##### 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 July 3, 2005                                                 
|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                |  | (I.R.S. Employer   
|of incorporation or organization)           |  | Identification No.)
|                                           
|130 Cheshire Lane
    Minnetonka, Minnesota |  | 55305(Zip Code)    
|(Address of principal executive offices)    |  |                    

(952) 449-9092


(Registrants telephone number, including area code)


o þ


þ o


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
    July 3, 2005 (unaudited) and January 2, 2005                                                  |  |           | 3  | 
|                                                   |  | Unaudited Condensed Consolidated Statements
    of Loss for the three months ended July 3, 2005 and
    July 4, 2004 (restated)               |  |           | 4  | 
|                                                   |  | Unaudited Condensed Consolidated Statements
    of Comprehensive Loss for the three months ended July 3,
    2005 and July 4, 2004 (restated) |  |           | 5  | 
|                                                   |  | Unaudited Condensed Consolidated Statements
    of Loss for the six months ended July 3, 2005 and
    July 4, 2004 (restated)                 |  |           | 6  | 
|                                                   |  | Unaudited Condensed Consolidated Statements
    of Comprehensive Loss for the six months ended July 3, 2005
    and July 4, 2004 (restated)   |  |           | 7  | 
|                                                   |  | Unaudited Condensed Consolidated Statements
    of Cash Flows for the six months ended July 3, 2005 and
    July 4, 2004 (restated)           |  |           | 8  | 
|                                                   |  | Notes to Unaudited Condensed Consolidated
    Financial Statements                                                                            |  |           | 9  | 
|ITEM 2.                                            |  | MANAGEMENTS DISCUSSION AND ANALYSIS
    OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                                     |  |           | 20 | 
|ITEM 3.                                            |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES
    ABOUT MARKET RISK                                                                                |  |           | 57 | 
|ITEM 4.                                            |  | CONTROLS AND PROCEDURES                                                                                                                       |  |           | 58 | 
|PART II. OTHER INFORMATION                        
|ITEM 1.                                            |  | LEGAL PROCEEDINGS                                                                                                                             |  |           | 58 | 
|ITEM 6.                                            |  | EXHIBITS                                                                                                                                      |  |           | 61 | 
|Certification of CEO Pursuant to Section 302      
|Certification of CFO Pursuant to Section 302      
|Certification of CEO & CFO Pursuant to Section 906



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Consolidated Balance Sheets


July 3, 2005 and January 2, 2005


|                                                         |                                                                                                                                                                                 |                |         |         |            |   |         |         |  
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | ------- | ---------- | - | ------- | ------- | -
|                                                         |                                                                                                                                                                                 | July 3,        |         |         | January 2, |  
|                                                         |                                                                                                                                                                                 | 2005           |         |         | 2005       |  
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|                                                         |                                                                                                                                                                                 | (Unaudited)    |         |         |           
|                                                         |                                                                                                                                                                                 | (In thousands) |        
|ASSETS                                                  
|Current assets:                                          |                                                                                                                                                                                 |                |         |         |            |   |         |        
|                                                         | Cash and cash equivalents                                                                                                                                                       |                | $       | 24,436  |            |   | $       | 28,717  |  
|                                                         | (balance includes $5.6 million and $4.5 million of WPT
    Enterprises, Inc. cash)                                                                                              |                |         |         |            |   |         |         |  
|                                                         | Short-term investments                                                                                                                                                          |                |         | 26,566  |            |   |         | 28,930  |  
|                                                         | (balance includes $26.6 million and $27.8 million of
    WPT Enterprises, Inc. short-term investments)                                                                          |                |         |         |            |   |         |         |  
|                                                         | Accounts receivable, net of allowance of $0.2 million and $0                                                                                                                    |                |         | 1,402   |            |   |         | 2,038   |  
|                                                         | Deferred tax asset                                                                                                                                                              |                |         | 162     |            |   |         | 137     |  
|                                                         | Prepaids                                                                                                                                                                        |                |         | 684     |            |   |         | 1,233   |  
|                                                         | Other current assets                                                                                                                                                            |                |         | 601     |            |   |         | 1,159   |  
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Total current assets                                     |                                                                                                                                                                                 |                | 53,851  |         |            |   | 62,214  |        
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Property and equipment, net of accumulated depreciation  |                                                                                                                                                                                 |                | 7,889   |         |            |   | 6,795   |        
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Long-term assets related to Indian casino projects       |                                                                                                                                                                                 |                |         |         |            |   |         |        
|                                                         | Notes receivable, Indian Tribes                                                                                                                                                 |                |         | 73,803  |            |   |         | 67,066  |  
|                                                         | Land held for development                                                                                                                                                       |                |         | 15,783  |            |   |         | 15,433  |  
|                                                         | Intangible asset related to acquisition of management contracts                                                                                                                 |                |         | 43,247  |            |   |         | 41,096  |  
|                                                         | Other                                                                                                                                                                           |                |         | 3,045   |            |   |         | 2,024   |  
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Total long-term assets related to Indian casino projects |                                                                                                                                                                                 |                | 135,878 |         |            |   | 125,619 |        
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|                                                         | Investments                                                                                                                                                                     |                |         | 5,259   |            |   |         | 6,093   |  
|                                                         | Deferred tax asset                                                                                                                                                              |                |         | 4,278   |            |   |         | 4,278   |  
|                                                         | Other                                                                                                                                                                           |                |         | 4,414   |            |   |         | 4,090   |  
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Total assets                                             |                                                                                                                                                                                 | $              | 211,569 |         |            | $ | 209,089 |        
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|                                                        
|LIABILITIES AND SHAREHOLDERS EQUITY                    
|Current liabilities:                                     |                                                                                                                                                                                 |                |         |         |            |   |         |        
|                                                         | Accounts payable                                                                                                                                                                |                | $       | 3,464   |            |   | $       | 780     |  
|                                                         | Income taxes payable                                                                                                                                                            |                |         | 10,369  |            |   |         | 5,457   |  
|                                                         | Accrued payroll and related costs                                                                                                                                               |                |         | 697     |            |   |         | 891     |  
|                                                         | Deferred revenue                                                                                                                                                                |                |         | 3,448   |            |   |         | 3,280   |  
|                                                         | Other accrued expenses                                                                                                                                                          |                |         | 5,946   |            |   |         | 3,449   |  
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Total liabilities                                        |                                                                                                                                                                                 |                | 23,924  |         |            |   | 13,857  |        
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Commitments and contingencies                            |                                                                                                                                                                                 |                |         |         |            |   |         |        
|Common shares issued by subsidiary subject to repurchase |                                                                                                                                                                                 |                | 639     |         |            |   | 618     |        
|Minority interest                                        |                                                                                                                                                                                 |                | 11,185  |         |            |   | 11,222  |        
|Shareholders equity:                                    |                                                                                                                                                                                 |                |         |         |            |   |         |        
|                                                         | Capital stock, $.01 par value; authorized
    200,000 shares; 22,300 and 22,253 common shares issued and
    outstanding at July 3, 2005, and January 2, 2005,
    respectively |                |         | 223     |            |   |         | 223     |  
|                                                         | Additional paid-in capital                                                                                                                                                      |                |         | 158,130 |            |   |         | 157,895 |  
|                                                         | Retained earnings                                                                                                                                                               |                |         | 17,510  |            |   |         | 25,280  |  
|                                                         | Accumulated other comprehensive loss                                                                                                                                            |                |         | (42     | )          |   |         | (6      | )
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Total shareholders equity                               |                                                                                                                                                                                 |                | 175,821 |         |            |   | 183,392 |        
|                                                         |                                                                                                                                                                                 |                |         |         |            |  
|Total liabilities and shareholders equity               |                                                                                                                                                                                 | $              | 211,569 |         |            | $ | 209,089 |        
|                                                         |                                                                                                                                                                                 |                |         |         |            |  



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Consolidated Statements of Loss


|                                                                                  |                                         |                          |        |            |         |   |        |       |        | 
|--------------------------------------------------------------------------------- | --------------------------------------- | ------------------------ | ------ | ---------- | ------- | - | ------ | ----- | ------ | 
|                                                                                  |                                         | Three Months Ended       |       
|                                                                                  |                                         |                          |       
|                                                                                  |                                         | July 3,                  |        |            | July 4, |  
|                                                                                  |                                         | 2005                     |        |            | 2004    |  
|                                                                                  |                                         |                          |        |            |         |  
|                                                                                  |                                         |                          |        | (Restated) |        
|                                                                                  |                                         | (Unaudited)              |       
|                                                                                  |                                         | (In thousands, except    |       
|                                                                                  |                                         | loss per share)          |       
|Revenues:                                                                         |                                         |                          |        |            |         |   |        |      
|                                                                                  | License fee income                      |                          | $      | 5,341      |         |   | $      | 3,770 |       
|                                                                                  | Host fees, sponsorship and other        |                          |        | 1,260      |         |   |        | 948   |       
|                                                                                  |                                         |                          |        |            |         |  
|                                                                                  |                                         | Total revenues           |        |            | 6,601   |   |        |       | 4,718  | 
|                                                                                  |                                         |                          |        |            |         |  
|Costs and expenses:                                                               |                                         |                          |        |            |         |   |        |      
|                                                                                  | Selling, general and administrative     |                          |        | 6,970      |         |   |        | 3,146 |       
|                                                                                  | Production costs                        |                          |        | 4,377      |         |   |        | 2,645 |       
|                                                                                  | Net impairment losses                   |                          |        |           |         |   |        | 5,833 |       
|                                                                                  | Depreciation                            |                          |        | 113        |         |   |        | 150   |       
|                                                                                  |                                         |                          |        |            |         |  
|                                                                                  |                                         | Total costs and expenses |        |            | 11,460  |   |        |       | 11,774 | 
|                                                                                  | Net unrealized loss on notes receivable |                          |        | (956       | )       |   |        | (44   | )     
|                                                                                  |                                         |                          |        |            |         |  
|Loss from operations                                                              |                                         |                          | (5,815 | )          |         |   | (7,100 | )    
|                                                                                  |                                         |                          |        |            |         |  
|Other income:                                                                     |                                         |                          |        |            |         |   |        |      
|                                                                                  | Interest income                         |                          |        | 364        |         |   |        | 43    |       
|                                                                                  |                                         |                          |        |            |         |  
|                                                                                  |                                         | Total other income       |        |            | 364     |   |        |       | 43     | 
|                                                                                  |                                         |                          |        |            |         |  
|Loss before income taxes, equity in loss of investments and
    minority interest |                                         |                          | (5,451 | )          |         |   | (7,057 | )    
|Income tax provision (benefit)                                                    |                                         |                          | 352    |            |         |   | (469   | )    
|                                                                                  |                                         |                          |        |            |         |  
|Loss before equity in loss on investments and minority interest                   |                                         |                          | (5,803 | )          |         |   | (6,588 | )    
|Equity in loss of investments, net of tax                                         |                                         |                          | (7     | )          |         |   | (14    | )    
|                                                                                  |                                         |                          |        |            |         |  
|Loss before minority interest                                                     |                                         |                          | (5,810 | )          |         |   | (6,602 | )    
|Minority interest in net loss of subsidiary                                       |                                         |                          | 159    |            |         |   |       |      
|                                                                                  |                                         |                          |        |            |         |  
|Net loss                                                                          |                                         | $                        | (5,651 | )          |         | $ | (6,602 | )    
|                                                                                  |                                         |                          |        |            |         |  
|Loss per share, basic and diluted                                                 |                                         | $                        | (0.25  | )          |         | $ | (0.30  | )    
|                                                                                  |                                         |                          |        |            |         |  
|Weighted average common shares outstanding                                        |                                         |                          | 22,300 |            |         |   | 22,212 |      
|                                                                                  |                                         |                          |        |            |         |  



