##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
      Form 10-Q
  (Mark One)þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the
    quarterly period ended April 4,
    2010oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For 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
    Minnetonka, Minnesota(Address of principal
    executive offices)

55305(Zip Code)   (952) 449-9092
 (Registrants telephone number, including area code)
  þ o
  Regulation S-T o o
  Rule 12b-2
  Large accelerated filer o
    Accelerated filer þ
    Non-accelerated filero
    Smaller reporting company o (Do not check if a smaller
    reporting company)
  Rule 12b-2 o þ




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##### 



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  INDEX
   
 Page ofForm 10-QPART I. FINANCIAL
    INFORMATIONITEM 1.


FINANCIAL STATEMENTS


3Consolidated Balance Sheets as of April 4,
    2010 (unaudited) and January 3, 2010


3Unaudited Consolidated Statements of Earnings
    (Loss) for the three months ended April 4, 2010 and
    March 29, 2009


4Unaudited Consolidated Statements of Cash Flows
    for the three months ended April 4, 2010 and March 29,
    2009


5Notes to Unaudited Consolidated Financial
    Statements


6ITEM 2.


MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS


18ITEM 3.


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK


33ITEM 4.


CONTROLS AND PROCEDURES


34PART II. OTHER INFORMATIONITEM 1.


LEGAL PROCEEDINGS


34ITEM 1A.


RISK FACTORS


34ITEM 6.


EXHIBITS


34EX-31.1EX-31.2EX-32.1   2




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##### Table of Contents



Part I.
    Financial Information  ITEM 1.
    FINANCIAL
    STATEMENTS  LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIESConsolidated Balance Sheets
  April 4, 2010


January 3, 2010(Unaudited)(In thousands)AssetsCurrent assets:Cash

$
6,072


$
3,751Accounts receivable


3,375



1,457Current portion of notes receivable from Indian casino projects


8,246



6,671Deferred tax asset


111



111Investment securities, including rights


21,917



24,317Other


2,511



2,367Total current assets


42,232



38,674Property and equipment, net


5,269



5,334Long-term assets related to Indian casino projects:Notes receivable, net of current portion


47,609



46,100Notes receivable at fair value, net of current portion


11,859



13,254Intangible assets, net of accumulated amortization of $22.8 and
    $20.1 million


40,891



45,064Land held for development


1,130



1,813Other


4,596



4,324Total long-term assets related to Indian casino projects


106,085



110,555Other assets:Investment in unconsolidated investees


12,414



12,441Land held for development


4,900



4,900Deferred taxes and other


1,826



1,833Total other assets


19,140



19,174Total assets

$
172,726


$
173,737Liabilities and shareholders equityCurrent liabilities:Line of credit payable

$
14,680


$
16,346Non-revolving line of credit payable


2,000



2,000Current portion of contract acquisition costs payable, net of
    $1.8 and $2.1 million discount


2,138



2,232Income taxes payable


22,544



17,069Accounts payable


459



637Accrued payroll and related


1,175



890Other accrued expenses


860



927Total current liabilities


43,856



40,101Long-term contract acquisition costs payable, net of current
    portion and $3.7 and $4.1 million discount


9,541



10,197Total liabilities


53,397



50,298Commitments and contingenciesShareholders equity:Common stock, $.01 par value; authorized
    200,000 shares; 26,369 and 26,328 common shares issued and
    outstanding


264



263Additional paid-in capital


203,343



202,767Deficit


(84,278
)


(79,591
)Total shareholders equity


119,329



123,439Total liabilities and shareholders equity

$
172,726


$
173,737    3




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Consolidated Statements of Earnings (Loss)
  Three Months EndedApril 4, 2010


March 29, 2009(In thousands, except per share data)(Unaudited)Revenues:Management fees

$
6,937


$
7,266License fees


17



12Total revenues


6,954



7,278Costs and expenses:Selling, general and administrative


3,235



4,042Impairment losses


2,664



569Amortization of intangible assets related to operating casinos


2,785



2,479Depreciation


65



73Total costs and expenses


8,749



7,163Net unrealized gains (losses) on notes receivable


1,770



(163
)Loss from operations


(25
)


(48
)Other income (expense):Interest income


2,247



1,862Interest expense


(687
)


(395
)Equity in loss of unconsolidated investee


(27
)


Other


(72
)


