14.08 |  |  |   |           | 
|(14.53  16.34)          |  |                                      | 5,000     |           |                                      |  | 8.8 years |                  |           |   | 16.11     |  |  |             |           |  |               |  | 1,000     |           |  |   | 16.11 |  |  |   |           | 
|(16.34  18.16)          |  |                                      | 65,000    |           |                                      |  | 8.9 years |                  |           |   | 17.91     |  |  |             |           |  |               |  | 15,000    |           |  |   | 17.94 |  |  |   |           | 
|                         |  |                                      |           |           |                                      |  |           |                  |           |   |           |  |  |             |            |  |               |  |           |           | 
|                         |  |                                      | 4,787,626 |           |                                      |  | 4.9 years |                  |           | $ | 6.10      |  |  | $           | 23,703,000 |  |               |  | 3,711,626 |           |  | $ | 5.25  |  |  | $ | 21,075,000 | 
|                         |  |                                      |           |           |                                      |  |           |                  |           |   |           |  |  |             |            |  |               |  |           |           | 



14



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)


The following table summarizes WPTE stock option activity
through the three months ended April 2, 2006 and
April 3, 2005 :


|                           |                             |             |           |                         |             |  |               |       |  |               |                |          |   |   |      |        | 
|-------------------------- | --------------------------- | ----------- | --------- | ----------------------- | ----------- |  | ------------- | ----- |  | ------------- | -------------- | -------- | - | - | ---- | ------ | 
|                           |                             |             |           | Number of Common Shares |            
|                           |                             |             |           |                         |            
|                           |                             | Options     |           |                         |             |  | Available for |       |  | Weighted Avg. |               
|                           |                             | Outstanding |           |                         | Exercisable |  |               | Grant |  |               | Exercise Price |         
|                           |                             |             |           |                         |             |  |               |       |  |               |                |         
|2006                       |                             |             |           |                         |             |  |               |       |  |               |                |          |   |   |      |       
|Balance at January 1, 2006 |                             |             | 2,158,000 |                         |             |  | 620,333       |       |  |               | 283,667        |          |   | $ | 7.14 |       
|                           | Authorized                  |             |           |                         |             |  |               |       |  |               |                |          |   |   |      |        | 
|                           | Granted                     |             |           | 219,000                 |             |  |               |       |  |               |                | (219,000 | ) |   |      | 6.20   | 
|                           | Forfeited/cancelled/expired |             |           | (159,333                | )           |  |               |       |  |               |                | 159,333  |   |   |      | 1.44   | 
|                           | Exercised                   |             |           | (115,000                | )           |  |               |       |  |               |                |          |   |   |      | 0.0049 | 
|                           |                             |             |           |                         |             |  |               |       |  |               |                |         
|Balance at April 2, 2006   |                             |             | 2,102,667 |                         |             |  | 785,500       |       |  |               | 224,000        |          |   | $ | 7.36 |       
|                           |                             |             |           |                         |             |  |               |       |  |               |                |         
|2005                       |                             |             |           |                         |             |  |               |       |  |               |                |          |   |   |      |       
|Balance at January 2, 2005 |                             |             | 2,561,000 |                         |             |  | 560,000       |       |  |               | 559,000        |          |   | $ | 4.61 |       
|                           | Authorized                  |             |           |                         |             |  |               |       |  |               |                |          |   |   |      |        | 
|                           | Granted                     |             |           | 24,500                  |             |  |               |       |  |               |                | (24,500  | ) |   |      | 19.50  | 
|                           | Forfeited/cancelled/expired |             |           | (32,000                 | )           |  |               |       |  |               |                | 32,000   |   |   |      | 8.60   | 
|                           | Exercised                   |             |           | (640,000                | )           |  |               |       |  |               |                |          |   |   |      | 0.0049 | 
|                           |                             |             |           |                         |             |  |               |       |  |               |                |         
|Balance at April 3, 2005   |                             |             | 1,913,500 |                         |             |  | 200,000       |       |  |               | 566,500        |          |   | $ | 6.27 |       
|                           |                             |             |           |                         |             |  |               |       |  |               |                |         



|                         |  |                     |           |               |                     |  |          |               |  |           |           |  |  |             |           |  |       |           |         |           |  |   |        |  |  |   |           | 
|------------------------ |  | ------------------- | --------- | ------------- | ------------------- |  | -------- | ------------- |  | --------- | --------- |  |  | ----------- | --------- |  | ----- | --------- | ------- | --------- |  | - | ------ |  |  | - | --------- | 
|                         |  | Options Outstanding |           |               | Options Exercisable | 
|                         |  |                     |           |               |                     | 
|                         |  |                     |           | Weighted Avg. |                     |  | Weighted |               |  | Aggregate |           |  |  |             | Weighted  |  |       | Aggregate |        
|                         |  | Number              |           |               | Remaining           |  |          | Avg. Exercise |  |           | Intrinsic |  |  | Number      |           |  | Avg.  |           |         | Intrinsic | 
|Range of Exercise Prices |  | Outstanding         |           |               | Contractual Life    |  |          | Price         |  |           | Value     |  |  | Exercisable |           |  | Price |           |         | Value     | 
|                         |  |                     |           |               |                     |  |          |               |  |           |           |  |  |             |           |  |       |           |         |           | 
|$0.0049                  |  |                     | 330,000   |               |                     |  | 5.90     |               |  | $         | 0.0049    |  |  | $           | 2,427,183 |  |       |           | 330,000 |           |  | $ | 0.0049 |  |  | $ | 2,427,183 | 
|$6.20 - 9.92             |  |                     | 1,438,167 |               |                     |  | 8.58     |               |  |           | 7.78      |  |  |             | 237,800   |  |       |           | 445,334 |           |  |   | 8.04   |  |  |   |          | 
|$11.95 - 14.51           |  |                     | 286,000   |               |                     |  | 9.36     |               |  |           | 12.18     |  |  |             |          |  |       |           | 8,666   |           |  |   | 14.51  |  |  |   |          | 
|$15.05 - 19.50           |  |                     | 48,500    |               |                     |  | 9.25     |               |  |           | 16.32     |  |  |             |          |  |       |           | 1,500   |           |  |   | 19.50  |  |  |   |          | 
|                         |  |                     |           |               |                     |  |          |               |  |           |           |  |  |             |           |  |       |           |         |           | 
|$0.0049 - 19.50          |  |                     | 2,102,667 |               |                     |  | 8.28     |               |  | $         | 7.36      |  |  | $           | 2,664,983 |  |       |           | 785,500 |           |  | $ | 4.76   |  |  | $ | 2,427,183 | 
|                         |  |                     |           |               |                     |  |          |               |  |           |           |  |  |             |           |  |       |           |         |           | 

in-the






| |                              
| | -----------------------------
| | WPTE Restricted shares issued



15



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




| |                                                               
| | --------------------------------------------------------------
| | Consolidated pro forma information required under
    SFAS 123



|                                                                                                                    |             |                    |        |       |  
|------------------------------------------------------------------------------------------------------------------- | ----------- | ------------------ | ------ | ----- | -
|                                                                                                                    |             | Three Months Ended |       
|                                                                                                                    |             |                    |       
|                                                                                                                    |             | April 3, 2005      |       
|                                                                                                                    |             |                    |       
|Net loss:                                                                                                           |             |                    |        |      
|As reported                                                                                                         |             | $                  | (2,119 | )    
|Less: total share-based compensation expense determined under
    the fair value method, net of related tax effects |             |                    | (1,007 | )    
|                                                                                                                    |             |                    |       
|Pro forma                                                                                                           |             | $                  | (3,126 | )    
|                                                                                                                    |             |                    |       
|Net loss per share, basic and diluted:                                                                              |             |                    |        |      
|                                                                                                                    | As reported |                    | $      | (0.10 | )
|                                                                                                                    |             |                    |       
|                                                                                                                    | Pro forma   |                    | $      | (0.14 | )
|                                                                                                                    |             |                    |       





| |                      
| | ---------------------
| | Lakes stock options:

|                            |  |                    |          |  
|--------------------------- |  | ------------------ | -------- | -
|                            |  | Three Months Ended |         
|                            |  | April 3, 2005      |         
|                            |  |                    |         
|Risk free interest rate     |  |                    | 4.3      | %
|Expected life               |  |                    | 10 years |  
|Expected dividend yield     |  |                    |         |  
|Weighted-average fair value |  | $                  | 7.89     |  
|Annualized volatility       |  |                    | 30.06    | %



| |                    
| | -------------------
| | WPTE stock options:

|                            |  |                    |         |  
|--------------------------- |  | ------------------ | ------- | -
|                            |  | Three Months Ended |        
|                            |  | April 3, 2005      |        
|                            |  |                    |        
|Risk free interest rate     |  |                    | 4.14    | %
|Expected life               |  |                    | 6 years |  
|Expected dividend yield     |  |                    |        |  
|Weighted-average fair value |  | $                  | 14.10   |  
|Annualized volatility       |  |                    | 82.14   | %



|    |                           
|--- | --------------------------
|10. | Earnings (Loss) Per Share:



16



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




|    |              
|--- | -------------
|11. | Income Taxes:







|    |                               
|--- | ------------------------------
|12. | Commitments and Contingencies:



| |                                     
| | ------------------------------------
| | Lakes Commitments and Contingencies



| |                
| | ---------------
| | Operating lease





| |              
| | -------------
| | IRS tax audit





| |                               
| | ------------------------------
| | Grand Casinos, Inc. settlement



17



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)






| |                   
| | ------------------
| | Tribal commitments



Tribal Casino Development Advances/ Commitments


As of April 2, 2006


|                                                                                                                                              |  |                  |      |  |               |   |     |            |  |   |      | 
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ---- |  | ------------- | - | --- | ---------- |  | - | ---- | 
|                                                                                                                                              |  | Pre-Construction |      |  | Land Held for |   |     | Remaining  | 
|                                                                                                                                              |  | Advances         |      |  | Development   |   |     | Commitment | 
|                                                                                                                                              |  |                  |      |  |               |   |     |            | 
|                                                                                                                                              |  | (In millions)    |     
|Jamul Tribe                                                                                                                                   |  | $                | 17.8 |  |               | $ | 6.7 |            |  | $ |     | 
|Shingle Springs Band of Miwok Indians (Shingle Springs
    Tribe)                                                                           |  |                  | 39.6 |  |               |   | 8.8 |            |  |   | 1.6  | 
|Pokagon Band                                                                                                                                  |  |                  | 47.3 |  |               |   |    |            |  |   | 25.7 | 
|Iowa Tribe of Oklahoma (the Iowa Tribe)                                                                                                     |  |                  | 0.9  |  |               |   | 0.1 |            |  |   | 1.0  | 
|Wholly-owned subsidiaries of the Pawnee Tribal Development
    Corporation (Pawnee TDC referred to collectively as
    the Pawnee Nation) |  |                  | 4.5  |  |               |   |    |            |  |   | 0.2  | 