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Consolidated Statements of Comprehensive Loss


|                                      |                               |                    |        |            |         |   |        |   | 
|------------------------------------- | ----------------------------- | ------------------ | ------ | ---------- | ------- | - | ------ | - | 
|                                      |                               | Three Months Ended |       
|                                      |                               |                    |       
|                                      |                               | July 3,            |        |            | July 4, |  
|                                      |                               | 2005               |        |            | 2004    |  
|                                      |                               |                    |        |            |         |  
|                                      |                               |                    |        | (Restated) |        
|                                      |                               | (Unaudited)        |       
|                                      |                               | (In thousands)     |       
|Net loss                              |                               | $                  | (5,651 | )          |         | $ | (6,602 | )
|Other comprehensive loss, net of tax: |                               |                    |        |            |         |   |        |  
|                                      | Unrealized gain on securities |                    |        | 6          |         |   |        |  | 
|                                      |                               |                    |        |            |         |  
|Comprehensive loss                    |                               | $                  | (5,645 | )          |         | $ | (6,602 | )
|                                      |                               |                    |        |            |         |  



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Consolidated Statements of Loss


|                                                                                      |                                         |                          |        |            |         |   |        |       |        | 
|------------------------------------------------------------------------------------- | --------------------------------------- | ------------------------ | ------ | ---------- | ------- | - | ------ | ----- | ------ | 
|                                                                                      |                                         | Six Months Ended         |       
|                                                                                      |                                         |                          |       
|                                                                                      |                                         | July 3,                  |        |            | July 4, |  
|                                                                                      |                                         | 2005                     |        |            | 2004    |  
|                                                                                      |                                         |                          |        |            |         |  
|                                                                                      |                                         |                          |        | (Restated) |        
|                                                                                      |                                         | (Unaudited)              |       
|                                                                                      |                                         | (In thousands, except    |       
|                                                                                      |                                         | loss per share)          |       
|Revenues:                                                                             |                                         |                          |        |            |         |   |        |      
|                                                                                      | License fee income                      |                          | $      | 8,804      |         |   | $      | 7,413 |       
|                                                                                      | Host fees, sponsorship and other        |                          |        | 1,901      |         |   |        | 1,445 |       
|                                                                                      |                                         |                          |        |            |         |  
|                                                                                      |                                         | Total revenues           |        |            | 10,705  |   |        |       | 8,858  | 
|                                                                                      |                                         |                          |        |            |         |  
|Costs and expenses:                                                                   |                                         |                          |        |            |         |   |        |      
|                                                                                      | Selling, general and administrative     |                          |        | 13,435     |         |   |        | 6,394 |       
|                                                                                      | Production costs                        |                          |        | 7,564      |         |   |        | 5,117 |       
|                                                                                      | Net impairment losses                   |                          |        |           |         |   |        | 5,833 |       
|                                                                                      | Depreciation                            |                          |        | 204        |         |   |        | 293   |       
|                                                                                      |                                         |                          |        |            |         |  
|                                                                                      |                                         | Total costs and expenses |        |            | 21,203  |   |        |       | 17,637 | 
|                                                                                      | Net unrealized gain on notes receivable |                          |        | 1,880      |         |   |        | 530   |       
|                                                                                      |                                         |                          |        |            |         |  
|Loss from operations                                                                  |                                         |                          | (8,618 | )          |         |   | (8,249 | )    
|                                                                                      |                                         |                          |        |            |         |  
|Other income:                                                                         |                                         |                          |        |            |         |   |        |      
|                                                                                      | Interest income                         |                          |        | 814        |         |   |        | 91    |       
|                                                                                      | Other                                   |                          |        |           |         |   |        | 42    |       
|                                                                                      |                                         |                          |        |            |         |  
|                                                                                      |                                         | Total other income       |        |            | 814     |   |        |       | 133    | 
|                                                                                      |                                         |                          |        |            |         |  
|Loss before income taxes, equity in earnings of investments and
    minority interest |                                         |                          | (7,804 | )          |         |   | (8,116 | )    
|Income tax provision (benefit)                                                        |                                         |                          | 707    |            |         |   | (877   | )    
|                                                                                      |                                         |                          |        |            |         |  
|Loss before equity in earnings of investments and minority
    interest               |                                         |                          | (8,511 | )          |         |   | (7,239 | )    
|Equity in earnings of investments, net of tax                                         |                                         |                          | 6      |            |         |   | 245    |      
|                                                                                      |                                         |                          |        |            |         |  
|Loss before minority interest                                                         |                                         |                          | (8,505 | )          |         |   | (6,994 | )    
|Minority interest in net loss of subsidiary                                           |                                         |                          | 735    |            |         |   |       |      
|                                                                                      |                                         |                          |        |            |         |  
|Net loss                                                                              |                                         | $                        | (7,770 | )          |         | $ | (6,994 | )    
|                                                                                      |                                         |                          |        |            |         |  
|Loss per share, basic and diluted                                                     |                                         | $                        | (0.35  | )          |         | $ | (0.32  | )    
|                                                                                      |                                         |                          |        |            |         |  
|Weighted average common shares outstanding                                            |                                         |                          | 22,289 |            |         |   | 21,982 |      
|                                                                                      |                                         |                          |        |            |         |  



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Consolidated Statements of Comprehensive Loss


|                                      |                               |                  |        |            |         |   |        |   | 
|------------------------------------- | ----------------------------- | ---------------- | ------ | ---------- | ------- | - | ------ | - | 
|                                      |                               | Six Months Ended |       
|                                      |                               |                  |       
|                                      |                               | July 3,          |        |            | July 4, |  
|                                      |                               | 2005             |        |            | 2004    |  
|                                      |                               |                  |        |            |         |  
|                                      |                               |                  |        | (Restated) |        
|                                      |                               | (Unaudited)      |       
|                                      |                               | (In thousands)   |       
|Net loss                              |                               | $                | (7,770 | )          |         | $ | (6,994 | )
|Other comprehensive loss, net of tax: |                               |                  |        |            |         |   |        |  
|                                      | Unrealized loss on securities |                  |        | (36        | )       |   |        |  | 
|                                      |                               |                  |        |            |         |  
|Comprehensive loss                    |                               | $                | (7,806 | )          |         | $ | (6,994 | )
|                                      |                               |                  |        |            |         |  



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Condensed Consolidated Statements of Cash Flows