(8
)Total other income (expense), net


1,461



1,459Earnings before income taxes


1,436



1,411Income taxes


6,123



386Net earnings (loss)

$
(4,687
)

$
1,025Weighted-average common shares outstandingBasic


26,361



26,325Diluted


26,361



26,386Earnings (loss) per share applicable to common
    shareholders  basic & diluted

$
(0.18
)

$
0.04    4




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIESConsolidated Statements of Cash Flows
  Three Months EndedApril 4, 2010


March 29, 2009(In thousands)(Unaudited)OPERATING ACTIVITIES:Net earnings (loss)

$
(4,687
)

$
1,025Adjustments to reconcile net earnings (loss) to net cash
    provided by operating activities:Depreciation


65



73Amortization of debt issuance costs


8



8Accretion of discount on notes receivable


(1,165
)


(714
)Mark to market, trading securities






(54
)Amortization of intangible assets related to operating casinos


2,785



2,479Equity in loss of investee


27



Share-based compensation


179



83Impairment losses


2,664



569Net unrealized (gains) losses on notes receivable


(1,770
)


163Deferred income taxes






(557
)Changes in operating assets and liabilities:Accounts receivable


(1,918
)


(1,180
)Other current assets


(144
)


493Income taxes payable


5,475



672Accounts payable


(70
)


235Accrued expenses


210



(66
)Net cash provided by operating activities


1,659



3,229INVESTING ACTIVITIES:Sales / redemptions of securities


2,400



Increases in long-term assets related to Indian casino projects,
    net


(380
)


(796
)Advances on notes receivable


(1,256
)


(4
)Purchase of property and equipment






(3
)Collection on notes receivable


1,910



1,476Increase in other long-term assets


(2
)


Net cash provided by investing activities


2,672



673FINANCING ACTIVITIES:Repayments of line of credit


(2,474
)


(135
)Cash proceeds from issuance of common stock






533Tax benefit from stock option exercises


406



Proceeds from borrowings


808



Contract acquisition costs payable


(750
)


(604
)Net cash used in financing activities


(2,010
)


(206
)Net increase in cash


2,321



3,696Cash  beginning of period


3,751



6,170Cash  end of period

$
6,072


$
9,866    5




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LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to Unaudited Consolidated Financial
    Statements
  1.
    Basis of
    presentation  and/or
  Form 10-Q Form 10-K,
      2.
    New
    accounting standards  2010-6, Improving Disclosures About Fair Value Measurements 2010-6 2010-6
  3.
    Investments
    in securities, including rights     6




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##### Table of Contents



Gross

EstimatedUnrealized

FairCost

Losses

ValueAuction rate securities at April 4, 2010

$
21,925


$
(2,300
)

$
19,625Auction rate securities at January 3, 2010


24,325



(2,489
)


21,836   4.
    Financial
    instruments and fair value measurements  Financial instruments.
      Fair value measurements.
  
    ARS  Credit ratings of the ARS and collateral
    securities, default rates, other market and liquidity
    circumstances.
    Rights  Credit worthiness of UBS including its credit
    swap rate.
    Notes receivable from Indian Tribes  Probability of
    the casino opening based on the status of critical project
    milestones and the expected opening date, estimated pre- and
    post-opening interest rates, contractual interest rate and other
    terms, yield rates on US Treasury Bills and other financial
    instruments, the risk/return indicators of equity investments in
    general, specific risks associated with operating the casino and
    similar projects, and scenario weighting alternatives.    April 4,


January 3,2010


2010Auction rate securities (Note 3)

$
19,625


$
21,836Rights (Note 3)


2,292



2,481Notes receivable from Indian Tribes (Note 5)


15,192



13,254$
37,109


$
37,571  7




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##### Table of Contents



NotesReceivablefromARS


Rights


Indian Tribes


TotalBalance, January 3, 2010

$
21,836


$
2,481


$
13,254


$
37,571Total realized and unrealized gains (losses):Gains (losses) included in earnings


189



(189
)






Net unrealized gains on notes receivable










1,770



1,770Sales (at par)


(2,300
)










(2,300
)Redemptions (at par)


(100
)










(100
)Advances, net of allocation to intangible, other










168



168Balance, April 4, 2010(unaudited)

$
19,625


$
2,292


$
15,192


$
37,109           5.
    Long-term
    assets related to Indian casino projects  notes
    receivable   8