18



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)


Legal proceedings




| |                        
| | -----------------------
| | Slot machine litigation







| |                                        
| | ---------------------------------------
| | El Dorado County, California litigation





19



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)










| |                                                          
| | ---------------------------------------------------------
| | Louisiana Department of Revenue litigation tax
    matter



20



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




| |                         
| | ------------------------
| | WPTE litigation with TRV





| |                 
| | ----------------
| | Other litigation





|    |                     
|--- | --------------------
|13. | Segment Information:



21



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




|                                         |  |                   |       |  |                   |   |      |              |  |   |              |   |  |   |       |  
|---------------------------------------- |  | ----------------- | ----- |  | ----------------- | - | ---- | ------------ |  | - | ------------ | - |  | - | ----- | -
|                                         |  | Industry Segments |      
|                                         |  |                   |      
|                                         |  | Casino            |       |  | WPT               |   |      | Corporate &  |  |   | Total        |  
|                                         |  | Projects          |       |  | Enterprises, Inc. |   |      | Eliminations |  |   | Consolidated |  
|                                         |  |                   |       |  |                   |   |      |              |  |   |              |  
|Total assets as of April 2, 2006         |  | $                 | 184.2 |  |                   | $ | 51.5 |              |  | $ | 32.8         |   |  | $ | 268.5 |  
|Total assets as of January 1, 2006       |  | $                 | 160.6 |  |                   | $ | 46.4 |              |  | $ | 23.6         |   |  | $ | 230.6 |  
|For the Three Months Ended April 2, 2006 |  |                   |       |  |                   |   |      |              |  |   |              |   |  |   |       |  
|Revenue                                  |  | $                 | 0.1   |  |                   | $ | 6.5  |              |  | $ |             |   |  | $ | 6.6   |  
|Earnings (loss) from operations          |  |                   | 15.4  |  |                   |   | (1.1 | )            |  |   | (4.1         | ) |  |   | 10.2  |  
|Depreciation expense                     |  |                   |      |  |                   |   | 0.2  |              |  |   | 0.1          |   |  |   | 0.3   |  
|For the Three Months Ended April 3, 2005 |  |                   |       |  |                   |   |      |              |  |   |              |   |  |   |       |  
|Revenue                                  |  | $                 |      |  |                   | $ | 4.1  |              |  | $ |             |   |  | $ | 4.1   |  
|Earnings (loss) from operations          |  |                   | 3.0   |  |                   |   | (1.9 | )            |  |   | (3.9         | ) |  |   | (2.8  | )
|Depreciation expense                     |  |                   |      |  |                   |   |     |              |  |   | 0.1          |   |  |   | 0.1   |  



|    |                   
|--- | ------------------
|14. | Subsequent Events:



| |                                             
| | --------------------------------------------
| | Regulatory approval of management agreement:





| |                                        
| | ---------------------------------------
| | WPTE agreement with the Travel Channel:





| |                                   
| | ----------------------------------
| | WPTE amendment to lease agreement:



22



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS

Overview




®


WPT Studios tm tm


®


23



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##### Table of Contents





|             |  |              |              |  |            |                   |                             |  |                                   |                     |                                   |  |                                | 
|------------ |  | ------------ | ------------ |  | ---------- | ----------------- | --------------------------- |  | --------------------------------- | ------------------- | --------------------------------- |  | ------------------------------ | 
|             |  | Date of TRV  |              |  | Number of  |                   |                             |  |                                  
|             |  | Agreement or |              |  | Episodes   |                   |                             |  |                                  
|World Poker  |  | Option for   |              |  | (Including |                   | Production Period and       |  |                                   | Initial Telecast of |                                  
|Tour Season  |  | Season       |              |  | Specials)  |                   | Delivery of Episodes to TRV |  |                                   | Episodes in Season  |                                  
|             |  |              |              |  |            |                   |                             |  |                                   |                     |                                  
|Season One   |  |              | January 2003 |  |            | 15                |                             |  | February 2002  June 2003         |                     |                                   |  | March 2003  June 2003         | 
|Season Two   |  |              | August 2003  |  |            | 25                |                             |  | July 2003  June 2004             |                     |                                   |  | December 2003  September 2004 | 
|Season Three |  |              | May 2004     |  |            | 21                |                             |  | May 2004  April 2005             |                     |                                   |  | October 2004  August 2005     | 
|Season Four  |  |              | March 2005   |  |            | 21                |                             |  | May 2005  April 2006             |                     |                                   |  | October 2005  June 2006       | 
|Season Five  |  |              | March 2006   |  |            | 22
    (estimate) |                             |  | April 2006  April 2007(expected) |                     | August 2006  June 2007(expected) | 





WPT Consumer Products


WPT Corporate Alliances


24



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##### Table of Contents



WPT Online Gaming


Financial Overview




Results of Operations




| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Three Months Ended April 2, 2006 Compared to the
    Three Months Ended April 3, 2005



| |         
| | --------
| | Revenues





| |                                  
| | ---------------------------------
| | Costs, expenses and gross margins

Production costs.


25



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##### Table of Contents





Selling and administrative expenses. Share-Based
Payment




| |                                         
| | ----------------------------------------
| | Net unrealized gains on notes receivable





| |             
| | ------------
| | Other income





| |      
| | -----
| | Taxes

Accounting for Income
Taxes (SFAS 109)


26



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##### Table of Contents







| |                  
| | -----------------
| | Minority interest



Liquidity and Capital Resources












27



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##### Table of Contents









|                                              |                                     |                       |      |           |        |   |      |           |           |   |           |     |  |         |     |   |  |   |     |   | 
|--------------------------------------------- | ----------------------------------- | --------------------- | ---- | --------- | ------ | - | ---- | --------- | --------- | - | --------- | --- |  | ------- | --- | - |  | - | --- | - | 
|                                              |                                     | Payment Due by Period |     
|                                              |                                     |                       |     
|                                              |                                     |                       |      | Less Than |        |   |      |           | More Than |  
|Contractual Obligations                       |                                     | Total                 |      |           | 1 Year |   |      | 1-3 Years |           |   | 3-5 Years |     |  | 5 Years |    
|                                              |                                     |                       |      |           |        |   |      |           |           |   |           |     |  |         |    
|Remaining Casino Development Commitment(1)(4) |                                     |                       |      |           |        |   |      |           |           |   |           |     |  |         |     |   |  |   |     |  
|                                              | Jamul Tribe(2)                      |                       | $    |          |        |   | $    |          |           |   | $         |    |  |         | $   |  |  |   | $   |  | 
|                                              | Shingle Springs Tribe               |                       |      | 1.6       |        |   |      | 1.6       |           |   |           |    |  |         |     |  |  |   |     |  | 
|                                              | Pokagon Band(3)                     |                       |      | 25.7      |        |   |      | 23.4      |           |   |           | 0.5 |  |         |     |  |  |   |     |  | 
|                                              | Pawnee Nation  Travel Plaza        |                       |      | 0.2       |        |   |      | 0.2       |           |   |           |    |  |         |     |  |  |   |     |  | 
|                                              | Iowa Tribe of Oklahoma  New Casino |                       |      | 1.0       |        |   |      | 1.0       |           |   |           |     |  |         |     |   |  |   |     |   | 
|Employee obligations(5)                       |                                     |                       | 2.4  |           |        |   | 0.9  |           |           |   | 1.5       |     |  |         |    |   |  |   |    |  
|Operating leases(6)                           |                                     |                       | 1.4  |           |        |   | 0.7  |           |           |   | 0.7       |     |  |         |    |   |  |   |    |  
|Prentice financing facility(7)                |                                     |                       | 25.0 |           |        |   |     |           |           |   | 25.0      |     |  |         |    |   |  |   |    |  
|WPTE operating leases(8)                      |                                     |                       | 2.6  |           |        |   | 0.5  |           |           |   | 1.0       |     |  |         | 1.0 |   |  |   | 0.1 |  
|WPTE purchase obligations(9)                  |                                     |                       | 0.1  |           |        |   | 0.1  |           |           |   |          |     |  |         |    |   |  |   |    |  
|WPTE employee obligations(10)                 |                                     |                       | 0.4  |           |        |   | 0.4  |           |           |   |          |     |  |         |    |   |  |   |    |  
|                                              |                                     |                       |      |           |        |   |      |           |           |   |           |     |  |         |    
|                                              |                                     | $                     | 60.4 |           |        | $ | 28.8 |           |           | $ | 28.7      |     |  | $       | 1.0 |   |  | $ | 0.1 |  
|                                              |                                     |                       |      |           |        |   |      |           |           |   |           |     |  |         |    






| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Lakes will require additional capital through public or private
    financings or the sale of some or all of Lakes shares of
    WPTE to meet the remaining casino development commitments. See
    the table below detailing tribal casino development commitments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (2) | Effective March 30, 2006, Lakes entered into a development
    financing and services agreement with the Jamul Indian Village
    (Jamul Tribe). As part of the agreement, Lakes will
    use its best efforts to obtain financing from which advances of
    up to $350 million will be made to the Jamul Tribe to pay
    for the design and construction of the project. However, there
    can be no assurance that third party financing will be
    available, and if Lakes is unable to obtain the appropriate
    amount of financing for this project, the project may not be
    completed as planned. This agreement will help assist the Jamul
    Tribe in developing a casino with related amenities/services
    (Jamul Casino) on its existing six acre reservation
    which the Jamul Tribe will manage. Under the new agreement,
    Lakes will receive a flat fee of $15 million for its
    development design services, and a flat fee of $15 million
    for its construction oversight services, payable evenly over the
    first five years after the opening date of the Jamul Casino. In
    connection with Lakes financing of the Jamul Casino, the
    Jamul Tribe will pay interest over a ten year period on sums
    advanced by Lakes equal to the rate charged to Lakes for
    obtaining the funds necessary plus 5%. Amounts previously
    advanced by Lakes to the Jamul Tribe in connection with the
    Jamul Tribes proposed casino resort are included in the
    development financing and services agreement financing amount.
|
| | (3) | For the Pokagon Casino project, the Company has agreed to
    provide additional financing from its own funds if financing at
    an interest rate not to exceed 13% is not available from third
    parties. If this occurs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