|                                                    |                                                                                               |                                                                                    |        |            |         |   |        |        |        |  
|--------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ------ | ---------- | ------- | - | ------ | ------ | ------ | -
|                                                    |                                                                                               | Six Months Ended                                                                   |       
|                                                    |                                                                                               |                                                                                    |       
|                                                    |                                                                                               | July 3,                                                                            |        |            | July 4, |  
|                                                    |                                                                                               | 2005                                                                               |        |            | 2004    |  
|                                                    |                                                                                               |                                                                                    |        |            |         |  
|                                                    |                                                                                               |                                                                                    |        | (Restated) |        
|                                                    |                                                                                               | (Unaudited)                                                                        |       
|                                                    |                                                                                               | (In thousands)                                                                     |       
|OPERATING ACTIVITIES:                               |                                                                                               |                                                                                    |        |            |         |   |        |       
|                                                    | Net loss                                                                                      |                                                                                    | $      | (7,770     | )       |   | $      | (6,994 | )     
|                                                    | Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities: |                                                                                    |        |            |         |   |        |        |       
|                                                    |                                                                                               | Depreciation                                                                       |        |            | 336     |   |        |        | 293    |  
|                                                    |                                                                                               | Stock-based compensation expense                                                   |        |            | 800     |   |        |        | 270    |  
|                                                    |                                                                                               | Equity in earnings of investments                                                  |        |            | (6      | ) |        |        | (396   | )
|                                                    |                                                                                               | Deferred income taxes                                                              |        |            | (25     | ) |        |        | (838   | )
|                                                    |                                                                                               | Net impairment losses                                                              |        |            |        |   |        |        | 5,833  |  
|                                                    |                                                                                               | Unrealized gains on notes receivable                                               |        |            | (1,879  | ) |        |        | (530   | )
|                                                    |                                                                                               | Minority interest                                                                  |        |            | (735    | ) |        |        |       |  
|                                                    | Changes in operating assets and liabilities:                                                  |                                                                                    |        |            |         |   |        |        |       
|                                                    |                                                                                               | Accounts receivable                                                                |        |            | 636     |   |        |        | 715    |  
|                                                    |                                                                                               | Prepaid expenses                                                                   |        |            | 549     |   |        |        |       |  
|                                                    |                                                                                               | Other current assets                                                               |        |            | 558     |   |        |        |       |  
|                                                    |                                                                                               | Income taxes                                                                       |        |            | 4,912   |   |        |        | 28     |  
|                                                    |                                                                                               | Accounts payable                                                                   |        |            | 999     |   |        |        | (1,894 | )
|                                                    |                                                                                               | Deferred revenue                                                                   |        |            | 168     |   |        |        |       |  
|                                                    |                                                                                               | Accrued expenses                                                                   |        |            | 2,303   |   |        |        | 1,470  |  
|                                                    |                                                                                               |                                                                                    |        |            |         |  
|Net cash provided by (used in) operating activities |                                                                                               |                                                                                    | 846    |            |         |   | (2,043 | )     
|                                                    |                                                                                               |                                                                                    |        |            |         |  
|INVESTING ACTIVITIES:                               |                                                                                               |                                                                                    |        |            |         |   |        |       
|                                                    | Short-term investment securities                                                              |                                                                                    |        | 2,328      |         |   |        |       |       
|                                                    | Payments for land held under contract for sale                                                |                                                                                    |        |           |         |   |        | (251   | )     
|                                                    | Advances on long-term assets related to Indian casino projects                                |                                                                                    |        | (6,695     | )       |   |        | (8,157 | )     
|                                                    | Payments to unconsolidated affiliates                                                         |                                                                                    |        | (10        | )       |   |        | (226   | )     
|                                                    | Proceeds from unconsolidated affiliates                                                       |                                                                                    |        | 850        |         |   |        | 1,683  |       
|                                                    | Payments for other long-term assets                                                           |                                                                                    |        | (521       | )       |   |        | (391   | )     
|                                                    | Decrease in other long-term assets                                                            |                                                                                    |        | 197        |         |   |        |       |       
|                                                    | Purchase of property and equipment                                                            |                                                                                    |        | (1,430     | )       |   |        | (286   | )     
|                                                    |                                                                                               |                                                                                    |        |            |         |  
|Net cash used in investing activities               |                                                                                               |                                                                                    | (5,281 | )          |         |   | (7,628 | )     
|                                                    |                                                                                               |                                                                                    |        |            |         |  
|FINANCING ACTIVITIES:                               |                                                                                               |                                                                                    |        |            |         |   |        |       
|                                                    | Proceeds from sale of common stock                                                            |                                                                                    |        | 154        |         |   |        | 3,736  |       
|                                                    |                                                                                               |                                                                                    |        |            |         |  
|Net cash provided by financing activities           |                                                                                               |                                                                                    | 154    |            |         |   | 3,736  |       
|                                                    |                                                                                               |                                                                                    |        |            |         |  
|Net decrease in cash and cash equivalents           |                                                                                               |                                                                                    | (4,281 | )          |         |   | (5,935 | )     
|Cash and cash equivalents  beginning of period     |                                                                                               |                                                                                    | 28,717 |            |         |   | 25,340 |       
|                                                    |                                                                                               |                                                                                    |        |            |         |  
|Cash and cash equivalents  end of period           |                                                                                               | $                                                                                  | 24,436 |            |         | $ | 19,405 |       
|                                                    |                                                                                               |                                                                                    |        |            |         |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:  |                                                                                               |                                                                                    |        |            |         |   |        |       
|                                                    | Cash paid during the period for:                                                              |                                                                                    |        |            |         |   |        |        |       
|                                                    |                                                                                               | Income taxes                                                                       |        | $          | 45      |   |        | $      | 13     |  
|                                                    | Noncash operating activities:                                                                 |                                                                                    |        |            |         |   |        |        |       
|                                                    |                                                                                               | Capitalized television costs related to unit options issued to
    consultants     |        | $          |        |   |        | $      | 139    |  
|                                                    |                                                                                               | Acquisition of long-term assets and advances related to Indian
    casino projects |        | $          | 1,685   |   |        | $      | 1,348  |  



8



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Notes to Unaudited Condensed Consolidated Financial
Statements




|   |                                          
|-- | -----------------------------------------
|1. | BUSINESS OVERVIEW AND ACCOUNTING POLICIES



| |                  
| | -----------------
| | Business Overview







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lakes has contracts to develop and manage The Foothill Oaks
    Casino, to be 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 (the
    Shingle Springs Casino).                                                                       
|
| |  | Lakes has contracts to develop and manage the Four Winds Casino
    resort to be built on land to be placed into trust for the
    Pokagon Band of Potawatomi Indians (Pokagon Band) in
    New Buffalo Township, Michigan near Interstate 94. The casino
    location will be near the first Interstate 94 exit in
    southwestern Michigan and approximately 75 miles east of
    Chicago (the Pokagon Casino).
|
| |  | Lakes has contracts to develop and manage a casino to be built
    on the Rancheria of the Jamul Indian Village (Jamul
    Tribe) located on State Highway 94, approximately
    20 miles east of San Diego, California (the
    Jamul Casino).                                                                                                                                                                   
|
| |  | Lakes has consulting agreements and management contracts with
    three wholly-owned subsidiaries of the Pawnee Tribal Development
    Corporation (Pawnee TDC referred to collectively as
    the Pawnee Nation) in connection with assisting the
    Pawnee Nation in developing, equipping and managing three
    separate casino destinations.                                                                
|
| |  | Lakes has consulting agreements and management contracts with
    the Iowa Tribe of Oklahoma (the Iowa Tribe) in
    connection with developing, equipping and managing a new casino
    and the Tribes existing Cimarron casino.                                                                                                                                                                                  





| |                      
| | ---------------------
| | Basis of Presentation



9



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)










|   |                             
|-- | ----------------------------
|2. | MANAGEMENTS FINANCIAL PLANS





|   |            
|-- | -----------
|3. | RESTATEMENT



10



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




|                                                  |  |                     |        |   |               |             |        |                  |  |   |               |   |  |   |        |  
|------------------------------------------------- |  | ------------------- | ------ | - | ------------- | ----------- | ------ | ---------------- |  | - | ------------- | - |  | - | ------ | -
|                                                  |  |                     |        |   |               | For the Six |        |                  | 
|                                                  |  | For the Three       |        |   | For the Three |             |        | Months Ended     |  |   | For the Six   |  
|                                                  |  | Months Ended        |        |   | Months Ended  |             |        | July 4, 2004, As |  |   | Months Ended  |  
|Consolidated Statement                            |  | July 4, 2004, As    |        |   | July 4, 2004, |             |        | Previously       |  |   | July 4, 2004, |  
|of Earnings (Loss)                                |  | Previously Reported |        |   | Restated      |             |        | Reported         |  |   | Restated      |  
|                                                  |  |                     |        |   |               |             |        |                  |  |   |               |  
|Net impairment losses                             |  | $                   | 6,407  |   |               | $           | 5,833  |                  |  | $ | 6,407         |   |  | $ | 5,833  |  
|Total costs and expenses                          |  |                     | 12,357 |   |               |             | 11,774 |                  |  |   | 18,232        |   |  |   | 17,637 |  
|Net unrealized gains (losses) on notes receivable |  |                     |       |   |               |             | (44    | )                |  |   |              |   |  |   | 530    |  
|Loss from operations                              |  |                     | (7,639 | ) |               |             | (7,100 | )                |  |   | (9,374        | ) |  |   | (8,249 | )
|Income tax benefit                                |  |                     | (461   | ) |               |             | (469   | )                |  |   | (927          | ) |  |   | (877   | )
|Net loss                                          |  | $                   | (7,158 | ) |               | $           | (6,602 | )                |  | $ | (7,918        | ) |  | $ | (6,994 | )
|Basic loss per share                              |  | $                   | (0.32  | ) |               | $           | (0.30  | )                |  | $ | (0.36         | ) |  | $ | (0.32  | )
|Diluted loss per share                            |  | $                   | (0.32  | ) |               | $           | (0.30  | )                |  | $ | (0.36         | ) |  | $ | (0.32  | )



|                                          |  |              |        | 
|----------------------------------------- |  | ------------ | ------ | 
|                                          |  | July 4, 2004 |       
|                                          |  |              |       
|Retained earnings, as previously reported |  | $            | 17,000 | 
|Restatement adjustment                    |  |              | 5,327  | 
|                                          |  |              |       
|Retained earnings, as restated            |  | $            | 22,327 | 
|                                          |  |              |       



|   |                         
|-- | ------------------------
|4. | STOCK BASED COMPENSATION

Accounting for Stock
Issued to Employees


Accounting for Stock-Based Compensation
(SFAS No. 123)


|                                       |                                                                                                                     |                    |        |          |                  |   |        |         |          |   |         |        |   |   |        |       |  
|-------------------------------------- | ------------------------------------------------------------------------------------------------------------------- | ------------------ | ------ | -------- | ---------------- | - | ------ | ------- | -------- | - | ------- | ------ | - | - | ------ | ----- | -
|                                       |                                                                                                                     | Three Months Ended |        |          | Six Months Ended |  
|                                       |                                                                                                                     |                    |        |          |                  |  
|                                       |                                                                                                                     | July 3,            |        |          | July 4,          |   |        | July 3, |          |   | July 4, |       
|                                       |                                                                                                                     | 2005               |        |          | 2004             |   |        | 2005    |          |   | 2004    |       
|                                       |                                                                                                                     |                    |        |          |                  |   |        |         |          |   |         |       
|                                       |                                                                                                                     |                    |        | Restated |                  |   |        |         | Restated |  
|Net loss:                              |                                                                                                                     | $                  | (5,651 | )        |                  | $ | (6,602 | )       |          | $ | (7,770  | )      |   | $ | (6,994 | )    
|As reported                            |                                                                                                                     |                    |        |          |                  |   |        |         |          |   |         |        |   |   |        |      
|                                       | Less: Total stock-based compensation expense determined under
    the fair value method, net of related tax effects |                    |        | (1,037   | )                |   |        | (361    | )        |   |         | (2,044 | ) |   |        | (717  | )
|Pro forma                              |                                                                                                                     | $                  | (6,688 | )        |                  | $ | (6,963 | )       |          | $ | (9,814  | )      |   | $ | (7,711 | )    
|Net loss per share, basic and diluted: |                                                                                                                     |                    |        |          |                  |   |        |         |          |   |         |        |   |   |        |      
|                                       | As reported                                                                                                         |                    | $      | (0.25    | )                |   | $      | (0.30   | )        |   | $       | (0.35  | ) |   | $      | (0.32 | )
|                                       | Pro forma                                                                                                           |                    | $      | (0.30    | )                |   | $      | (0.31   | )        |   | $       | (0.44  | ) |   | $      | (0.35 | )