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##### Table of Contents



Shingle





IowaSprings


Jamul


TribeofTribe(*)


Tribe


Oklahoma


TotalBalance, January 3, 2010

$
52,771


$
9,761


$
3,493


$
66,025Advances, net


500



756







1,256Repayments


(1,910
)










(1,910
)Accretion of note receivable discount


1,161







4



1,165Allocation of advances to intangible assets






(592
)






(592
)Unrealized gains






907



863



1,770Balance, April 4, 2010


52,522



10,832



4,360



67,714Less current portion of notes receivable


(4,913
)






(3,333
)


(8,246
)Long-term notes receivable, April 4, 2010

$
47,609


$
10,832


$
1,027


$
59,468     (*)
    
    The Companys management estimated the fair value of the
    notes receivable from the Shingle Springs Tribe in conjunction
    with the opening of the Red Hawk Casino on December 17,
    2008. Pursuant to Lakes accounting policy, upon opening of
    the casino, the difference between the then estimated fair value
    of the notes receivables and the amount contractually due under
    the notes is being amortized into income using the effective
    interest method over the remaining term of the note. These notes
    are no longer adjusted to estimated fair value, but rather they
    are evaluated periodically for impairment pursuant to
    ASC 310.  Shingle Springs Tribe.
 9




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##### Table of Contents



Jamul Tribe.
  As of April 4, 2010

As of January 3, 2010(Unaudited)Face value of note (principal and interest)

$56,404

$54,911$(37,264 principal and $19,140 interest)

$(36,507 principal and $18,404 interest)Estimated months until casino opens (weighted average of three
    scenarios)

66 months

66 monthsProjected interest rate until casino opens

7.92%

8.00%Projected interest rate during the loan repayment term

10.57%

10.40%Discount rate(*)

20.00%

21.00%Repayment terms of note

120 months

120 monthsProbability rate of casino opening (weighting of four scenarios)

50%

50%     (*)
    
    During 2010, Lakes management decreased the discount rate
    used to estimate the fair value of this instrument to 20.00% for
    this project because improvements in the credit markets resulted
    in lower required rates of return.  Iowa Tribe of Oklahoma.
      As of January 3, 2010Face value of note (principal and interest)

$6,218($4,970 principal and $1,248 interest)Estimated months until casino opens

36 monthsProjected interest rate until casino opens

7.03%Projected interest rate during the loan repayment term

9.59%Discount rate

16.00%Repayment terms of note

24 monthsProbability rate of casino opening

75%   6.
    Other
    long-term assets related to Indian casino projects  Intangible assets.
 10




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##### Table of Contents



ShinglePokagon


Springs


Jamul


IowaBand


Tribe


Tribe(*)


Tribe(**)


TotalBalances, January 3, 2010

$
17,346


$
26,328


$



$
1,390


$
45,064Allocation of advances










592







592Amortization


(1,678
)


(1,105
)






(2
)


(2,785
)Impairment losses










(592
)


(1,388
)


(1,980
)Balances, April 4, 2010 (unaudited)

$
15,668


$
25,223


$



$



$
40,891     (*)
    
    Due to the continued uncertainty surrounding the Jamul Casino
    project, Lakes recognized an impairment of $0.6 million
    related to the intangible assets associated with this project
    during the three months ended April 4, 2010.(**)
    
    Due to the Iowa Tribe of Oklahomas decision not to move
    forward with Lakes for the development and management of the
    Ioway Casino Resort, Lakes recognized an impairment of
    $1.4 million related to the intangible assets associated
    with the Ioway Casino Resort during the three months ended
    April 4, 2010.  Land held for development.
    Other.
  7.
    Investment
    in unconsolidated investees  Equity method investment.
  Cost method investments.
 11




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##### Table of Contents



8.
    Debt  Line of credit payable. 30-day
  Non-revolving line of credit payable.
  9.
    Contract
    acquisition costs payable        10.
    Share-based
    compensation    Stock options.
 12




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Three Months EndedApril 4,

March 29,Key Valuation Assumptions:

2010(*)

2009Expected dividend yield






Risk-free interest rate






2.52
%Expected term (in years)






7.7 yearsExpected volatility






79.82
%Forfeiture rate






Weighted-average grant-date fair value per share





$
2.46     (*)
    