28



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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | and Lakes is required to provide all financing, this would be an
    additional commitment of up to approximately $54 million.
    Currently, it appears that third party financing will be
    available for this project. However, there can be no assurance
    that third party financing will be available and that Lakes will
    not be required to provide this additional financing. The
    Company will be obligated to pay an amount to an unrelated third
    party once the Pokagon Casino is open and Lakes is the manager
    of the casino. The amount is payable quarterly for five years
    and is only payable if Lakes is the manager of the casino. The
    payment is part of a settlement and release agreement associated
    with Lakes obtaining the management contract with the Pokagon
    Band. The maximum liability over the five-year period is
    approximately $11 million. The Company will also be
    obligated to pay approximately $3.3 million to a third
    party on behalf of the Pokagon Band; in accordance with the
    management contract which is payable once the casino opens over
    24 months. Note that included in the $25.7 million
    remaining commitment is $1.8 million related to non-gaming
    land advances which Lakes does not expect to make.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (4) | Lakes may be required to provide a guarantee of tribal debt
    financing or otherwise provide support for the tribal
    obligations related to any of the projects. 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. No such guarantees or similar off-balance sheet
    liabilities existed at April 2, 2006.
|
| | (5) | Employee obligations include the base salaries payable to Lyle
    Berman and Timothy Cope under their respective employment
    agreements.                                                                                                                                                                                                                                                                                          
|
| | (6) | The Company leases an airplane, under a non-cancelable operating
    lease that expires on May 1, 2008.                                                                                                                                                                                                                                                                                                                               
|
| | (7) | On February 15, 2006, Lakes closed on a $50 million
    financing facility. Any funds drawn on the facility bear
    interest at the rate of 12% per annum, interest payable in
    arrears monthly, subject to adjustment based on the value of the
    collateral, and are due and payable in full on the third
    anniversary of the closing date (See Note 4).                                                                   
|
| | (8) | Operating lease obligations include rent payments on WPTE
    corporate office space. Monthly lease payments began at
    approximately $38,000 and escalate to approximately $45,000 over
    the six-year lease term. The amount set forth in the table above
    assumes monthly lease payments through May 2011.                                                                                                                  
|
| | (9) | Purchase obligations include contractual obligations related to
    the establishment of WPTEs Internet gaming site.                                                                                                                                                                                                                                                                                                                 



|     |                                                                                                                                                
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Employee obligations include the base salaries payable to Steven
    Lipscomb and Robyn Moder under their respective employment
    agreements.

29



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##### Table of Contents



Casino Development Advances/ Commitments


As of April 2, 2006


|                                |  |                  |       |  |               |   |      |        |  |   |            |        |  |              |           |  |             |   |      |             |  |   |      |  |  |   |      | 
|------------------------------- |  | ---------------- | ----- |  | ------------- | - | ---- | ------ |  | - | ---------- | ------ |  | ------------ | --------- |  | ----------- | - | ---- | ----------- |  | - | ---- |  |  | - | ---- | 
|                                |  |                  |       |  |               |   |      |        |  |   |            |        |  | Commitments  |          
|                                |  |                  |       |  |               |   |      |        |  |   |            |        |  | in Excess of |          
|                                |  |                  |       |  |               |   |      |        |  |   |            | Lakes |  |              | Available | 
|                                |  |                  |       |  |               |   |      | Total  |  |   | Remaining  |        |  | Cash and     |           |  | Cash and    |  
|                                |  | Pre-Construction |       |  | Land Held for |   |      | Total  |  |   | Funding    |        |  | Funding      |           |  | Short-Term  |   |      | Short-Term  | 
|                                |  | Advances         |       |  | Development   |   |      | Funded |  |   | Commitment |        |  | Commitment   |           |  | Investments |   |      | Investments | 
|                                |  |                  |       |  |               |   |      |        |  |   |            |        |  |              |           |  |             |   |      |             | 
|                                |  | (In millions)    |      
|Jamul Tribe(a)                  |  | $                | 17.8  |  |               | $ | 6.7  |        |  | $ | 24.5       |        |  | $            |          |  |             | $ |     |             |  |   |      |  |  |   |      | 
|Shingle Springs Tribe(b)        |  |                  | 39.6  |  |               |   | 8.8  |        |  |   | 48.4       |        |  |              | 50.0      |  |             |   | 1.6  |             |  |   |      |  |  |   |      | 
|Pokagon Band(c)                 |  |                  | 47.3  |  |               |   |     |        |  |   | 47.3       |        |  |              | 73.0      |  |             |   | 25.7 |             |  |   |      |  |  |   |      | 
|Iowa Tribe(d)                   |  |                  | 0.9   |  |               |   | 0.1  |        |  |   | 1.0        |        |  |              | 2.0       |  |             |   | 1.0  |             |  |   |      |  |  |   |      | 
|Pawnee Nation  Travel Plaza(e) |  |                  | 0.8   |  |               |   |     |        |  |   | 0.8        |        |  |              | 1.0       |  |             |   | 0.2  |             |  |   |      |  |  |   |      | 
|Pawnee Nation  Chilocco(f)     |  |                  | 3.3   |  |               |   |     |        |  |   | 3.3        |        |  |              | 2.0       |  |             |   |     |             |  |   |      |  |  |   |      | 
|Pawnee Nation  Trading Post(g) |  |                  | 0.4   |  |               |   |     |        |  |   | 0.4        |        |  |              | 0.4       |  |             |   |     |             |  |   |      |  |  |   |      | 
|Kickapoo Tribe(h)               |  |                  | 2.5   |  |               |   | 0.7  |        |  |   | 3.2        |        |  |              | 2.0       |  |             |   |      |             |  |   |      |  |  |   |      | 
|                                |  |                  |       |  |               |   |      |        |  |   |            |        |  |              |           |  |             |   |      |             | 
|                                |  | $                | 112.6 |  |               | $ | 16.3 |        |  | $ | 128.9      |        |  | $            | 130.4     |  |             | $ | 28.5 |             |  | $ | 15.6 |  |  | $ | 12.9 | 
|                                |  |                  |       |  |               |   |      |        |  |   |            |        |  |              |           |  |             |   |      |             | 






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Effective March 30, 2006, Lakes entered into a development
    financing and services agreement with the Jamul Tribe. As part
    of the agreement, Lakes will use its best efforts to obtain
    financing from which advances of up to $350 million will be
    made to the Jamul Tribe to pay for the design and
    construction of the project. However, there can be no assurance
    that third party financing will be available, and if Lakes is
    unable to obtain the appropriate amount of financing for this
    project, the project may not be completed as planned. This
    agreement will help assist the Jamul Tribe in developing a
    casino with related amenities/services on its existing six acre
    reservation which the Jamul Tribe will manage. Under the new
    agreement, Lakes will receive a flat fee of $15 million for
    its development design services, and a flat fee of
    $15 million for its construction oversight services,
    payable evenly over the first five years after the opening date
    of the Jamul Casino. In connection with Lakes financing of
    the Jamul Casino, the Jamul Tribe will pay interest over a ten
    year period on sums advanced by Lakes equal to the rate charged
    to Lakes for obtaining the funds necessary plus 5%. Amounts
    previously advanced by Lakes to the Jamul Tribe in connection
    with the Jamul Tribes proposed casino resort are included
    in the development financing and services agreement financing
    amount.
|   
|(b) |  | Lakes plans to continue making advances on the remaining
    commitment to the Shingle Springs Tribe on a monthly basis until
    the casino opens.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(c) |  | Lakes is currently contractually obligated to make advances of
    $25.7 million of which $22.3 million is planned to be
    advanced prior to the start of construction which could begin as
    early as mid-2006. Note that included in the $25.7 million
    remaining commitment is $1.8 million related to non-gaming
    land advances which Lakes does not expect to make.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(d) |  | In addition to the information in the above table, additional
    amounts are expected to be advanced to the Iowa Tribe of
    Oklahoma (the Iowa Tribe) for the new casino project
    based upon an approved budget yet to be finalized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(e) |  | Lakes made a commitment of $1.0 million to the Pawnee
    Nation related to the Travel Plaza project based upon an
    approved budget.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(f) |  | In addition to the information in the above table, Lakes has
    been advancing funds to the Pawnee Nation related to the
    Chilocco project. The funding amount is based upon an approved
    budget, yet to be finalized. Additional amounts are expected to
    be advanced to the Pawnee Nation for the new casino project and
    Travel Plaza project based upon an approved budget yet to be
    finalized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

30



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##### Table of Contents





|    |  |                                                                                                                                                                                                                                                      
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(g) |  | Lakes made a commitment of $1.1 million to the Pawnee
    Nation related to the Trading Post project based upon an
    approved budget. This project has been completed and Lakes does
    not expect to make further advances under this commitment.
|   
|(h) |  | See discussion below under Description of each Indian
    casino project and evaluation of critical milestones 
    Kickapoo Tribe.                                                                                                               











31



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Critical Accounting Policies and Estimates






Revenue recognition:


Accounting by Producers or
Distributors of Films




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

Reporting Revenue Gross as a Principal
versus Net as an Agent (EITF 99-9).






32



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Deferred television costs: 00-2


Investment:






Share-Based Compensation Expense: Share-Based
Payment




33



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##### Table of Contents



Accounting for Stock Issued to Employees










| |                                                                       
| | ----------------------------------------------------------------------
| | Accounting for long-term assets related to Indian casino
    projects:



| |                  
| | -----------------
| | Notes Receivable:





| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | Has the U.S. Governments Bureau of Indian Affairs
    federally recognized the tribe as a tribe?                       
|
| |  | Does the tribe hold or have the right to acquire land to be
    used for the casino site?                               
|
| |  | Has the Department of the Interior put the land into trust
    for purposes of being used as a casino site?             
|
| |  | Has the tribe entered into a gaming agreement with the state
    in which the land is located, if required by the state?