11



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




|   |               
|-- | --------------
|5. | LOSS PER SHARE





|   |             
|-- | ------------
|6. | INCOME TAXES





7.     COMMITMENTS AND
CONTINGENCIES:




| |                   
| | ------------------
| | Tribal Commitments



|                      |  |                                                |        |  |               |   |       |            |  |   |        | 
|--------------------- |  | ---------------------------------------------- | ------ |  | ------------- | - | ----- | ---------- |  | - | ------ | 
|                      |  | Tribal Casino Development Advances/Commitments |       
|                      |  | As of July 3, 2005                             |       
|                      |  |                                                |       
|                      |  | Pre-Construction                               |        |  | Land Held For |   |       | Remaining  | 
|                      |  | Advances                                       |        |  | Development   |   |       | Commitment | 
|                      |  |                                                |        |  |               |   |       |            | 
|                      |  | (In thousands)                                 |       
|Jamul Tribe           |  | $                                              | 15,289 |  |               | $ | 6,612 |            |  | $ | 8,099  | 
|Shingle Springs Tribe |  |                                                | 35,765 |  |               |   | 8,811 |            |  |   | 5,424  | 
|Pokagon Band          |  |                                                | 45,365 |  |               |   |      |            |  |   | 27,635 | 
|Kickapoo Tribe*       |  |                                                | 645    |  |               |   | 304   |            |  |   | 1,051  | 
|Pawnee Nation         |  |                                                | 688    |  |               |   |      |            |  |   |       | 
|Iowa Tribe            |  |                                                | 83     |  |               |   | 55    |            |  |   | 862    | 






|  |                                                                                   
|- | ----------------------------------------------------------------------------------
|* | Refer to Note 10 for further information regarding the
    Kickapoo Tribe project.



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)








| |                                    
| | -----------------------------------
| | Common Shares Subject to Repurchase





| |              
| | -------------
| | IRS Tax Audit





| |       
| | ------
| | Leases





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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)






| |                  
| | -----------------
| | Legal Proceedings



| |                        
| | -----------------------
| | Slot Machine Litigation







| |                                
| | -------------------------------
| | Willard Eugene Smith Litigation



14



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




| |                                        
| | ---------------------------------------
| | El Dorado County, California Litigation









15



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




| |                               
| | ------------------------------
| | Grand Casinos, Inc. Litigation





| |                                                          
| | ---------------------------------------------------------
| | Louisiana Department of Revenue Litigation Tax
    Matter





| |                 
| | ----------------
| | Other Litigation





|   |                    
|-- | -------------------
|8. | SEGMENT INFORMATION



16



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




|                                                  |  |                   |       |   |                   |   |      |              |  |   |              |   |  |   |       |  
|------------------------------------------------- |  | ----------------- | ----- | - | ----------------- | - | ---- | ------------ |  | - | ------------ | - |  | - | ----- | -
|                                                  |  | Industry Segments |      
|                                                  |  |                   |      
|                                                  |  | Indian            |       |   |                  
|                                                  |  | Casino            |       |   | WPT               |   |      | Corporate &  |  |   | Total        |  
|                                                  |  | Projects          |       |   | Enterprises, Inc. |   |      | Eliminations |  |   | Consolidated |  
|                                                  |  |                   |       |   |                   |   |      |              |  |   |              |  
|Total assets as of July 3, 2005                   |  | $                 | 138.0 |   |                   | $ | 36.3 |              |  | $ | 37.3         |   |  | $ | 211.6 |  
|Total assets as of January 2, 2005                |  |                   | 127.2 |   |                   |   | 37.1 |              |  |   | 44.8         |   |  |   | 209.1 |  
|For the Three Months Ended July 3, 2005           |  |                   |       |   |                   |   |      |              |  |   |              |   |  |   |       |  
|Revenue                                           |  | $                 |      |   |                   | $ | 6.6  |              |  | $ |             |   |  | $ | 6.6   |  
|Net earnings (loss)                               |  |                   | (1.5  | ) |                   |   | (0.4 | )            |  |   | (3.8         | ) |  |   | (5.7  | )
|Depreciation expense                              |  |                   |      |   |                   |   |     |              |  |   | 0.1          |   |  |   | 0.1   |  
|For the Six Months Ended July 3, 2005             |  |                   |       |   |                   |   |      |              |  |   |              |   |  |   |       |  
|Revenue                                           |  | $                 |      |   |                   | $ | 10.7 |              |  | $ |             |   |  | $ | 10.7  |  
|Net earnings (loss)                               |  |                   | 1.0   |   |                   |   | (2.0 | )            |  |   | (6.8         | ) |  |   | (7.8  | )
|Depreciation expense                              |  |                   |      |   |                   |   | 0.1  |              |  |   | 0.1          |   |  |   | 0.2   |  
|For the Three Months Ended July 4, 2004, restated |  |                   |       |   |                   |   |      |              |  |   |              |   |  |   |       |  
|Revenue                                           |  | $                 |      |   |                   | $ | 4.7  |              |  | $ |             |   |  | $ | 4.7   |  
|Net earnings (loss)                               |  |                   | (5.4  | ) |                   |   | 0.9  |              |  |   | (2.1         | ) |  |   | (6.6  | )
|Depreciation expense                              |  |                   |      |   |                   |   |     |              |  |   | 0.1          |   |  |   | 0.1   |  
|For the Six Months Ended July 4, 2004, restated   |  |                   |       |   |                   |   |      |              |  |   |              |   |  |   |       |  
|Revenue                                           |  | $                 |      |   |                   | $ | 8.9  |              |  | $ |             |   |  | $ | 8.9   |  
|Net earnings (loss)                               |  |                   | (4.9  | ) |                   |   | 1.7  |              |  |   | (3.8         | ) |  |   | (7.0  | )
|Depreciation expense                              |  |                   |      |   |                   |   | 0.1  |              |  |   | 0.2          |   |  |   | 0.3   |  



|   |                   
|-- | ------------------
|9. | IMPAIRMENT CHARGES





|    |                  
|--- | -----------------
|10. | SUBSEQUENT EVENTS



| |                                           
| | ------------------------------------------
| | Membership Interest in Metroflag Polo, LLC





| |                 
| | ----------------
| | Kickapoo Project



17



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)








| |                   
| | ------------------
| | Financing Facility







18



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




| |                            
| | ---------------------------
| | WPTE Investment in PokerTek

Accounting for
Certain Investments in Debt and Equity Securities i.e.




| |                                     
| | ------------------------------------
| | WPTE Lawsuit With the Travel Channel



19



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##### Table of Contents








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



Overview




Financial Overview




Results of Operations




| |                                                                                
| | -------------------------------------------------------------------------------
| | Six Months Ended July 3, 2005 Compared to the Six
    Months Ended July 4, 2004



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





20



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##### Table of Contents





| |                   
| | ------------------
| | Costs and Expenses







| |                                        
| | ---------------------------------------
| | Net unrealized gain on notes receivable

Usable land
placed in trust by Federal government.


21



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##### Table of Contents





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





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

Accounting for Income
Taxes (SFAS No. 109)




| |                                       
| | --------------------------------------
| | Losses per common share and net losses





| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Three Months Ended July 3, 2005 Compared to the Three
    Months Ended July 4, 2004



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





| |                   
| | ------------------
| | Costs and Expenses



22



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##### Table of Contents











| |                                        
| | ---------------------------------------
| | Net unrealized loss on notes receivable



23



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##### Table of Contents





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

Accounting for
Income Taxes (SFAS No. 109)




| |                                       
| | --------------------------------------
| | Losses per common share and net losses



Liquidity and Capital Resources








24



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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)(3) |                                           |                       |      |           |        |   |      |           |           |   |           |      |  |         |     |   |  |   |     |  
|                                              | Jamul                                     |                       | $    | 8.1       |        |   | $    | 2.2       |           |   | $         | 5.9  |  |         | $   |  |  |   | $   |  | 
|                                              | Shingle Springs                           |                       |      | 5.4       |        |   |      | 2.3       |           |   |           | 3.1  |  |         |     |  |  |   |     |  | 
|                                              | Pokagon(2)                                |                       |      | 27.6      |        |   |      | 1.8       |           |   |           | 25.8 |  |         |     |  |  |   |     |  | 
|                                              | Kickapoo Traditional Tribe of Texas(1)(8) |                       |      | 1.1       |        |   |      | 1.1       |           |   |           |      |  |         |     |   |  |   |     |   | 
|                                              | Iowa Tribe of Oklahoma(1)                 |                       |      | 0.8       |        |   |      | 0.8       |           |   |           |      |  |         |     |   |  |   |     |   | 
|                                              | Pawnee Nation(1)                          |                       |      | 0.4       |        |   |      | 0.4       |           |   |           |      |  |         |     |   |  |   |     |   | 
|Operating leases(4)                           |                                           |                       | 3.5  |           |        |   | 1.9  |           |           |   | 1.3       |      |  |         | 0.3 |   |  |   |    |  
|WPTE operating leases(5)                      |                                           |                       | 2.9  |           |        |   | 0.5  |           |           |   | 0.9       |      |  |         | 1.0 |   |  |   | 0.5 |  
|WPTE purchase obligations(6)                  |                                           |                       | 0.3  |           |        |   | 0.2  |           |           |   | 0.1       |      |  |         |    |   |  |   |    |  
|WPTE employee obligations(7)                  |                                           |                       | 1.0  |           |        |   | 0.8  |           |           |   | 0.2       |      |  |         |    |   |  |   |    |  
|                                              |                                           |                       |      |           |        |   |      |           |           |   |           |      |  |         |    
|                                              |                                           | $                     | 51.1 |           |        | $ | 12.0 |           |           | $ | 37.3      |      |  | $       | 1.3 |   |  | $ | 0.5 |  
|                                              |                                           |                       |      |           |        |   |      |           |           |   |           |      |  |         |    






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Lakes anticipates that it 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 table below detailing tribal casino
    development commitments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(2) | 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 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.