    There were no options granted during the three months ended
    April 4, 2010.  
    Expected dividend yield  As the Company does not pay
    dividends, the dividend rate variable in the Black-Scholes model
    is zero.
    Risk free interest rate  The risk free interest rate
    assumption is based on the U.S. Treasury yield curve in
    effect at the time of grant and with maturities consistent with
    the expected term of options.
    Expected term (in years)  The expected term of
    employee stock options represents the weighted-average period
    that the stock options are expected to remain outstanding. It is
    based upon an analysis of the historical behavior of option
    holders during the period from September 1995 to April 4,
    2010. Management believes historical data is reasonably
    representative of future exercise behavior.
    Expected volatility  The volatility assumption is
    based on the historical weekly price data of Lakes stock
    over a two-year period. Management evaluated whether there were
    factors during that period which were unusual and which would
    distort the volatility figure if used to estimate future
    volatility and concluded that there were no such factors.
    Estimated forfeiture rate  Share-based compensation
    expense recognized is based on awards ultimately expected to
    vest. ASC 718, Compensation  Stock
    Compensation,requires forfeitures to be estimated at the
    time of grant and revised quarterly, if necessary, in subsequent
    periods if actual forfeitures differ from those estimates.
    Management has reviewed the historical forfeitures which have
    been minimal, and as such will amortize the grants to the end of
    the vesting period subject to any revisions to its estimated
    forfeiture rates prior to vesting. 13




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##### Table of Contents



Number of Common SharesWeighted-Avg.Options





Available


ExerciseOutstanding


Exercisable


for Grant


Price2010Balance at January 3, 2010


1,704,187



442,350



1,121,413


$
3.93Restricted stock unit activity, net










3,333



3.25Forfeited/cancelled/expired


(98,955
)






6,355



11.58Balance at April 4, 2010(*)


1,605,232



462,656



1,131,101



3.462009Balance at December 28, 2008


2,862,964



2,498,864



343,150


$
6.60Granted


197,000







(197,000
)


3.25Restricted stock unit activity, net










(140,000
)


3.25Forfeited/cancelled/expired


(109,423
)






109,423



4.29Exercised


(91,041
)










3.80Balance at March 29, 2009(**)


2,859,500



2,455,700



115,573



6.54     (*)
    
    Options outstanding do not include 86,662 of outstanding
    restricted stock units.(**)
    
    Options outstanding do not include 140,000 of outstanding
    restricted stock units.        Restricted stock units.
  Weighted-averageRestricted


Grant-Non-vested Shares:

Stock Units


Date Fair Value2010Balance at January 3, 2010


135,000


$
3.25Vested


(45,005
)


3.25Forfeited


(3,333
)


3.25Balance at April 4, 2010


86,662



3.252009Balance at December 28, 2008





$
Granted


140,000



3.25Forfeited






Balance at March 29, 2009


140,000



3.25  14




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11.
    Earnings
    (loss) per share    12.
    Income
    taxes      13.
    Commitments
    and contingencies  General.
  Rock Ohio Ventures, LLC.
  Funding agreement with Penn Ventures, LLC.
 15




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##### Table of Contents



Louisiana Department of Revenue litigation tax
    matter.
  Miscellaneous legal matters.
  14.
    Segment
    information   16




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##### Table of Contents



Indian

Non-IndianCasino

Casino

Corporate &Projects

Projects

Eliminations

ConsolidatedQuarter ended April 4, 2010Revenue

$
6.9


$



$
0.1


$
7.0Impairment losses


2.7











2.7Equity in loss of unconsolidated investee














Earnings (loss) from operations


2.4







(2.4
)


Total assets


118.3



14.1



40.3



172.7Investment in unconsolidated investee






12.4







12.4Depreciation expense










0.1



0.1Amortization of intangible assets related to operating casinos


2.8











2.8Quarter ended March 29, 2009Revenue

$
7.3


$



$



$
7.3Impairment losses


0.6











0.6Earnings (loss) from operations


3.7







(3.7
)