34



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| |   |                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Has the tribe obtained approval by the National Indian Gaming
    Commission of the management agreement?                                                                
|
| |  | Do other legal and political obstacles exist that could block
    development of the project and, if so, what is the likelihood of
    the tribe successfully prevailing?





| |   |                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An evaluation by Company management of the financial
    projections of the project given the projects geographic
    location and the feasibility of the projects success given
    such location;
|
| |  | The structure and stability of the tribal government;                                                                                                                                                
|
| |  | The scope of the proposed project, including the physical
    scope of the contemplated facility and the expected financial
    scope of the related development;                                    
|
| |  | An evaluation of the proposed projects ability to be
    built as contemplated and the likelihood that financing will be
    available; and                                                         
|
| |  | The nature of the business opportunity to Lakes, including
    whether the project would be a financing, development and/or
    management opportunity.                                              



Recognition of
Interest Income and Balance Sheet Classification of Structured
Notes




35



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Accounting by Creditors for
Impairment of a Loan.




| |                                                                      
| | ---------------------------------------------------------------------
| | Intangible Assets Related to Acquisition of Management
    Contracts:

Goodwill and Other Intangible Assets




| |                          
| | -------------------------
| | Land Held for Development





| |      
| | -----
| | Other





36



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|                                                                 |  |               |        |         |         |   |        |       |  |   |        |  |  |       |        |  |  |   |         | 
|---------------------------------------------------------------- |  | ------------- | ------ | ------- | ------- | - | ------ | ----- |  | - | ------ |  |  | ----- | ------ |  |  | - | ------- | 
|                                                                 |  | April 2, 2006 |       
|                                                                 |  |               |       
|                                                                 |  |               |        | Springs |         |   |       
|                                                                 |  | Pokagon       |        |         | Springs |   |        | Jamul |  |   |       
|                                                                 |  | Band          |        |         | Tribe   |   |        | Tribe |  |   | Other  |  |  | Total |       
|                                                                 |  |               |        |         |         |   |        |       |  |   |        |  |  |       |       
|Notes receivable, at estimated fair value                        |  | $             | 49,858 |         |         | $ | 28,611 |       |  | $ | 20,002 |  |  | $     | 6,931  |  |  | $ | 105,402 | 
|Intangible assets related to acquisition of management contracts |  |               | 19,596 |         |         |   | 19,466 |       |  |   | 8,155  |  |  |       | 1,311  |  |  |   | 48,528  | 
|Land held for development                                        |  |               |       |         |         |   | 8,776  |       |  |   | 6,677  |  |  |       | 795    |  |  |   | 16,248  | 
|Other                                                            |  |               | 957    |         |         |   | 1,332  |       |  |   | 1,255  |  |  |       | 1,263  |  |  |   | 4,807   | 
|                                                                 |  |               |        |         |         |   |        |       |  |   |        |  |  |       |       
|                                                                 |  | $             | 70,411 |         |         | $ | 58,185 |       |  | $ | 36,089 |  |  | $     | 10,300 |  |  | $ | 174,985 | 
|                                                                 |  |               |        |         |         |   |        |       |  |   |        |  |  |       |       

|                                                                 |  |                 |        |         |         |   |        |       |  |   |        |  |  |       |       |  |  |   |         | 
|---------------------------------------------------------------- |  | --------------- | ------ | ------- | ------- | - | ------ | ----- |  | - | ------ |  |  | ----- | ----- |  |  | - | ------- | 
|                                                                 |  | January 1, 2006 |       
|                                                                 |  |                 |       
|                                                                 |  |                 |        | Springs |         |   |       
|                                                                 |  | Pokagon         |        |         | Springs |   |        | Jamul |  |   |       
|                                                                 |  | Band            |        |         | Tribe   |   |        | Tribe |  |   | Other  |  |  | Total |      
|                                                                 |  |                 |        |         |         |   |        |       |  |   |        |  |  |       |      
|Notes receivable, at estimated fair value                        |  | $               | 44,028 |         |         | $ | 26,550 |       |  | $ | 12,957 |  |  | $     | 3,527 |  |  | $ | 87,062  | 
|Intangible assets related to acquisition of management contracts |  |                 | 18,356 |         |         |   | 18,755 |       |  |   | 7,872  |  |  |       | 1,105 |  |  |   | 46,088  | 
|Land held for development                                        |  |                 |       |         |         |   | 8,836  |       |  |   | 6,643  |  |  |       | 769   |  |  |   | 16,248  | 
|Other                                                            |  |                 | 93     |         |         |   | 1,600  |       |  |   | 828    |  |  |       | 839   |  |  |   | 3,360   | 
|                                                                 |  |                 |        |         |         |   |        |       |  |   |        |  |  |       |      
|                                                                 |  | $               | 62,477 |         |         | $ | 55,741 |       |  | $ | 28,300 |  |  | $     | 6,240 |  |  | $ | 152,758 | 
|                                                                 |  |                 |        |         |         |   |        |       |  |   |        |  |  |       |      



37



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| |              
| | -------------
| | Pokagon Band:

|                                                                              |  |                                          |  |                                         
|----------------------------------------------------------------------------- |  | ---------------------------------------- |  | ----------------------------------------
|                                                                              |  | As of April 2, 2006                      |  | As of January 1, 2006                   
|                                                                              |  |                                          |  |                                         
|Face value of note (principal and interest)                                   |  | $63,988                                  |  | $61,827                                 
|                                                                              |  | $(47,266 principal and $16,722 interest) |  | $(46,445 principal and $15,382 interest)
|Estimated months until casino opens (weighted average of three
    scenarios) |  | 25 months                                |  | 32 months                               
|Projected interest rate until casino opens                                    |  | 8.6%                                     |  | 8.2%                                    
|Projected interest rate during the loan repayment term                        |  | 8.7%                                     |  | 8.2%                                    
|Discount rate                                                                 |  | 15%                                      |  | 15%                                     
|Repayment terms of note                                                       |  | 60 months                                |  | 60 months                               
|Probability rate of casino opening (weighting of four scenarios)              |  | 97.5%                                    |  | 90%                                     





| |                       
| | ----------------------
| | Shingle Springs Tribe:

|                                                                              |  |                                         |  |                                        
|----------------------------------------------------------------------------- |  | --------------------------------------- |  | ---------------------------------------
|                                                                              |  | As of April 2, 2006                     |  | As of January 1, 2006                  
|                                                                              |  |                                         |  |                                        
|Face value of note (principal and interest)                                   |  | $49,226                                 |  | $46,446                                
|                                                                              |  | $(39,609 principal and $9,617 interest) |  | $(37,905 principal and $8,541 interest)
|Estimated months until casino opens (weighted average of three
    scenarios) |  | 37 months                               |  | 37 months                              
|Projected interest rate until casino opens                                    |  | 9.6%                                    |  | 9.2%                                   
|Projected interest rate during the loan repayment term                        |  | 9.6%                                    |  | 9.1%                                   
|Discount rate                                                                 |  | 15%                                     |  | 15%                                    
|Projected repayment terms of note*                                            |  | 24 months                               |  | 24 months                              
|Probability rate of casino opening (weighting of four scenarios)              |  | 70%                                     |  | 70%                                    






|  |                                                                                                      
|- | -----------------------------------------------------------------------------------------------------
|* | Payable in varying monthly installments based on contract terms
    subsequent to the casino opening.



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| |             
| | ------------
| | Jamul Tribe:

|                                                                              |  |                        |  |                       
|----------------------------------------------------------------------------- |  | ---------------------- |  | ----------------------
|                                                                              |  | As of April 2, 2006    |  | As of January 1, 2006 
|                                                                              |  |                        |  |                       
|Face value of note (principal and interest)                                   |  | $22,707                |  | $21,247               
|                                                                              |  | $(17,766 principal and |  | $(16,858 principal and
|                                                                              |  | $4,941 interest)       |  | $4,389 interest)      
|Estimated months until casino opens (weighted average of three
    scenarios) |  | 34 months              |  | 34 months             
|Projected interest rate until casino opens                                    |  | 17.0%                  |  | 9.2%                  
|Projected interest rate during the loan repayment term                        |  | 17.0%                  |  | 9.2%                  
|Discount rate                                                                 |  | 17.5%                  |  | 15%                   
|Repayment terms of note                                                       |  | 24 months *            |  | 84 months             
|Probability rate of casino opening (weighting of four scenarios)              |  | 85%                    |  | 80%                   






|  |                                                                                                      
|- | -----------------------------------------------------------------------------------------------------
|* | Payable in varying monthly installments based on contract terms
    subsequent to the casino opening.





|                |  |                  |            |                      |          |   |            |          |  |   |            |  |              |             |            |          |        |   |             |      |  |   |             |  |  |   |             | 
|--------------- |  | ---------------- | ---------- | -------------------- | -------- | - | ---------- | -------- |  | - | ---------- |  | ------------ | ----------- | ---------- | -------- | ------ | - | ----------- | ---- |  | - | ----------- |  |  | - | ----------- | 
|                |  |                  |            | Sensitivity Analysis |         
|                |  | April 2, 2006    |            |                      |          |  
|                |  | Fair Value       |            |                      | 5% Less  |   |            | One Year |  |   |            |  | 5% Increased |             |            | One Year |        |   |            
|                |  | Notes Receivable |            |                      | Probable |   |            | Delay    |  |   | Both       |  |              | Probability |            |          | Sooner |   |             | Both | 
|                |  |                  |            |                      |          |   |            |          |  |   |            |  |              |             |            |          |        |   |             |      | 
|Pokagon         |  | $                | 49,858,353 |                      |          | $ | 46,658,897 |          |  | $ | 46,459,463 |  |              | $           | 44,108,447 |          |        | $ | 50,392,213  |      |  | $ | 51,993,728  |  |  | $ | 53,311,140  | 
|Shingle Springs |  | $                | 28,611,323 |                      |          | $ | 26,133,497 |          |  | $ | 26,833,973 |  |              | $           | 24,912,047 |          |        | $ | 30,266,464  |      |  | $ | 29,628,165  |  |  | $ | 31,749,677  | 
|Jamul           |  | $                | 20,001,653 |                      |          | $ | 18,020,175 |          |  | $ | 19,054,439 |  |              | $           | 17,944,266 |          |        | $ | 20,250,009  |      |  | $ | 19,216,091  |  |  | $ | 20,335,772  | 
|                |  |                  |            |                      |          |   |            |          |  |   |            |  |              |             |            |          |        |   |             |      | 
|                |  | $                | 98,471,329 |                      |          | $ | 90,812,569 |          |  | $ | 92,347,875 |  |              | $           | 86,964,760 |          |        | $ | 100,908,686 |      |  | $ | 100,837,984 |  |  | $ | 105,396,589 | 
|                |  |                  |            |                      |          |   |            |          |  |   |            |  |              |             |            |          |        |   |             |      | 