25



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##### Table of Contents





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | 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 July 3, 2005.                                                                                                                
|   
|(4) | The Company leases an airplane, under a non-cancelable operating
    lease expiring April 30, 2005. The lease was amended on
    May 1, 2005. The new term is for a period of up to three
    years.                                                                                                                                                                                                                                                                                                                                                 
|   
|(5) | Operating lease obligations include rent payments on WPTEs
    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.                                                                                                                                                                                                                               
|   
|(6) | Purchase obligations include the following: Contractual
    obligations related to the establishment of our internet gaming
    site of $270,000 and a monthly retainer of $13,750 for investor
    relations services through September 2005.                                                                                                                                                                                                                                                                                                       
|   
|(7) | Employee obligations include the base salaries payable to Steven
    Lipscomb, Audrey Kania and Robyn Moder under their respective
    employment agreements.                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(8) | Lakes entered into consulting agreements and management
    contracts with the Kickapoo Tribe effective January 2005 to
    improve the performance of the gaming operations conducted at
    the Kickapoo Tribes existing Lucky Eagle Casino in Eagle
    Pass, Texas, located approximately 140 miles southwest of
    San Antonio. During the third quarter of fiscal 2005 the
    Companys relationship with the Kickapoo Tribe deteriorated
    and in November 2005, Lakes and the Kickapoo Tribe terminated
    their business relationship.

Casino Development Advances/ Commitments


As of July 3, 2005


|                         |  |                  |      |           |             |   |      |        |       |   |            |             |  |                |           |  |             |                |      |                |  |   |      |  |  |   |      | 
|------------------------ |  | ---------------- | ---- | --------- | ----------- | - | ---- | ------ | ----- | - | ---------- | ----------- |  | -------------- | --------- |  | ----------- | -------------- | ---- | -------------- |  | - | ---- |  |  | - | ---- | 
|                         |  |                  |      |           |             |   |      |        |       |   |            |             |  | Commitments in |          
|                         |  |                  |      |           |             |   |      |        |       |   |            | Lakes Cash |  |                | Excess of | 
|                         |  |                  |      | Land Held |             |   |      |        | Total |   |            | Remaining   |  |                | and       |  |             | Available Cash |     
|                         |  | Pre-Construction |      |           | for         |   |      | Total  |       |   | Funding    |             |  | Funding        |           |  | Short-Term  |                |      | and Short-Term | 
|                         |  | Advances         |      |           | Development |   |      | Funded |       |   | Commitment |             |  | Commitment     |           |  | Investments |                |      | Investments    | 
|                         |  |                  |      |           |             |   |      |        |       |   |            |             |  |                |           |  |             |                |      |                | 
|                         |  | (In millions)    |     
|Jamul Tribe(a)           |  | $                | 15.3 |           |             | $ | 6.6  |        |       | $ | 21.9       |             |  | $              | 30.0      |  |             | $              | 8.1  |                |  |   |      |  |  |   |      | 
|Shingle Springs Tribe(b) |  |                  | 35.8 |           |             |   | 8.8  |        |       |   | 44.6       |             |  |                | 50.0      |  |             |                | 5.4  |                |  |   |      |  |  |   |      | 
|Pokagon Band(c)          |  |                  | 45.4 |           |             |   |     |        |       |   | 45.4       |             |  |                | 73.0      |  |             |                | 27.6 |                |  |   |      |  |  |   |      | 
|Kickapoo Tribe(d)        |  |                  | 0.6  |           |             |   | 0.3  |        |       |   | 0.9        |             |  |                | 2.0       |  |             |                | 1.1  |                |  |   |      |  |  |   |      | 
|Iowa Tribe(e)            |  |                  | 0.1  |           |             |   | 0.1  |        |       |   | 0.2        |             |  |                | 1.0       |  |             |                | 0.8  |                |  |   |      |  |  |   |      | 
|Pawnee Tribe(f)          |  |                  | 0.7  |           |             |   |     |        |       |   | 0.7        |             |  |                | 1.1       |  |             |                | 0.4  |                |  |   |      |  |  |   |      | 
|                         |  |                  |      |           |             |   |      |        |       |   |            |             |  |                |           |  |             |                |      |                | 
|                         |  | $                | 97.9 |           |             | $ | 15.8 |        |       | $ | 113.7      |             |  | $              | 157.1     |  |             | $              | 43.4 |                |  | $ | 18.8 |  |  | $ | 24.6 | 
|                         |  |                  |      |           |             |   |      |        |       |   |            |             |  |                |           |  |             |                |      |                | 






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Lakes plans to continue making advances on the remaining
    commitment to the Jamul Tribe on a monthly basis until the
    casino opens. Lakes plans to make advances of $1.1 million
    and $7.0 million during the third and fourth quarter of
    fiscal 2005 and fiscal 2006, respectively, to fulfill its
    remaining commitment to the Jamul Tribe.                                    
|   
|(b) |  | Lakes plans to continue making advances on the remaining
    commitment to the Shingle Springs Tribe on a monthly basis until
    the casino opens. Lakes plans to make advances of
    $1.2 million and $4.2 million during the third and
    fourth quarters of fiscal 2005 and fiscal 2006, respectively, to
    fulfill its remaining commitment to the Shingle Springs Tribe.               
|   
|(c) |  | Lakes plans to continue making advances on the remaining
    commitment to the Pokagon Band on a monthly basis until the
    casino opens. Lakes plans to make advances of $0.9 million,
    $15.9 million and $10.8 million during the third and
    fourth quarters of fiscal 2005, fiscal 2006 and fiscal 2007,
    respectively, to fulfill its remaining commitment to the Pokagon
    Band.

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|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(d) |  | Lakes entered into consulting agreements and management
    contracts with the Kickapoo Tribe effective January 2005 to
    improve the performance of the gaming operations conducted at
    the Kickapoo Tribes existing Lucky Eagle Casino in Eagle
    Pass, Texas, located approximately 140 miles southwest of
    San Antonio. During the third quarter of fiscal 2005 the
    Companys relationship with the Kickapoo Tribe deteriorated
    and in November 2005, Lakes and the Kickapoo Tribe terminated
    their business relationship. During the third quarter of fiscal
    2005, the Company recognized an impairment charge of
    $0.1 million related to the intangible asset related to the
    acquisition of the management contract. In addition the Company
    recognized unrealized losses related to advances made for
    project costs and project costs incurred that Lakes may be
    required to pay as a result of the terminated relationship in
    the amounts of $0.3 million and $3.8 million,
    respectively, during the third quarter of fiscal 2005. As of
    October 2, 2005, Lakes owns approximately 18 acres of
    land near the Kickapoo site with a cost basis of approximately
    $0.7 million. Lakes intends to negotiate with the Kickapoo
    Tribe to reach an agreement to resolve all of the financial
    terms of the contracts including repayment of the advances,
    payment of unpaid project costs incurred, possible sale of the
    land owned by Lakes to the Kickapoo Tribe, and to formally
    terminate the gaming operations consulting agreement, management
    contract, and related ancillary agreements relating to the
    project.
|   
|(e) |  | Lakes plans to advance the remaining $0.8 million it has
    committed to the Iowa Tribe during fiscal 2005. In December 2005
    the Iowa Tribe closed on third party financing related to the
    Cimarron Casino and repaid Lakes all amounts advanced related to
    that project. Additional amounts have and will be advanced to
    the Iowa Tribe for the new casino project based upon an approved
    budget yet to be finalized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(f) |  | During the third quarter of fiscal 2005, Lakes made a commitment
    of $1.1 million to the Pawnee Nation based upon an approved
    budget related to the Trading Post project. Lakes plans to
    advance the remaining $0.4 million it has committed to the
    Pawnee Nation during fiscal 2005. Additional amounts will
    continue 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          





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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.                                                                                                                                  



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Reporting Revenue Gross as a Principal versus Net as an
Agent








Deferred television costs:


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?