Total assets


118.4



5.4



43.3



167.1Depreciation expense










0.1



0.1Amortization of intangible assets related to operating casinos


2.5











2.5   15.
    Subsequent
    events       17




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##### Table of Contents



ITEM 2.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Overview
    
    We developed, and have a five-year contract to manage, the Four
    Winds Casino Resort for the Pokagon Band of Potawatomi Indians
    (Pokagon Band) in New Buffalo Township, Michigan
    near Interstate 94. We began managing the Four Winds Casino
    Resort when it opened to the public on August 2, 2007. The
    Four Winds Casino Resort is located near the first Interstate 94
    exit in southwestern Michigan and approximately 75 miles
    east of Chicago. The facility features approximately 3,000 slot
    machines, 75 table games including a 12-table poker room, a
    165-room hotel, five restaurants, four bars, a child care
    facility and arcade, retail space and a parking garage.
    We developed, and have a seven-year contract to manage, the Red
    Hawk Casino that was built on the Rancheria of the Shingle
    Springs Band of Miwok Indians (Shingle Springs
    Tribe) in El Dorado County, California, adjacent to
    U.S. Highway 50, approximately 30 miles east of
    Sacramento, California. We began managing the Red Hawk Casino
    when it opened to the public on December 17, 2008. The Red
    Hawk Casino features approximately 2,100 slot machines, 90 table
    games including 12 poker tables, five restaurants, four bars,
    retail space, a parking garage, a child care facility and arcade.
    We have contracts to develop and finance a casino to be built on
    the reservation of the Jamul Indian Village (the Jamul
    Tribe) located on State Highway 94, approximately
    20 miles east of San Diego, California (the
    Jamul Casino). This project has been delayed due to
    various political and regulatory issues. Significant risk exists
    related to this project moving forward to completion and we have
    recorded significant impairment charges against our investment
    in this project. However, the Jamul Tribe has the two basic
    requirements to eventually build a successful
    project  federal recognition as an Indian Tribe and
    Indian land eligible for gaming. We have concluded that it is
    not currently in our best interest to terminate our involvement
    with the Jamul Casino project altogether. We will continue to
    monitor the status of this project.      
    In October 2009, Lakes entered into agreements with Penn
    Ventures and Rock Ohio Ventures for the purpose of funding a
    percentage of costs associated with the referendum to amend the
    Ohio constitution to authorize casino gaming in Ohio, which
    passed on November 3, 2009. As of April 4, 2010, Lakes
    funded approximately $4.3 million related to this
    referendum effort. Lakes expects to contribute additional
    capital to Rock Ohio Ventures for the development of casinos in
    Cleveland and Cincinnati. Lakes also intends to contribute
    capital to an entity to be formed in collaboration with Penn
    Ventures for the development of casinos in Columbus and Toledo. 18




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##### Table of Contents




    We have received various regulatory approvals to develop a
    casino on approximately 400 acres near Vicksburg,
    Mississippi. However, uncertainty exists surrounding the
    development of this project and due primarily to changes in the
    economic environment and credit markets. As a result, the assets
    associated with the Vicksburg project are recorded at their
    estimated fair value of $4.9 million.
    In January 2010, Lakes entered into a Development Services and
    Management Agreement with Abston-McKay Ventures, LLC where Lakes
    agrees to perform certain development and management services
    for a potential casino located in Tunica, Mississippi. In
    exchange for its services, Lakes will receive a financing fee, a
    monthly fee and an annual incentive based on earnings.    Results
    of Operations
  Form 10-Q
  Three
    months ended April 4, 2010, compared to the three months
    ended March 29, 2009
  Revenues.
  Selling, general and administrative
    expenses.
  Impairment losses.
  Amortization of intangible assets related to operating
    casinos.
  Net unrealized gains (losses) on notes
    receivable.
 19




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##### Table of Contents



Other income (expense), net.
  Income Taxes.
  Three
    months ended March 29, 2009 compared to the three months
    ended March 30, 2008
  Revenues.
  Selling, general and administrative
    expenses.
  Ohio initiative costs.
  Impairment losses.
  Amortization of intangible assets related to operating
    casinos.
  Net unrealized losses on notes receivable.
 20




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##### Table of Contents



Other income (expense), net.
  Income Taxes. Form 10-Q).
  Liquidity
    and Capital Resources
          30-day
       21




---



##### Table of Contents



and/or
  Critical
    Accounting Policies and Estimates
      Revenue recognition:
 22




---



##### Table of Contents



Share-based compensation expense:
  Income taxes: Income Taxes.
    Investment in securities: Investments  Debt and Equity Securities Derivatives and Hedging. Financial Instruments
  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?
    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 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; 23