|                |  |                  |            |                      |          |   |            |          |  |   |            |  |              |             |            |          |        |   |            |      |  |   |            |  |  |   |            | 
|--------------- |  | ---------------- | ---------- | -------------------- | -------- | - | ---------- | -------- |  | - | ---------- |  | ------------ | ----------- | ---------- | -------- | ------ | - | ---------- | ---- |  | - | ---------- |  |  | - | ---------- | 
|                |  |                  |            | Sensitivity Analysis |         
|                |  | January 1, 2006  |            |                      |          |  
|                |  | Fair Value       |            |                      | 5% Less  |   |            | One Year |  |   |            |  | 5% Increased |             |            | One Year |        |   |           
|                |  | Notes Receivable |            |                      | Probable |   |            | Delay    |  |   | Both       |  |              | Probability |            |          | Sooner |   |            | Both | 
|                |  |                  |            |                      |          |   |            |          |  |   |            |  |              |             |            |          |        |   |            |      | 
|Pokagon         |  | $                | 44,028,057 |                      |          | $ | 41,751,387 |          |  | $ | 41,590,634 |  |              | $           | 39,449,376 |          |        | $ | 46,304,727 |      |  | $ | 46,619,622 |  |  | $ | 49,040,268 | 
|Shingle Springs |  | $                | 26,549,694 |                      |          | $ | 24,632,645 |          |  | $ | 25,186,755 |  |              | $           | 23,367,059 |          |        | $ | 28,466,744 |      |  | $ | 27,985,550 |  |  | $ | 30,005,160 | 
|Jamul           |  | $                | 12,957,357 |                      |          | $ | 12,175,960 |          |  | $ | 12,322,455 |  |              | $           | 11,580,739 |          |        | $ | 13,738,755 |      |  | $ | 13,626,227 |  |  | $ | 14,449,428 | 
|                |  |                  |            |                      |          |   |            |          |  |   |            |  |              |             |            |          |        |   |            |      | 
|                |  | $                | 83,535,108 |                      |          | $ | 78,559,992 |          |  | $ | 79,099,844 |  |              | $           | 74,397,174 |          |        | $ | 88,510,226 |      |  | $ | 88,231,399 |  |  | $ | 93,494,856 | 
|                |  |                  |            |                      |          |   |            |          |  |   |            |  |              |             |            |          |        |   |            |      | 



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|                                      |  |                          |        |         |         |   |        |       |  |   |        |  |  |       |       |  |  |   |         | 
|------------------------------------- |  | ------------------------ | ------ | ------- | ------- | - | ------ | ----- |  | - | ------ |  |  | ----- | ----- |  |  | - | ------- | 
|                                      |  | Balance at April 2, 2006 |       
|                                      |  |                          |       
|                                      |  |                          |        | Shingle |         |   |       
|Advances Principal Balance            |  | Pokagon                  |        |         | Springs |   |        | Jamul |  |   | Other  |  |  | Total |      
|                                      |  |                          |        |         |         |   |        |       |  |   |        |  |  |       |      
|Note receivable, pre-construction(a)  |  | $                        | 23,160 |         |         | $ | 39,609 |       |  | $ | 16,816 |  |  | $     |      |  |  | $ | 79,585  | 
|Note receivable, non  gaming land(b) |  |                          | 13,176 |         |         |   |       |       |  |   |       |  |  |       |      |  |  |   | 13,176  | 
|Note receivable, land(b)              |  |                          | 10,930 |         |         |   |       |       |  |   | 950    |  |  |       |      |  |  |   | 11,880  | 
|Note receivable, other(c)             |  |                          |        |         |         |   |        |       |  |   |        |  |  |       | 7,891 |  |  |   | 7,891   | 
|                                      |  |                          |        |         |         |   |        |       |  |   |        |  |  |       |      
|                                      |  | $                        | 47,266 |         |         | $ | 39,609 |       |  | $ | 17,766 |  |  | $     | 7,891 |  |  | $ | 112,532 | 
|                                      |  |                          |        |         |         |   |        |       |  |   |        |  |  |       |      

|                                      |  |                            |        |         |         |   |        |       |  |   |        |  |  |       |       |  |  |   |         | 
|------------------------------------- |  | -------------------------- | ------ | ------- | ------- | - | ------ | ----- |  | - | ------ |  |  | ----- | ----- |  |  | - | ------- | 
|                                      |  | Balance at January 1, 2006 |       
|                                      |  |                            |       
|                                      |  |                            |        | Shingle |         |   |       
|Advances Principal Balance            |  | Pokagon                    |        |         | Springs |   |        | Jamul |  |   | Other  |  |  | Total |      
|                                      |  |                            |        |         |         |   |        |       |  |   |        |  |  |       |      
|Note receivable, pre-construction(a)  |  | $                          | 22,344 |         |         | $ | 37,905 |       |  | $ | 15,908 |  |  | $     |      |  |  | $ | 76,157  | 
|Note receivable, non  gaming land(b) |  |                            | 13,176 |         |         |   |       |       |  |   |       |  |  |       |      |  |  |   | 13,176  | 
|Note receivable, land(b)              |  |                            | 10,925 |         |         |   |       |       |  |   | 950    |  |  |       |      |  |  |   | 11,875  | 
|Note receivable, other(c)             |  |                            |        |         |         |   |        |       |  |   |        |  |  |       | 4,474 |  |  |   | 4,474   | 
|                                      |  |                            |        |         |         |   |        |       |  |   |        |  |  |       |      
|                                      |  | $                          | 46,445 |         |         | $ | 37,905 |       |  | $ | 16,858 |  |  | $     | 4,474 |  |  | $ | 105,682 | 
|                                      |  |                            |        |         |         |   |        |       |  |   |        |  |  |       |      






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Lakes funds certain costs incurred to develop the casino
    project. These costs relate to construction costs, legal fees in
    connection with various regulatory approvals and litigation,
    environmental costs and design consulting, and Lakes, in order
    to obtain the development agreement and management contract,
    agrees to advance a monthly amount used by the tribe for a
    variety of tribal expenses.



|    |  |                                                                                                                                                                                                                      
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | Lakes purchased land to be used and transferred to the tribe in
    connection with the casino project. At Pokagon, a portion of the
    land will be used by the tribe separate from the casino project
    land.   
|   
|(c) |  | Represents amounts advanced under the agreements with the Iowa
    Tribe and Pawnee Nation. April 2, 2006 amount includes
    $2.5 million related to a settlement reached with the
    Kickapoo Tribe in March 2006.



|                |  |          |        |  |            |   |        | 
|--------------- |  | -------- | ------ |  | ---------- | - | ------ | 
|                |  | April 2, |        |  | January 1, |  
|Pokagon         |  | 2006     |        |  | 2006       |  
|                |  |          |        |  |            |  
|Monthly stipend |  | $        | 10,000 |  |            | $ | 9,625  | 
|Construction    |  |          | 2,639  |  |            |   | 2,635  | 
|Legal           |  |          | 1,894  |  |            |   | 1,634  | 
|Environmental   |  |          | 652    |  |            |   | 650    | 
|Design          |  |          | 7,975  |  |            |   | 7,800  | 
|                |  |          |        |  |            |  
|                |  | $        | 23,160 |  |            | $ | 22,344 | 
|                |  |          |        |  |            |  

40



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|                |  |          |        |  |            |   |        | 
|--------------- |  | -------- | ------ |  | ---------- | - | ------ | 
|                |  | April 2, |        |  | January 1, |  
|Shingle Springs |  | 2006     |        |  | 2006       |  
|                |  |          |        |  |            |  
|Monthly stipend |  | $        | 6,890  |  |            | $ | 6,390  | 
|Construction    |  |          | 1,623  |  |            |   | 1,623  | 
|Legal           |  |          | 12,731 |  |            |   | 12,195 | 
|Environmental   |  |          | 1,602  |  |            |   | 1,588  | 
|Design          |  |          | 9,420  |  |            |   | 9,306  | 
|Gaming license  |  |          | 3,476  |  |            |   | 3,426  | 
|Lobbyist        |  |          | 3,867  |  |            |   | 3,377  | 
|                |  |          |        |  |            |  
|                |  | $        | 39,609 |  |            | $ | 37,905 | 
|                |  |          |        |  |            |  

|                |  |          |        |  |            |   |        | 
|--------------- |  | -------- | ------ |  | ---------- | - | ------ | 
|                |  | April 2, |        |  | January 1, |  
|Jamul           |  | 2006     |        |  | 2006       |  
|                |  |          |        |  |            |  
|Monthly stipend |  | $        | 3,988  |  |            | $ | 3,841  | 
|Construction    |  |          | 346    |  |            |   | 326    | 
|Legal           |  |          | 3,422  |  |            |   | 3,340  | 
|Environmental   |  |          | 1,678  |  |            |   | 1,668  | 
|Design          |  |          | 4,650  |  |            |   | 4,168  | 
|Gaming license  |  |          | 538    |  |            |   | 511    | 
|Lobbyist        |  |          | 2,194  |  |            |   | 2,054  | 
|                |  |          |        |  |            |  
|                |  | $        | 16,816 |  |            | $ | 15,908 | 
|                |  |          |        |  |            |  

Lakes evaluation of impairment related to
    Lakes long-term assets related to Indian casino projects,
    excluding the notes receivable, which are valued at fair
    value:






41



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##### Table of Contents







| |             
| | ------------
| | Pokagon Band

|                                                          |  |               |               |  |                 |  |               | 
|--------------------------------------------------------- |  | ------------- | ------------- |  | --------------- |  | ------------- | 
|                                                          |  | April 2, 2006 |               |  | January 1, 2006 | 
|                                                          |  |               |               |  |                 | 
|No. of Class III slot machines                            |  |               | 3,000         |  |                 |  | 3,000         | 
|No. of Table games                                        |  |               | 90            |  |                 |  | 90            | 
|No. of Poker tables                                       |  |               | 20            |  |                 |  | 20            | 
|Win/ Class III slot machine/day  1st year                |  |               | $281          |  |                 |  | $275          | 
|Win/ Table game/day  1st year                            |  |               | $1,474        |  |                 |  | $1,444        | 
|Win/ Poker game/day  1st year                            |  |               | $1,021        |  |                 |  | $1,000        | 
|Expected increase (decrease) in management fee cash flows |  |               | Year 2  4.5% |  |                 |  | Year 2  2.1% | 
|                                                          |  |               | Year 3  4.1% |  |                 |  | Year 3  1.9% | 
|                                                          |  |               | Year 4  3.3% |  |                 |  | Year 4  3.6% | 
|                                                          |  |               | Year 5  3.0% |  |                 |  | Year 5  2.8% | 





| |            
| | -----------
| | Jamul Tribe

|                                           |  |          |       |  |            |   |       | 
|------------------------------------------ |  | -------- | ----- |  | ---------- | - | ----- | 
|                                           |  | April 2, |       |  | January 1, |  
|                                           |  | 2006     |       |  | 2006       |  
|                                           |  |          |       |  |            |  
|No. of Class III slot machines             |  |          | 349   |  |            |   | 349   | 
|No. of Class II slot machines              |  |          | 1,651 |  |            |   | 1,651 | 
|No. of Table games                         |  |          | 65    |  |            |   | 65    | 
|No. of Poker tables                        |  |          | 10    |  |            |   | 10    | 
|Win/ Class III slot machine/day  1st year |  | $        | 307   |  |            | $ | 307   | 
|Win/ Class II slot machine/day  1st year  |  | $        | 220   |  |            | $ | 220   | 
|Win/ Table game/day  1st year             |  | $        | 1,100 |  |            | $ | 1,100 | 
|Win/ Poker table/day  1st year            |  | $        | 650   |  |            | $ | 650   | 



42



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##### Table of Contents





| |                      
| | ---------------------
| | Shingle Springs Tribe

|                                                          |  |               |                      |  |                 |  |                      | 
|--------------------------------------------------------- |  | ------------- | -------------------- |  | --------------- |  | -------------------- | 
|                                                          |  | April 2, 2006 |                      |  | January 1, 2006 | 
|                                                          |  |               |                      |  |                 | 
|No. of Class III slot machines                            |  |               | 349                  |  |                 |  | 349                  | 
|No. of Class II slot machines                             |  |               | 1,651                |  |                 |  | 1,651                | 
|No. of Table games                                        |  |               | 100                  |  |                 |  | 100                  | 
|No. of Poker tables                                       |  |               | 20                   |  |                 |  | 20                   | 
|Win/ Class III slot machine/day  1st year                |  |               | $350                 |  |                 |  | $350                 | 
|Win/ Class II slot machine/day  1st year                 |  |               | $250                 |  |                 |  | $250                 | 
|Win/ Table game/day  1st year                            |  |               | $1,275               |  |                 |  | $1,275               | 
|Win/ Poker table/day  1st year                           |  |               | $624                 |  |                 |  | $624                 | 
|Expected increase (decrease) in management fee cash flows |  |               | Year 2  5.5%        |  |                 |  | Year 2  5.5%        | 
|                                                          |  |               | Year 3  4.3%        |  |                 |  | Year 3  4.3%        | 
|                                                          |  |               | Year 4  3%          |  |                 |  | Year 4  3%          | 
|                                                          |  |               | Year 5  5.1%        |  |                 |  | Year 5  5.1%        | 
|                                                          |  |               | Year 6  (17)%       |  |                 |  | Year 6  (17)%       | 
|                                                          |  |               | (management fees     |  |                 |  | (management fees     | 
|                                                          |  |               | were reduced in      |  |                 |  | were reduced in      | 
|                                                          |  |               | years six and seven) |  |                 |  | years six and seven) | 
|                                                          |  |               | Year 7  1.5%        |  |                 |  | Year 7  1.5%        | 





Description of each Indian casino project and evaluation of
critical milestones:




| |             
| | ------------
| | Pokagon Band



| |                      
| | ---------------------
| | Business arrangement:







43



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##### Table of Contents









| |                                          
| | -----------------------------------------
| | Lakes evaluation of critical milestones:



|                                                                                           |  |  |               |  |  |                 |  |  |                 | 
|------------------------------------------------------------------------------------------ |  |  | ------------- |  |  | --------------- |  |  | --------------- | 
|                                                                                           |  |  |               |  |  |                 |  |  |                 | 
|Critical Milestone                                                                         |  |  | April 2, 2006 |  |  | January 1, 2006 |  |  | January 2, 2005 | 
|                                                                                           |  |  |               |  |  |                 |  |  |                 | 
|Federal recognition of the tribe                                                           |  |  | Yes           |  |  | Yes             |  |  | Yes             | 
|                                                                                           |  |  |               |  |  |                 |  |  |                 | 
|Possession of usable land corresponding with needs based on
    the Companys project plan |  |  | Yes           |  |  | Yes             |  |  | Yes             | 
|                                                                                           |  |  |               |  |  |                 |  |  |                 | 

44



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##### Table of Contents



|                                                  |  |  |               |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |                                                                                                                                                     | 
|------------------------------------------------- |  |  | ------------- |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                  |  |  |               |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |                                                                                                                                                     | 
|Critical Milestone                                |  |  | April 2, 2006 |  |  | January 1, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  | January 2, 2005                                                                                                                                     | 
|                                                  |  |  |               |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |                                                                                                                                                     | 
|Usable land placed in trust by Federal government |  |  | Yes           |  |  | Yes  The additional information was submitted by the
    BIA in August 2004 and the lawsuit was still pending resolution
    as of January 1, 2006. In March 2005 the federal judge
    dismissed the last remaining issue filed by Taxpayers of
    Michigan Against Casinos (TOMAC) and ruled in favor of the
    Pokagon Band allowing the land to be placed into trust by the
    BIA. During the required 60 day waiting period, TOMAC filed
    for an appeal. The appeal hearing date was held on
    December 8, 2005. On January 6, 2006 the United States
    Court of Appeals for the District of Columbia Circuit ruled in
    favor of the Pokagon Band by affirming the Federal District
    Courts grant of summary judgment in the lawsuit by TOMAC
    versus the U.S. Department of the Interior. On
    January 27, 2006, the Federal Government took official
    action to acquire the Pokagon Bands 675-acre parcel of
    land in New Buffalo Township, Michigan, into trust for the
    Pokagon Band. This official action by the Department of the
    Interior paves the way for the Pokagon Band to move forward with
    their Four Winds Casino Resort project. |  |  | No  The additional information was submitted by the
    BIA in August 2004 and the lawsuit was still pending resolution
    as of January 2, 2005. | 
|                                                  |  |  |               |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |                                                                                                                                                     | 
|Usable county agreement, if applicable            |  |  | Yes           |  |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |  | Yes                                                                                                                                                 | 
|                                                  |  |  |               |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |                                                                                                                                                     | 

45



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|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  |                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                              | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  |                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                              | 
|Critical Milestone                                                                                                                                                       |  |  | April 2, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  | January 1, 2006                                                                                                                                                                                                                                                                                   |  |  | January 2, 2005                                                                                                                                              | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  |                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                              | 
|Usable state compact that allows for gaming consistent with
    that outlined in the Companys project plan                                                              |  |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  | Yes                                                                                                                                                                                                                                                                                               |  |  | Yes                                                                                                                                                          | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  |                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                              | 
|NIGC approval of management contract in current and desired
    form                                                                                                     |  |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  | No, submitted to the NIGC for review in 2000 and approval is
    expected in April 2006 as the land was taken into trust by the
    BIA on January 27, 2006.                                                                                                                                      |  |  | No, submitted to the NIGC for review in 2000 and approval is
    expected at approximately the same time the land is being placed
    into trust by the BIA. | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  |                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                              | 
|Resolution of all litigation and legal obstacles                                                                                                                         |  |  | No, The Michigan Supreme Court has now agreed to hear the appeal
    by TOMAC that the Compact entered into with the State of
    Michigan is invalid. The Michigan Court of Appeals (lower court)
    refused to hear TOMACs argument. TOMAC is arguing that the
    Compact is invalid as the 8% payment to the Michigan Strategic
    Fund is unconstitutional and invalid (in that it illegally
    bypasses the appropriation requirement). The financing lenders
    have indicated this will not hold-up the process of obtaining
    financing to begin construction. |  |  | No. However on January 6, 2006 the United States Court of
    Appeals for the District of Columbia Circuit ruled in favor of
    the Pokagon Band by affirming the Federal District Courts
    grant of summary judgment in the lawsuit by TOMAC versus the
    U.S. Department of the Interior. |  |  | No, pending litigation regarding land in trust.                                                                                                              | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  |                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                              | 
|Financing for construction                                                                                                                                               |  |  | No, however the Tribe engaged an investment banker to assist
    with obtaining financing, which we expect to occur as early as
    mid 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  | No, however the Tribe engaged an investment banker to assist
    with obtaining financing, which we expect to occur as early as
    mid 2006.                                                                                                                                                     |  |  | No, however the Tribe engaged an investment banker to assist
    with obtaining financing.                                                                   | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  |                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                              | 
|Any other significant project milestones or contingencies,
    the outcome of which could have a material affect on the
    probability of project completion as planned |  |  | No others known at this time by Lakes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |  | No others known at this time by Lakes.                                                                                                                                                                                                                                                            |  |  | No others known at this time by Lakes.                                                                                                                       | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  |                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                              | 

46



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| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Lakes evaluation and conclusion regarding the above
    critical milestones and progress:



hold-up


675-acre






| |                
| | ---------------
| | Shingle Springs



| |                      
| | ---------------------
| | Business arrangement:





47



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##### Table of Contents











| |                                              
| | ---------------------------------------------
| | Lakes Evaluation of the Critical Milestones:



|                                                                                           |  |  |                                             |  |  |                                             |  |  |                                             | 
|------------------------------------------------------------------------------------------ |  |  | ------------------------------------------- |  |  | ------------------------------------------- |  |  | ------------------------------------------- | 
|                                                                                           |  |  |                                             |  |  |                                             |  |  |                                             | 
|Critical Milestone                                                                         |  |  | April 2, 2006                               |  |  | January 1, 2006                             |  |  | January 2, 2005                             | 
|                                                                                           |  |  |                                             |  |  |                                             |  |  |                                             | 
|Federal recognition of the tribe                                                           |  |  | Yes                                         |  |  | Yes                                         |  |  | Yes                                         | 
|                                                                                           |  |  |                                             |  |  |                                             |  |  |                                             | 
|Possession of usable land corresponding with needs based on
    the Companys project plan |  |  | Yes                                         |  |  | Yes                                         |  |  | Yes                                         | 
|                                                                                           |  |  |                                             |  |  |                                             |  |  |                                             | 
|Usable land placed in trust by Federal government                                          |  |  | Not necessary, as land is reservation land. |  |  | Not necessary, as land is reservation land. |  |  | Not necessary, as land is reservation land. | 
|                                                                                           |  |  |                                             |  |  |                                             |  |  |                                             | 

48



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##### Table of Contents



|                                                                                                                                                                         |  |  |                                                                                                                        |  |  |                                                                                                                        |  |  |                                                                                                                        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  | ---------------------------------------------------------------------------------------------------------------------- |  |  | ---------------------------------------------------------------------------------------------------------------------- |  |  | ---------------------------------------------------------------------------------------------------------------------- | 
|                                                                                                                                                                         |  |  |                                                                                                                        |  |  |                                                                                                                        |  |  |                                                                                                                        | 
|Critical Milestone                                                                                                                                                       |  |  | April 2, 2006                                                                                                          |  |  | January 1, 2006                                                                                                        |  |  | January 2, 2005                                                                                                        | 
|                                                                                                                                                                         |  |  |                                                                                                                        |  |  |                                                                                                                        |  |  |                                                                                                                        | 
|Usable county agreement, if applicable                                                                                                                                   |  |  | N/A                                                                                                                    |  |  | N/A                                                                                                                    |  |  | N/A                                                                                                                    | 
|                                                                                                                                                                         |  |  |                                                                                                                        |  |  |                                                                                                                        |  |  |                                                                                                                        | 
|Usable state compact that allows for gaming consistent with
    that outlined in the Companys project plan                                                              |  |  | Yes                                                                                                                    |  |  | Yes                                                                                                                    |  |  | Yes                                                                                                                    | 
|                                                                                                                                                                         |  |  |                                                                                                                        |  |  |                                                                                                                        |  |  |                                                                                                                        | 
|NIGC approval of management contract in current and desired
    form                                                                                                     |  |  | Yes  approval received in 2004.                                                                                       |  |  | Yes  approval received in 2004.                                                                                       |  |  | Yes  approval received in 2004.                                                                                       | 
|                                                                                                                                                                         |  |  |                                                                                                                        |  |  |                                                                                                                        |  |  |                                                                                                                        | 
|Resolution of all litigation and legal obstacles                                                                                                                         |  |  | No, Federal and state litigation regarding approval of highway
    interchange, environmental issues and other issues. |  |  | No, Federal and state litigation regarding approval of highway
    interchange, environmental issues and other issues. |  |  | No, Federal and state litigation regarding approval of highway
    interchange, environmental issues and other issues. | 
|                                                                                                                                                                         |  |  |  See below.                                                                                                           |  |  |  See below.                                                                                                           |  |  |  See below.                                                                                                           | 
|                                                                                                                                                                         |  |  |                                                                                                                        |  |  |                                                                                                                        |  |  |                                                                                                                        | 
|Financing for construction                                                                                                                                               |  |  | No, however the Shingle Springs Tribe has engaged investment
    banks to assist with obtaining financing.             |  |  | No, however the Shingle Springs Tribe has engaged investment
    banks to assist with obtaining financing.             |  |  | No, however the Shingle Springs Tribe has engaged investment
    banks to assist with obtaining financing.             | 
|                                                                                                                                                                         |  |  |                                                                                                                        |  |  |                                                                                                                        |  |  |                                                                                                                        | 
|Any other significant project milestones or contingencies,
    the outcome of which could have a material affect on the
    probability of project completion as planned |  |  | No others known at this time by Lakes.                                                                                 |  |  | No others known at this time by Lakes.                                                                                 |  |  | No others known at this time by Lakes.                                                                                 | 
|                                                                                                                                                                         |  |  |                                                                                                                        |  |  |                                                                                                                        |  |  |                                                                                                                        | 



| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Lakes evaluation and conclusion regarding the above
    critical milestones and progress:







49



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##### Table of Contents









| |            
| | -----------
| | Jamul Tribe



| |                      
| | ---------------------
| | Business arrangement:







50



---



##### Table of Contents









| |                                              
| | ---------------------------------------------
| | Lakes Evaluation of the Critical Milestones:



|                                                                                           |  |  |                                             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 
|------------------------------------------------------------------------------------------ |  |  | ------------------------------------------- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                                                           |  |  |                                             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 
|Critical Milestone                                                                         |  |  | April 2, 2006                               |  |  | January 1, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  | January 2, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 
|                                                                                           |  |  |                                             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 
|Federal recognition of the tribe                                                           |  |  | Yes                                         |  |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|                                                                                           |  |  |                                             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 
|Possession of usable land corresponding with needs based on
    the Companys project plan |  |  | Yes                                         |  |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|                                                                                           |  |  |                                             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 
|Usable land placed in trust by Federal government                                          |  |  | Not necessary, as land is reservation land. |  |  | Yes, six acres is reservation land held by the Jamul Tribe on
    which the casino will be built. There is an additional
    82 acres contiguous to the reservation land pending BIA
    approval to be placed into trust that could be used for
    additional development of the project. The Jamul Tribe and Lakes
    prepared an EIS and trust application, which has been submitted
    to, reviewed and recommended for approval by the regional office
    of the BIA. The Washington, D.C. office of the BIA is currently
    reviewing the submission. |  |  | Yes, six acres is reservation land held by the Jamul Tribe on
    which the casino will be built. There is an additional
    82 acres contiguous to the reservation land pending BIA
    approval to be placed into trust that could be used for
    additional development of the project. The Jamul Tribe and Lakes
    prepared an EIS and trust application, which has been submitted
    to, reviewed and recommended for approval by the regional office
    of the BIA. The Washington, D.C. office of the BIA is currently
    reviewing the submission. | 
|                                                                                           |  |  |                                             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 

51



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|                                                                                                                                                                         |  |  |                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                     | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                     | 
|Critical Milestone                                                                                                                                                       |  |  | April 2, 2006                                                                                                                                                       |  |  | January 1, 2006                                                                                                                                                                                                                     |  |  | January 2, 2005                                                                                                                                                                                                                     | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                     | 
|Usable county agreement, if applicable                                                                                                                                   |  |  | N/A                                                                                                                                                                 |  |  | N/A                                                                                                                                                                                                                                 |  |  | N/A                                                                                                                                                                                                                                 | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                     | 
|Usable state compact that allows for gaming consistent with
    that outlined in the Companys project plan                                                              |  |  | Yes                                                                                                                                                                 |  |  | Yes                                                                                                                                                                                                                                 |  |  | Yes                                                                                                                                                                                                                                 | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                     | 
|NIGC approval of management contract in current and desired
    form                                                                                                     |  |  | N/A as the Jamul Tribe and Lakes entered into a development
    financing and services agreement in March 2006, which does not
    need to be approved by the NIGC. |  |  | No, submitted for approval by the NIGC in 2000. We are in
    communication with the NIGC and have responded to initial
    comments. Approval is not expected until the process to place
    land in trust by the BIA is complete. |  |  | No, submitted for approval by the NIGC in 2000. We are in
    communication with the NIGC and have responded to initial
    comments. Approval is not expected until the process to place
    land in trust by the BIA is complete. | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                     | 
|Resolution of all litigation and legal obstacles                                                                                                                         |  |  | N/A, there has been some local opposition regarding the project,
    although no formal legal action has been taken.                                                |  |  | N/A, there has been some local opposition regarding the project,
    although no formal legal action has been taken.                                                                                                                |  |  | N/A, there has been some local opposition regarding the project,
    although no formal legal action has been taken.                                                                                                                | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                     | 
|Financing for construction                                                                                                                                               |  |  | No, however, preliminary discussions with investment bankers
    regarding assisting in obtaining financing have taken place.                                       |  |  | No, however, preliminary discussions with investment bankers
    regarding assisting in obtaining financing have taken place.                                                                                                       |  |  | No, however, preliminary discussions with investment bankers
    regarding assisting in obtaining financing have taken place.                                                                                                       | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                     | 
|Any other significant project milestones or contingencies,
    the outcome of which could have a material affect on the
    probability of project completion as planned |  |  | No others known at this time by Lakes.                                                                                                                              |  |  | No others known at this time by Lakes.                                                                                                                                                                                              |  |  | No others known at this time by Lakes.                                                                                                                                                                                              | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                     | 



| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Lakes evaluation and conclusion regarding the above
    critical milestones and progress:



52



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| |                          
| | -------------------------
| | Pawnee Nation of Oklahoma



| |                      
| | ---------------------
| | Business arrangement:



53



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##### Table of Contents

















Arrangement with Consultant.