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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




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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





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|                                                                 |  |              |        |         |         |   |        |       |  |   |        |  |  |       |       |  |  |   |         | 
|---------------------------------------------------------------- |  | ------------ | ------ | ------- | ------- | - | ------ | ----- |  | - | ------ |  |  | ----- | ----- |  |  | - | ------- | 
|                                                                 |  | July 3, 2005 |       
|                                                                 |  |              |       
|                                                                 |  |              |        | Shingle |         |   |       
|                                                                 |  | Pokagon      |        |         | Springs |   |        | Jamul |  |   |       
|                                                                 |  | Band         |        |         | Tribe   |   |        | Tribe |  |   | Other  |  |  | Total |      
|                                                                 |  |              |        |         |         |   |        |       |  |   |        |  |  |       |      
|                                                                 |  | (Unaudited)  |       
|Notes receivable, at fair value                                  |  | $            | 39,432 |         |         | $ | 23,636 |       |  | $ | 10,142 |  |  | $     | 593   |  |  | $ | 73,803  | 
|Intangible assets related to acquisition of management contracts |  |              | 17,942 |         |         |   | 17,849 |       |  |   | 7,172  |  |  |       | 284   |  |  |   | 43,247  | 
|Land held for development                                        |  |              |       |         |         |   | 8,811  |       |  |   | 6,612  |  |  |       | 360   |  |  |   | 15,783  | 
|Other                                                            |  |              | 65     |         |         |   | 1,337  |       |  |   | 667    |  |  |       | 976   |  |  |   | 3,045   | 
|                                                                 |  |              |        |         |         |   |        |       |  |   |        |  |  |       |      
|Total long-term assets related to the Indian casino project      |  | $            | 57,439 |         |         | $ | 51,633 |       |  | $ | 24,593 |  |  | $     | 2,213 |  |  | $ | 135,878 | 
|                                                                 |  |              |        |         |         |   |        |       |  |   |        |  |  |       |      

|                                                                 |  |                 |        |         |         |   |        |       |  |   |        |  |  |       |    |  |  |   |         | 
|---------------------------------------------------------------- |  | --------------- | ------ | ------- | ------- | - | ------ | ----- |  | - | ------ |  |  | ----- | -- |  |  | - | ------- | 
|                                                                 |  | January 2, 2005 |       
|                                                                 |  |                 |       
|                                                                 |  |                 |        | Shingle |         |   |       
|                                                                 |  | Pokagon         |        |         | Springs |   |        | Jamul |  |   |       
|                                                                 |  | Band            |        |         | Tribe   |   |        | Tribe |  |   | Other  |  |  | Total |   
|                                                                 |  |                 |        |         |         |   |        |       |  |   |        |  |  |       |   
|Notes receivable, at fair value                                  |  | $               | 35,931 |         |         | $ | 21,775 |       |  | $ | 9,345  |  |  | $     | 15 |  |  | $ | 67,066  | 
|Intangible assets related to acquisition of management contracts |  |                 | 17,604 |         |         |   | 16,698 |       |  |   | 6,789  |  |  |       | 5  |  |  |   | 41,096  | 
|Land held for development                                        |  |                 |       |         |         |   | 8,772  |       |  |   | 6,661  |  |  |       |   |  |  |   | 15,433  | 
|Other                                                            |  |                 | 71     |         |         |   | 1,315  |       |  |   | 638    |  |  |       |   |  |  |   | 2,024   | 
|                                                                 |  |                 |        |         |         |   |        |       |  |   |        |  |  |       |   
|Total long-term assets related to the Indian casino project      |  | $               | 53,606 |         |         | $ | 48,560 |       |  | $ | 23,433 |  |  | $     | 20 |  |  | $ | 125,619 | 
|                                                                 |  |                 |        |         |         |   |        |       |  |   |        |  |  |       |   



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|                                                                              |  |                                                  |  |                                                 
|----------------------------------------------------------------------------- |  | ------------------------------------------------ |  | ------------------------------------------------
|                                                                              |  | As of July 3, 2005                               |  | As of January 2, 2005                           
|                                                                              |  |                                                  |  |                                                 
|Face value of note (principal and interest)                                   |  | $58,482 ($45,366 principal and $13,116 interest) |  | $55,747 ($44,550 principal and $11,197 interest)
|Estimated months until casino opens (weighted average of three
    scenarios) |  | 33 months                                        |  | 33 months                                       
|Projected interest rate until casino opens                                    |  | 7.4%                                             |  | 6.8%                                            
|Projected interest rate during the loan repayment term                        |  | 7.7%                                             |  | 8.2%                                            
|Discount rate                                                                 |  | 15%                                              |  | 15%                                             
|Repayment terms of note                                                       |  | 60 months                                        |  | 60 months                                       
|Probability rate of casino opening (weighting of four scenarios)              |  | 85%                                              |  | 75%                                             







Description
of each Indian casino project and evaluation of critical
milestones  Pokagon Band.


33



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|                                                                              |  |                                                 |  |                                                
|----------------------------------------------------------------------------- |  | ----------------------------------------------- |  | -----------------------------------------------
|                                                                              |  | As of July 3, 2005                              |  | As of January 2, 2005                          
|                                                                              |  |                                                 |  |                                                
|Face value of note (principal and interest)                                   |  | $42,393 ($35,765 principal and $6,628 interest) |  | $38,156 ($33,076 principal and $5,080 interest)
|Estimated months until casino opens (weighted average of three
    scenarios) |  | 36 months                                       |  | 36 months                                      
|Projected interest rate until casino opens                                    |  | 8.4%                                            |  | 7.9%                                           
|Projected interest rate during the loan repayment term                        |  | 8.5%                                            |  | 8.7%                                           
|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.





|                                                                              |  |                                                 |  |                                                
|----------------------------------------------------------------------------- |  | ----------------------------------------------- |  | -----------------------------------------------
|                                                                              |  | As of July 3, 2005                              |  | As of January 2, 2005                          
|                                                                              |  |                                                 |  |                                                
|Face value of note (principal and interest)                                   |  | $18,819 ($15,289 principal and $3,530 interest) |  | $17,306 ($14,467 principal and $2,839 interest)
|Estimated months until casino opens (weighted average of three
    scenarios) |  | 36 months                                       |  | 36 months                                      
|Projected interest rate until casino opens                                    |  | 8.4%                                            |  | 7.9%                                           
|Projected interest rate during the loan repayment term                        |  | 8.8%                                            |  | 8.7%                                           
|Discount rate                                                                 |  | 15%                                             |  | 15%                                            
|Repayment terms of note                                                       |  | 84 months                                       |  | 84 months                                      
|Probability rate of casino opening (weighting of four scenarios)              |  | 75%                                             |  | 75%                                            





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|                |  |              |            |  |                      |   |            |          |  |   |            |  |              |             |            |          |        |   |            |      |  |   |            |  |  |   |            | 
|--------------- |  | ------------ | ---------- |  | -------------------- | - | ---------- | -------- |  | - | ---------- |  | ------------ | ----------- | ---------- | -------- | ------ | - | ---------- | ---- |  | - | ---------- |  |  | - | ---------- | 
|                |  | July 3, 2005 |            |  | Sensitivity Analysis |  
|                |  | Fair Value   |            |  |                      |  
|                |  | Notes        |            |  | 5% Less              |   |            | One Year |  |   |            |  | 5% Increased |             |            | One Year |        |   |           
|                |  | Receivable   |            |  | Probable             |   |            | Delay    |  |   | Both       |  |              | Probability |            |          | Sooner |   |            | Both | 
|                |  |              |            |  |                      |   |            |          |  |   |            |  |              |             |            |          |        |   |            |      | 
|Pokagon         |  | $            | 39,432,132 |  |                      | $ | 37,351,065 |          |  | $ | 37,094,098 |  |              | $           | 35,150,562 |          |        | $ | 41,513,200 |      |  | $ | 41,935,614 |  |  | $ | 44,163,945 | 
|Shingle Springs |  | $            | 23,636,132 |  |                      | $ | 21,920,408 |          |  | $ | 22,259,674 |  |              | $           | 20,642,269 |          |        | $ | 25,351,856 |      |  | $ | 25,096,262 |  |  | $ | 26,916,281 | 
|Jamul           |  | $            | 10,142,412 |  |                      | $ | 9,478,018  |          |  | $ | 9,571,322  |  |              | $           | 8,945,000  |          |        | $ | 10,806,806 |      |  | $ | 10,748,217 |  |  | $ | 11,452,998 | 
|                |  |              |            |  |                      |   |            |          |  |   |            |  |              |             |            |          |        |   |            |      | 
|                |  | $            | 73,210,676 |  |                      | $ | 68,749,491 |          |  | $ | 68,925,094 |  |              | $           | 64,737,831 |          |        | $ | 77,671,861 |      |  | $ | 77,780,093 |  |  | $ | 82,533,224 | 
|                |  |              |            |  |                      |   |            |          |  |   |            |  |              |             |            |          |        |   |            |      | 

|                |  |                 |            |  |                      |   |            |          |  |   |            |  |              |             |            |          |        |   |            |      |  |   |            |  |  |   |            | 
|--------------- |  | --------------- | ---------- |  | -------------------- | - | ---------- | -------- |  | - | ---------- |  | ------------ | ----------- | ---------- | -------- | ------ | - | ---------- | ---- |  | - | ---------- |  |  | - | ---------- | 
|                |  | January 2, 2005 |            |  | Sensitivity Analysis |  
|                |  | Fair Value      |            |  |                      |  
|                |  | Notes           |            |  | 5% Less              |   |            | One Year |  |   |            |  | 5% Increased |             |            | One Year |        |   |           
|                |  | Receivable      |            |  | Probable             |   |            | Delay    |  |   | Both       |  |              | Probability |            |          | Sooner |   |            | Both | 
|                |  |                 |            |  |                      |   |            |          |  |   |            |  |              |             |            |          |        |   |            |      | 
|Pokagon         |  | $               | 35,931,000 |  |                      | $ | 33,957,913 |          |  | $ | 33,825,802 |  |              | $           | 29,583,071 |          |        | $ | 37,904,088 |      |  | $ | 38,197,409 |  |  | $ | 40,321,591 | 
|Shingle Springs |  | $               | 21,775,000 |  |                      | $ | 20,252,095 |          |  | $ | 20,453,118 |  |              | $           | 19,024,633 |          |        | $ | 23,297,905 |      |  | $ | 23,184,255 |  |  | $ | 24,807,821 | 
|Jamul           |  | $               | 9,345,000  |  |                      | $ | 8,734,015  |          |  | $ | 8,776,784  |  |              | $           | 8,203,679  |          |        | $ | 9,955,986  |      |  | $ | 9,950,775  |  |  | $ | 10,602,146 | 
|                |  |                 |            |  |                      |   |            |          |  |   |            |  |              |             |            |          |        |   |            |      | 
|                |  | $               | 67,051,001 |  |                      | $ | 62,944,022 |          |  | $ | 63,055,704 |  |              | $           | 56,811,384 |          |        | $ | 71,157,979 |      |  | $ | 71,332,440 |  |  | $ | 75,731,558 | 
|                |  |                 |            |  |                      |   |            |          |  |   |            |  |              |             |            |          |        |   |            |      | 