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##### Table of Contents




    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 us, including
    whether the project would be a financing, development
    and/or
    management opportunity.  Investments  Debt and
    Equity Securities
    Receivables
    Intangible assets related to Indian casino
    projects. Intangibles  Goodwill and Other
  Land held for development.
 24




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##### Table of Contents



Other.
    Long-term asset related to Indian Casino
    projects
  April 4, 2010ShinglePokagon


Springs


Jamul


IowaBand


Tribe


Tribe


Tribe


Other


TotalNotes receivable, net of current portion(*)

$



$
47,609


$



$



$



$
47,609Notes receivable at fair value, net of current portion










10,832



1,027







11,859Intangible assets related to Indian casino projects


15,668



25,223















40,891Land held for development










960



170







1,130Other(**)


60



1,996



346



304



1,890



4,596$
15,728


$
74,828


$
12,138


$
1,501


$
1,890


$
106,085   January 3, 2010ShinglePokagon


Springs


Jamul


IowaBand


Tribe


Tribe


Tribe


Other


TotalNotes receivable, net of current portion(*)

$



$
46,100


$



$



$



$
46,100Notes receivable at fair value










9,761



3,493







13,254Intangible assets related to Indian casino projects


17,346



26,328







1,390







45,064Land held for development










960



853







1,813Other(**)


60



1,405



419



330



2,110



4,324$
17,406


$
73,833


$
11,140


$
6,066


$
2,110


$
110,555     (*)
    
    In conjunction with the opening of the Red Hawk Casino on
    December 17, 2008 and pursuant to Lakes accounting
    policy, the notes receivable from the Shingle Springs Tribe are
    no longer adjusted to estimated fair value on a quarterly basis,
    but rather they are evaluated for impairment pursuant to
    ASC 310. Approximately $4.9 million and
    $6.7 million of the notes receivable from the Shingle
    Springs Tribe are estimated to be collected within the next
    twelve fiscal months, and have been classified as a current
    asset in the unaudited consolidated balance sheets as of
    April 4, 2010 and January 3, 2010, respectively.(**)
    
    Includes notes receivable from related parties of
    $2.2 million and $2.3 million, net of current portion,
    as of April 4, 2010 and January 3, 2010, respectively.
    See Note 6 to our unaudited consolidated financial
    statements included in Item 1 of this Quarterly Report on
    Form 10-Q
    for further details.   25




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##### Table of Contents



Jamul
    Tribe
    As of April 4, 2010

As of January 3, 2010Face value of note (principal and interest)

$56,404
    ($37,264 principal and $19,140 interest)

$54,911
    ($36,507 principal and $18,404 interest)Estimated months until casino opens (weighted-average of three
    scenarios)(*)

66 months

66 monthsProjected interest rate until casino opens

7.92%

8.00%Projected interest rate during the loan repayment term

10.57%

10.40%Discount rate(*)

20.00%

21.00%Repayment terms of note

120 months

120 monthsProbability rate of casino opening (weighting of four
    scenarios)(*)

50%

50%     (*)
    
    During 2010, Lakes decreased the discount rate to 20.00% for
    this project because improvements in the credit markets resulted
    in lower required rates of return.    Sensitivity AnalysisAs of April 4, 2010

As of January 3, 2010Estimated fair value of notes receivable

$
10,832


$
9,7615% less probable

$
8,623


$
8,303One year delay

$
8,644


$
8,249Both 5% less probable and one year delay

$
7,584


$
7,2745% increased probability

$
10,975


$
10,482One year sooner

$
11,080


$
10,670Both 5% increased probability and one year sooner

$
12,384


$
11,887    26




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##### Table of Contents



April 4,


January 3,Advances Principal Balance

2010


2010Note receivable, pre-construction(a)

$
36,314


$
35,557Note receivable, land(b)


950



950$
37,264


$
36,507     (a)
    
    We fund 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 we, in order to
    obtain the development agreement and management contract, agree
    to advance a monthly amount used by the tribe for a variety of
    tribal expenses.(b)
    
    We purchased land to be used and transferred to the tribe in
    connection with the casino project.    April 4,


January 3,Jamul Tribe

2010


2010Monthly stipend

$
6,511


$
6,357Construction


2,495



2,454Legal


4,931



4,873Environmental


2,343



2,339Design


16,236



15,770Gaming license


1,101



1,067Lobbyist


2,697



2,697$
36,314


$
35,557   Iowa
    Tribe
      As of January 3, 2010Face value of note (principal and interest)