54



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##### Table of Contents







| |                                                           
| | ----------------------------------------------------------
| | Lakes Evaluation of the three Pawnee Nation
    Projects:



|                                                                                                            |  |  |                                                                                                   |  |  |                                                                                                                                                                                                                                       |  |  |                                          | 
|----------------------------------------------------------------------------------------------------------- |  |  | ------------------------------------------------------------------------------------------------- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ---------------------------------------- | 
|                                                                                                            |  |  |                                                                                                   |  |  |                                                                                                                                                                                                                                       |  |  |                                          | 
|Critical Milestone                                                                                          |  |  | Chilocco Casino Project                                                                           |  |  | Travel Plaza                                                                                                                                                                                                                          |  |  | Trading Post                             | 
|                                                                                                            |  |  |                                                                                                   |  |  |                                                                                                                                                                                                                                       |  |  |                                          | 
|Federal recognition of the tribe                                                                            |  |  | Yes                                                                                               |  |  | Yes                                                                                                                                                                                                                                   |  |  | Yes                                      | 
|                                                                                                            |  |  |                                                                                                   |  |  |                                                                                                                                                                                                                                       |  |  |                                          | 
|Possession of usable land corresponding with needs based on
    the Companys project plan                  |  |  | Yes, the Pawnee Nation currently holds land in trust where the
    Chilocco casino will be built. |  |  | Yes, the Pawnee Nation is currently leasing land from tribal
    members, which is held in trust for the individual tribal
    members by the United States Government. The BIA approved the
    lease documents on January 13, 2006. |  |  | Yes, the Trading Post is currently open. | 
|                                                                                                            |  |  |                                                                                                   |  |  |                                                                                                                                                                                                                                       |  |  |                                          | 
|Usable land placed in trust by Federal government                                                           |  |  | Yes, the Pawnee Nation currently holds land in trust where the
    Chilocco Casino will be built. |  |  | Yes, the Pawnee Nation is currently leasing land from tribal
    members, which is held in trust for the individual tribal
    members by the United States Government. The BIA approved the
    lease documents on January 13, 2006. |  |  | Yes, the Trading Post is currently open. | 
|                                                                                                            |  |  |                                                                                                   |  |  |                                                                                                                                                                                                                                       |  |  |                                          | 
|Usable county agreement, if applicable                                                                      |  |  | N/A                                                                                               |  |  | N/A                                                                                                                                                                                                                                   |  |  | N/A                                      | 
|                                                                                                            |  |  |                                                                                                   |  |  |                                                                                                                                                                                                                                       |  |  |                                          | 
|Usable state compact that allows for gaming consistent with
    that outlined in the Companys project plan |  |  | Yes                                                                                               |  |  | Yes                                                                                                                                                                                                                                   |  |  | Yes                                      | 
|                                                                                                            |  |  |                                                                                                   |  |  |                                                                                                                                                                                                                                       |  |  |                                          | 

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|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                |  |  |                                                                                                                                                                                                                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                                          | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                |  |  |                                                                                                                                                                                                                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                                          | 
|Critical Milestone                                                                                                                                                       |  |  | Chilocco Casino Project                                                                                                                                                                                                                                                                                                                                                        |  |  | Travel Plaza                                                                                                                                                                                                                                                                                                                                                        |  |  | Trading Post                                                                                                                                                                                                                                             | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                |  |  |                                                                                                                                                                                                                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                                          | 
|NIGC approval of management contract in current and desired
    form                                                                                                     |  |  | No, submitted to the NIGC for review on March 22, 2005. The
    NIGC approved publication of the Final EA in December 2005 and
    no comments were received during the required 30-day comment
    period from the public. The NIGC is now able to issue a FONSI
    and approve the management contract, which is expected to occur
    in the third quarter of fiscal 2006. |  |  | No, submitted to the NIGC for review on March 22, 2005. The
    NIGC approved publication of the Final EA in December 2005 and
    no comments were received during the required 30-day comment
    period from the public. The NIGC issued a FONSI in March 2006.
    The management contract is expected to be approved in the second
    quarter of fiscal 2006. |  |  | No, submitted to the NIGC for review on March 22, 2005. The
    NIGC has provided comments which the Tribe and Lakes have
    provided a response. The management contract is expected to be
    approved as early as the second quarter of fiscal 2006. | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                |  |  |                                                                                                                                                                                                                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                                          | 
|Resolution of all litigation and legal obstacles                                                                                                                         |  |  | None at this time.                                                                                                                                                                                                                                                                                                                                                             |  |  | None at this time.                                                                                                                                                                                                                                                                                                                                                  |  |  | None at this time.                                                                                                                                                                                                                                       | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                |  |  |                                                                                                                                                                                                                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                                          | 
|Financing for construction                                                                                                                                               |  |  | No, preliminary discussions with lending institutions has
    occurred and the Pawnee Nation will issue a request for
    proposal. A lender will be selected under this process in the
    second quarter of fiscal 2006.                                                                                                                                                     |  |  | No, The Pawnee Nation has received and approved, subject to
    minor negotiations, a commitment for financing from a lender for
    the desired amount. The intent is to close the loan in the
    second quarter of fiscal 2006.                                                                                                                                  |  |  | None needed.                                                                                                                                                                                                                                             | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                |  |  |                                                                                                                                                                                                                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                                          | 
|Any other significant project milestones or contingencies,
    the outcome of which could have a material affect on the
    probability of project completion as planned |  |  | No others known at this time by Lakes.                                                                                                                                                                                                                                                                                                                                         |  |  | No others known at this time by Lakes.                                                                                                                                                                                                                                                                                                                              |  |  | No others known at this time by Lakes.                                                                                                                                                                                                                   | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                |  |  |                                                                                                                                                                                                                                                                                                                                                                     |  |  |                                                                                                                                                                                                                                                          | 



| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Lakes evaluation and conclusion regarding the above
    critical milestones and progress:



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| |                       
| | ----------------------
| | Iowa Tribe of Oklahoma



| |                      
| | ---------------------
| | Business arrangement:





The Development Project.






Cimarron Casino.


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Arrangement with Consultant.




| |                                                  
| | -------------------------------------------------
| | Lakes Evaluation of the two Iowa Tribe Projects:



|                                                                                                            |  |  |                                                                                                                                                                                                                                                |  |  |                                                                                     | 
|----------------------------------------------------------------------------------------------------------- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ----------------------------------------------------------------------------------- | 
|                                                                                                            |  |  |                                                                                                                                                                                                                                                |  |  |                                                                                     | 
|                                                                                                            |  |  | Development Project                                                                                                                                                                                                                            |  |  | Cimarron Casino                                                                     | 
|                                                                                                            |  |  |                                                                                                                                                                                                                                                |  |  |                                                                                     | 
|Federal recognition of the tribe                                                                            |  |  | Yes                                                                                                                                                                                                                                            |  |  | Yes                                                                                 | 
|                                                                                                            |  |  |                                                                                                                                                                                                                                                |  |  |                                                                                     | 
|Possession of usable land corresponding with needs based on
    the Companys project plan                  |  |  | Yes, the Iowa Tribe is currently leasing andacquiring
    land from tribal members, which is held in trust for the
    individual tribal members by the United States Government. These
    transactions will need to be approved by the BIA.  |  |  | Yes, currently an open casino.                                                      | 
|                                                                                                            |  |  |                                                                                                                                                                                                                                                |  |  |                                                                                     | 
|Usable land placed in trust by Federal government                                                           |  |  | Yes, the Iowa Tribe is currently leasing and acquiring land from
    tribal members, which is held in trust for the individual tribal
    members by the United States Government. These transactions will
    need to be approved by the BIA. |  |  | Yes, currently an open casino.                                                      | 
|                                                                                                            |  |  |                                                                                                                                                                                                                                                |  |  |                                                                                     | 
|Usable county agreement, if applicable                                                                      |  |  | N/A                                                                                                                                                                                                                                            |  |  | N/A                                                                                 | 
|                                                                                                            |  |  |                                                                                                                                                                                                                                                |  |  |                                                                                     | 
|Usable state compact that allows for gaming consistent with
    that outlined in the Companys project plan |  |  | Yes                                                                                                                                                                                                                                            |  |  | Yes                                                                                 | 
|                                                                                                            |  |  |                                                                                                                                                                                                                                                |  |  |                                                                                     | 
|NIGC approval of management contract in current and desired
    form                                        |  |  | No, submitted to the NIGC for review on April 22, 2005. An
    EA will be prepared in order for the management contract to be
    approved, which is expected to be completed in late 2006.                                                    |  |  | No, however the NIGC approved the management contract in April
    2006.            | 
|                                                                                                            |  |  |                                                                                                                                                                                                                                                |  |  |                                                                                     | 
|Resolution of all litigation and legal obstacles                                                            |  |  | None at this time, the acquisition of other tribal land needs to
    be approved by the BIA.                                                                                                                                                   |  |  | None at this time. The first part of the refurbished casino
    opened in May 2006. | 
|                                                                                                            |  |  |                                                                                                                                                                                                                                                |  |  |                                                                                     | 

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|                                                                                                                                                                         |  |  |                                                                         |  |  |                                                                                                                                                                        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  | ----------------------------------------------------------------------- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                                                                                                                                         |  |  |                                                                         |  |  |                                                                                                                                                                        | 
|                                                                                                                                                                         |  |  | Development Project                                                     |  |  | Cimarron Casino                                                                                                                                                        | 
|                                                                                                                                                                         |  |  |                                                                         |  |  |                                                                                                                                                                        | 
|Financing for construction                                                                                                                                               |  |  | No, preliminary discussions with lending institutions has
    occurred. |  |  | Permanent financing was obtained from a lending institution in
    December 2005 and Lakes was repaid all amounts outstanding under
    the business improvement loan. | 
|                                                                                                                                                                         |  |  |                                                                         |  |  |                                                                                                                                                                        | 
|Any other significant project milestones or contingencies,
    the outcome of which could have a material affect on the
    probability of project completion as planned |  |  | No others known at this time by Lakes.                                  |  |  | No others known at this time by Lakes.                                                                                                                                 | 
|                                                                                                                                                                         |  |  |                                                                         |  |  |                                                                                                                                                                        | 



| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Lakes evaluation and conclusion regarding the above
    critical milestones and progress:





| |               
| | --------------
| | Kickapoo Tribe





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##### Table of Contents



Litigation costs:


Income taxes: Accounting for Income
Taxes (SFAS 109)


Other Recent Accounting Pronouncements: Accounting for Certain Hybrid Instruments Accounting for Derivative Instruments
and Hedging Activities, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. SFAS


Accounting for
Servicing of Financial Assets  An Amendment of FASB
Statement No. 140. Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities


Seasonality




Regulation and taxes






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##### Table of Contents



Off-balance sheet arrangements




Private Securities Litigation Reform Act


10-Q




10-K







|        |                                                               
|------- | --------------------------------------------------------------
|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK





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##### Table of Contents














|        |                        
|------- | -----------------------
|ITEM 4. | CONTROLS AND PROCEDURES

13a-15(e)




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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Part II


Other Information







|        |                  
|------- | -----------------
|ITEM 1. | LEGAL PROCEEDINGS



| |                        
| | -----------------------
| | Slot machine litigation







| |                                        
| | ---------------------------------------
| | El Dorado County, California litigation





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WPTE litigation with TRV


tm tm




64



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##### Table of Contents





| |                 
| | ----------------
| | Other litigation






ITEM 1A. RISK FACTORS


10-K







|        |         
|------- | --------
|ITEM 6. | EXHIBITS

Exhibits


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

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SIGNATURES


10-Q




| |                          
| | -------------------------
| | 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



66