|                                      |  |                         |        |         |         |   |        |       |  |   |        |  |  |       |     |  |  |   |        | 
|------------------------------------- |  | ----------------------- | ------ | ------- | ------- | - | ------ | ----- |  | - | ------ |  |  | ----- | --- |  |  | - | ------ | 
|                                      |  | Balance at July 3, 2005 |       
|                                      |  |                         |       
|                                      |  |                         |        | Shingle |         |   |       
|Advances Principal Balance            |  | Pokagon                 |        |         | Springs |   |        | Jamul |  |   | Other  |  |  | Total |    
|                                      |  |                         |        |         |         |   |        |       |  |   |        |  |  |       |    
|Note receivable, pre-construction(a)  |  | $                       | 21,265 |         |         | $ | 35,765 |       |  | $ | 14,339 |  |  | $     |    |  |  | $ | 71,369 | 
|Note receivable, non - gaming land(b) |  |                         | 13,176 |         |         |   |       |       |  |   |       |  |  |       |    |  |  |   | 13,176 | 
|Note receivable, land(b)              |  |                         | 10,925 |         |         |   |       |       |  |   | 950    |  |  |       |    |  |  |   | 11,875 | 
|Note receivable, other                |  |                         |       |         |         |   |       |       |  |   |       |  |  |       | 771 |  |  |   | 771    | 
|                                      |  |                         |        |         |         |   |        |       |  |   |        |  |  |       |    
|                                      |  | $                       | 45,366 |         |         | $ | 35,765 |       |  | $ | 15,289 |  |  | $     | 771 |  |  | $ | 97,191 | 
|                                      |  |                         |        |         |         |   |        |       |  |   |        |  |  |       |    

|                                      |  |                            |        |         |         |   |        |       |  |   |        |  |  |       |    |  |  |   |        | 
|------------------------------------- |  | -------------------------- | ------ | ------- | ------- | - | ------ | ----- |  | - | ------ |  |  | ----- | -- |  |  | - | ------ | 
|                                      |  | Balance at January 2, 2005 |       
|                                      |  |                            |       
|                                      |  |                            |        | Shingle |         |   |       
|Advances Principal Balance            |  | Pokagon                    |        |         | Springs |   |        | Jamul |  |   | Other  |  |  | Total |   
|                                      |  |                            |        |         |         |   |        |       |  |   |        |  |  |       |   
|Note receivable, pre-construction(a)  |  | $                          | 20,449 |         |         | $ | 33,076 |       |  | $ | 13,517 |  |  | $     |   |  |  | $ | 67,042 | 
|Note receivable, non - gaming land(b) |  |                            | 13,176 |         |         |   |       |       |  |   |       |  |  |       |   |  |  |   | 13,176 | 
|Note receivable, land(b)              |  |                            | 10,925 |         |         |   |       |       |  |   | 950    |  |  |       |   |  |  |   | 11,875 | 
|Note receivable, other                |  |                            |       |         |         |   |       |       |  |   |       |  |  |       | 20 |  |  |   | 20     | 
|                                      |  |                            |        |         |         |   |        |       |  |   |        |  |  |       |   
|                                      |  | $                          | 44,550 |         |         | $ | 33,076 |       |  | $ | 14,467 |  |  | $     | 20 |  |  | $ | 92,113 | 
|                                      |  |                            |        |         |         |   |        |       |  |   |        |  |  |       |   






|    |  |                                                                                                                                                                                                                                
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Lakes advances funds to the tribes, which are related to certain
    costs incurred to develop the casino project. These costs relate
    to construction costs, legal fees in connection with various
    regulatory approvals

35



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##### Table of Contents



|    |  |                                                                                                                                                                                                                                               
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | 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.                            



|                |                                                     |              |       |        |                 |   |       |        | 
|--------------- | --------------------------------------------------- | ------------ | ----- | ------ | --------------- | - | ----- | ------ | 
|Pokagon         |                                                     | July 3, 2005 |       |        | January 2, 2005 |  
|                |                                                     |              |       |        |                 |  
|Monthly stipend |                                                     | $            | 8,875 |        |                 | $ | 8,125 |       
|Construction    |                                                     |              | 2,581 |        |                 |   | 2,580 |       
|Legal           |                                                     |              | 1,381 |        |                 |   | 1,379 |       
|Environmental   |                                                     |              | 650   |        |                 |   | 645   |       
|Design          |                                                     |              | 7,778 |        |                 |   | 7,720 |       
|                |                                                     |              |       |        |                 |  
|                | Total principal amount of pre-construction advances |              | $     | 21,265 |                 |   | $     | 20,449 | 
|                |                                                     |              |       |        |                 |  

|                |                                                     |              |        |        |                 |   |        |        | 
|--------------- | --------------------------------------------------- | ------------ | ------ | ------ | --------------- | - | ------ | ------ | 
|Shingle Springs |                                                     | July 3, 2005 |        |        | January 2, 2005 |  
|                |                                                     |              |        |        |                 |  
|Monthly stipend |                                                     | $            | 5,790  |        |                 | $ | 4,980  |       
|Construction    |                                                     |              | 1,621  |        |                 |   | 1,605  |       
|Legal           |                                                     |              | 11,324 |        |                 |   | 10,290 |       
|Environmental   |                                                     |              | 1,586  |        |                 |   | 1,577  |       
|Design          |                                                     |              | 9,254  |        |                 |   | 9,120  |       
|Gaming license  |                                                     |              | 3,326  |        |                 |   | 3,226  |       
|Lobbyist        |                                                     |              | 2,864  |        |                 |   | 2,278  |       
|                |                                                     |              |        |        |                 |  
|                | Total principal amount of pre-construction advances |              | $      | 35,765 |                 |   | $      | 33,076 | 
|                |                                                     |              |        |        |                 |  

|                |                                                     |              |       |        |                 |   |       |        | 
|--------------- | --------------------------------------------------- | ------------ | ----- | ------ | --------------- | - | ----- | ------ | 
|Jamul           |                                                     | July 3, 2005 |       |        | January 2, 2005 |  
|                |                                                     |              |       |        |                 |  
|Monthly stipend |                                                     | $            | 3,604 |        |                 | $ | 3,319 |       
|Construction    |                                                     |              | 159   |        |                 |   | 159   |       
|Legal           |                                                     |              | 2,960 |        |                 |   | 2,606 |       
|Environmental   |                                                     |              | 1,652 |        |                 |   | 1,628 |       
|Design          |                                                     |              | 3,659 |        |                 |   | 3,640 |       
|Gaming license  |                                                     |              | 474   |        |                 |   | 429   |       
|Lobbyist        |                                                     |              | 1,831 |        |                 |   | 1,736 |       
|                |                                                     |              |       |        |                 |  
|                | Total principal amount of pre-construction advances |              | $     | 14,339 |                 |   | $     | 13,517 | 
|                |                                                     |              |       |        |                 |  



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



36



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

|                                                          |  |                                                                                                                  |  |                                                                                                                 
|--------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------
|                                                          |  | July 3, 2005                                                                                                     |  | January 2, 2005                                                                                                 
|                                                          |  |                                                                                                                  |  |                                                                                                                 
|No. of class III slot machines                            |  | 3,000                                                                                                            |  | 3,000                                                                                                           
|No. of table games                                        |  | 100                                                                                                              |  | 100                                                                                                             
|No. of poker tables                                       |  | 20                                                                                                               |  | 20                                                                                                              
|Win/class III slot machine/day 
    1styear              |  | $275                                                                                                             |  | $275                                                                                                            
|Win/table game/day 
    1styear                          |  | $1,300                                                                                                           |  | $1,300                                                                                                          
|Win/poker game/day 
    1styear                          |  | $1,000                                                                                                           |  | $1,000                                                                                                          
|Expected increase (decrease) in management fee cash flows |  | Year 2 - (6.4%) (Decrease due to repayment of senior debt)
    Year 3 - 1.9%
    Year 4 - 3.6%
    Year 5 - 2.8% |  | Year 2 - (6.4%) (Decrease due to repayment of senior debt)
    Year 3 - 1.9%
    Year 4 - 3.6%
    Year 5 - 2.8%



37



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

|                                                          |  |                                                                                                                                                      |  |                                                                                                                                                     
|--------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|                                                          |  | July 3, 2005                                                                                                                                         |  | January 2, 2005                                                                                                                                     
|                                                          |  |                                                                                                                                                      |  |                                                                                                                                                     
|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 
    1styear              |  | $285                                                                                                                                                 |  | $285                                                                                                                                                
|Win/class II slot machine/day 
    1styear               |  | $200                                                                                                                                                 |  | $200                                                                                                                                                
|Win/table game/day 
    1styear                          |  | $1,100                                                                                                                                               |  | $1,100                                                                                                                                              
|Win/poker table/day 
    1styear                         |  | $650                                                                                                                                                 |  | $650                                                                                                                                                
|Expected increase (decrease) in management fee cash flows |  | Year 2 - (8.8%) (Decrease due to repayment of senior debt)
    Year 3 - 2.8%
    Year 4 - 2.9%
    Year 5 - 1.9%
    Year 6 - 2.8%
    Year 7 - 1.5% |  | Year 2 - (8.8%) (Decrease due to repayment of senior debt)
    Year 3 - 2.8%
    Year 4 - 2.9%
    Year 5 - 1.9%
    Year 6 - 2.8%
    Year 7 - 1.5%