$6,218$(4,970 principal and $1,248 interest)Estimated months until casino opens

36 monthsProjected interest rate until casino opens

7.03%Projected interest rate during the loan repayment term

9.59%Discount rate

16.00%Repayment terms of note

24 monthsProbability rate of casino opening

75%  27




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##### Table of Contents



Evaluation
    of impairment related to long-term assets related to Indian
    casino projects, excluding the notes receivable.
        Jamul
    Tribe
    April 4,

January 3,2010

2010No. of Class II electronic gaming devices


1,000



1,000No. of Table games


20



20No. of Poker tables


5



5Win/Class II electronic gaming devices/day  1st
    year

$
172


$
172Win/Table game/day  1st year

$
471


$
471Win/Poker table/day  1st year

$
312


$
312     Iowa
    Tribe
   28




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##### Table of Contents



Description
    of each Indian casino project and evaluation of critical
    milestones:
  Pokagon
    Band
  Business arrangement.
  Shingle
    Springs
  Business arrangement.
          Jamul
    Tribe
   29




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##### Table of Contents



Business arrangement. six-acre
       30




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##### Table of Contents



Our evaluation of the critical milestones.
  April 4,

January 3,Critical Milestone

2010

2010Federal recognition of the tribe

Yes

YesPossession of usable land corresponding with needs based on
    Lakes project plan

Yes

YesUsable land placed in trust by Federal government

Not necessary, as land is reservation land.

Not necessary, as land is reservation land.Usable county agreement, if applicable

N/A

N/AUsable state compact that allows for gaming consistent with
    that outlined in Lakes project plan

N/A  the Jamul Tribes current plan is to
    operate a solely class II electronic gaming device
    facility, which does not require a compact with the State.

N/A  the Jamul Tribes current plan is to
    operate a solely class II electronic gaming device
    facility, which does not require a compact with the State.NIGC approval of management contract in current and desired
    form

N/A as the Jamul Tribes current plan is to operate a
    solely class II electronic gaming device facility, which
    does not need to be approved by the NIGC.

N/A as the Jamul Tribes current plan is to operate a
    solely class II electronic gaming device facility, which
    does not need to be approved by the NIGC.Resolution of all litigation and legal obstacles

N/A, there has been some local opposition regarding the project.

N/A, there has been some local opposition regarding the project.Financing for construction

No, however, preliminary discussions with investment bankers
    regarding assisting in obtaining financing have taken place.
    The current general economic environment may limit our ability
    to obtain financing at desirable levels in the near-term.

No, however, preliminary discussions with investment bankers
    regarding assisting in obtaining financing have taken place. The
    current general economic environment may limit our ability to
    obtain financing at desirable levels in the near-term.Any other significant project milestones or contingencies,
    the outcome of which could have a material affect on the
    probability of project completion as planned

Yes. The current plan is for the gaming facility to be a solely
    class II electronic gaming device facility. The agreement
    between Lakes and the Jamul Tribe will also be modified to
    reflect the new economics of the revised casino plan but is not
    currently believed to require approval by the State or the NIGC.

Yes. The current plan is for the gaming facility to be a solely
    class II electronic gaming device facility. The agreement
    between Lakes and the Jamul Tribe will also be modified to
    reflect the new economics of the revised casino plan but is not
    currently believed to require approval by the State or the NIGC.  31




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##### Table of Contents



Our evaluation and conclusion regarding the above critical
    milestones and progress. land-in-trust
    Iowa
    Tribe
    Recently
    issued accounting pronouncements
  Form 10-Q.
  Seasonality
    Regulation
    and taxes
      Off-balance
    sheet arrangements
   32




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##### Table of Contents



Private
    Securities Litigation Reform Act
  Form 10-Q
    Form 10-K
  ITEM 3.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    30-day
  and/or
   33




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##### Table of Contents



ITEM 4.
    CONTROLS
    AND PROCEDURES  Rule 13a-15(e)
   Part II.
    Other Information ITEM 1.
    LEGAL
    PROCEEDINGS    ITEM 1A.
    RISK
    FACTORS  Form 10-K,
  ITEM 6.
    EXHIBITS  Exhibits

Description31
.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 200231
.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 200232
.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  34




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##### Table of Contents



SIGNATURES
  Form 10-Q
  LAKES ENTERTAINMENT, INC. Registrant
  
       
       35