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

|                                                          |  |                                                                                                                                                                                                                |  |                                                                                                                                                                                                               
|--------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                          |  | July 3, 2005                                                                                                                                                                                                   |  | January 2, 2005                                                                                                                                                                                               
|                                                          |  |                                                                                                                                                                                                                |  |                                                                                                                                                                                                               
|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  1
    styear             |  | $350                                                                                                                                                                                                           |  | $350                                                                                                                                                                                                          
|Win/class II slot machine/day  1
    styear              |  | $250                                                                                                                                                                                                           |  | $250                                                                                                                                                                                                          
|Win/table game/day 
    1styear                          |  | $1,275                                                                                                                                                                                                         |  | $1,275                                                                                                                                                                                                        
|Win/poker table/day 
    1styear                         |  | $624                                                                                                                                                                                                           |  | $624                                                                                                                                                                                                          
|Expected increase (decrease) in management fee cash flows |  | Year 2 - (8.9%) (Decrease due to repayment of senior debt)
    Year 3 - 3.6%
    Year 4 - 3%
    Year 5 - 5.1%
    Year 6 - (17%) (Management fees were reduced in years six and
    seven)
    Year 7 - 10.8% |  | Year 2 - (8.9%) (Decrease due to repayment of senior debt)
    Year 3 - 3.6%
    Year 4 - 3%
    Year 5 - 5.1%
    Year 6 - (17%) (Management fees were reduced in years six and
    seven)
    Year 7 - 10.8%



38



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




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



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









39



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##### Table of Contents





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



|                                                                                           |  |                                                                                                                                                                                                                                |  |                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Critical Milestone                                                                         |  | December 28, 2003                                                                                                                                                                                                              |  | January 2, 2005                                                                                                                                     |  | July 3, 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                                          |  | No  The Pokagon Band and Lakes continued to provide
    support for the case and in January 2003 the federal judge
    dismissed all issues except for the final issue and requested
    additional information from the BIA. |  | No  The additional information was submitted by the
    BIA in August 2004 and the lawsuit was still pending resolution
    as of January 2, 2005. |  | No  The additional information was submitted by the
    BIA in August 2004 and the lawsuit was still pending resolution
    as of January 2, 2005. Subsequently 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. An agreement has been reached
    between the Department of Justice and TOMAC to not take the land
    into trust during the appeal process in exchange for TOMAC
    agreeing to a fast track hearing process. The appeal
    hearing date was held on December 8, 2005 and a decision is
    pending.

40



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|                                                                                                                                                                         |  |                                                                                            |  |                                                                                                                                                              |  |                                                                                                                                                             
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|Critical Milestone                                                                                                                                                       |  | December 28, 2003                                                                          |  | January 2, 2005                                                                                                                                              |  | July 3, 2005                                                                                                                                                
|                                                                                                                                                                         |  |                                                                                            |  |                                                                                                                                                              |  |                                                                                                                                                             
|Usable county agreement, if applicable                                                                                                                                   |  | Yes                                                                                        |  | Yes                                                                                                                                                          |  | Yes                                                                                                                                                         
|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                                                                                                     |  | No, submitted to the NIGC for review in 2000.                                              |  | 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. |  | 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, pending litigation regarding land in trust  see
    below.                            |  | No, pending litigation regarding land in trust  see
    below.                                                                                              |  | No, pending litigation regarding land in trust  see
    below.                                                                                             
|Financing for construction                                                                                                                                               |  | No, however the Tribe engaged an investment banker to assist
    with obtaining financing. |  | No, however the Tribe engaged an investment banker to assist
    with obtaining financing.                                                                   |  | 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.                                                                                                                      



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







41



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



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









42



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



|                                                                                                            |  |                                               |  |                                             |  |                                            
|----------------------------------------------------------------------------------------------------------- |  | --------------------------------------------- |  | ------------------------------------------- |  | -------------------------------------------
|Critical Milestone                                                                                          |  | December 28, 2003                             |  | January 2, 2005                             |  | July 3, 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.
|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                                        |  | No, submitted to the NIGC for review in 2000. |  | Yes  approval received in 2004.            |  | Yes  approval received in 2004.           

43



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|                                                                                                                                                                         |  |                                                                                                                                         |  |                                                                                                                                         |  |                                                                                                                                        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|Critical Milestone                                                                                                                                                       |  | December 28, 2003                                                                                                                       |  | January 2, 2005                                                                                                                         |  | July 3, 2005                                                                                                                           
|                                                                                                                                                                         |  |                                                                                                                                         |  |                                                                                                                                         |  |                                                                                                                                        
|                                                                                                                                                                        
|Resolution of all litigation and legal obstacles                                                                                                                         |  | No, Federal and state litigation regarding approval of highway
    interchange, environmental issues and other issues.
     See below. |  | No, Federal and state litigation regarding approval of highway
    interchange, environmental issues and other issues.
     See below. |  | No, Federal and state litigation regarding approval of highway
    interchange, environmental issues and other issues.
     See below.
|Financing for construction                                                                                                                                               |  | No, however the Tribe has engaged investment banks to assist
    with obtaining financing.                                              |  | No, however the Tribe has engaged investment banks to assist
    with obtaining financing.                                              |  | No, however the 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:







44



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



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







45



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46



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



|                                                                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Critical Milestone                                                                                          |  | December 28, 2003                                                                                                                                                                                                                                                                                                                                                                                                                       |  | January 2, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | July 3, 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                                                           |  | 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
    were in the process of preparing an EIS, as described below and
    completing the land in trust application. |  | 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.
|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                                        |  | No, submitted for approval by the NIGC in 2000 and approval is
    not expected to occur 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.                                                                                                                                                                                                                                                                                                                              |  | 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.                                                                                                                                                                                                                                                                                                                             

47



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|                                                                                                                                                                         |  |                                                                                                                     |  |                                                                                                                               |  |                                                                                                                              
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------
|Critical Milestone                                                                                                                                                       |  | December 28, 2003                                                                                                   |  | January 2, 2005                                                                                                               |  | July 3, 2005                                                                                                                 
|                                                                                                                                                                         |  |                                                                                                                     |  |                                                                                                                               |  |                                                                                                                              
|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                                                                                                                  |  | 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:







48



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



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











49



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th th




Arrangement with Consultant.


50



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



|                                                                                                            |  |                                                                                                                                             |  |                                                                                                                                                                                                                    |  |                                                        
|----------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------
|Critical Milestone                                                                                          |  | New 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 Tribe currently holds land in trust where the new
    casino will be built.                                                        |  | Yes, the Tribe is currently leasing land from tribal members,
    which is held in trust for the individual tribal members by the
    United States Government. The lease will need to be approved by
    the BIA. |  | Yes, the Trading Post is currently open.               
|Usable land placed in trust by Federal government                                                           |  | Yes, the Tribe currently holds land in trust where the Chilocco
    Casino will be built.                                                   |  | Yes, the Tribe is currently leasing land from tribal members,
    which is held in trust for the individual tribal members by the
    United States Government. The lease will need to be approved by
    the BIA. |  | 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                                                    
|NIGC approval of management contract in current and desired
    form                                        |  | No, submitted to the NIGC for review on March 22, 2005. An
    EA will be prepared in order for the management contract to be
    approved. |  | No, submitted to the NIGC for review on March 22, 2005. An
    EA will be prepared in order for the management contract to be
    approved.                                                                        |  | No, submitted to the NIGC for review on March 22, 2005.
|Resolution of all litigation and legal obstacles                                                            |  | None at this time.                                                                                                                          |  | None at this time.                                                                                                                                                                                                 |  | None at this time.                                     

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|                                                                                                                                                                         |  |                                                                         |  |                                                                           |  |                                       
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------- |  | ------------------------------------------------------------------------- |  | --------------------------------------
|Critical Milestone                                                                                                                                                       |  | New Casino Project                                                      |  | Travel Plaza                                                              |  | Trading Post                          
|                                                                                                                                                                         |  |                                                                         |  |                                                                           |  |                                       
|Financing for construction                                                                                                                                               |  | No, preliminary discussions with lending institutions has
    occurred. |  | No, preliminary discussions with lending institutions has
    occurred.   |  | 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.                                  |  | The acquisition of other tribal land needs to be approved by the
    BIA. |  | No others known at this time by Lakes.



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





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



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





The Development Project.






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Cimarron Casino.


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 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.

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|                                                                                                                                                                         |  |                                                                                                                                                                                                                                                |  |                                                                                          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------
|                                                                                                                                                                         |  | Development Project                                                                                                                                                                                                                            |  | Cimarron 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.                                                                                                    |  | No, submitted to the NIGC for review on April 22, 2005.                                  
|Resolution of all litigation and legal obstacles                                                                                                                         |  | Yes, the acquisition of other tribal land needs to be approved
    by the BIA.                                                                                                                                                                 |  | No                                                                                       
|Financing for construction                                                                                                                                               |  | No, preliminary discussions with lending institutions have
    occurred.                                                                                                                                                                       |  | Third party financing arrangements for the refurbishment project
    are in negotiations.
|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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Income Taxes


Accounting for Income Taxes.




Common stock subject to repurchase




Stock-based compensation:


Accounting for
Stock Issued to Employees Share-Based Payment


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Accounting for Stock-Based
Compensation.


Recent Accounting Pronouncements




Accounting for Stock Issued to Employees


Accounting Changes and Error Corrections, a replacement of
APB Opinion No. 20 and SFAS No. 3. Accounting Changes Reporting
Accounting Changes in Interim Financial Statements


Seasonality




Regulation and Taxes






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Off-Balance Sheet Arrangements




Private Securities Litigation Reform Act













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



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





LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Part II


Other Information







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

Slot Machine Litigation




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Willard Eugene Smith Litigation




El Dorado County, California Litigation






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Grand Casinos, Inc. Litigation




Louisiana Department of Revenue Litigation Tax Matter


th


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WPTE litigation with TRV




Other Litigation









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






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



62