##### Table of Contents



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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    September 30, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File
    No. 0-24993
  LAKES ENTERTAINMENT,
    INC.
 (Exact name of registrant as
    specified in its charter)
   Minnesota(State or other
    jurisdiction
    of incorporation or organization)

41-1913991(I.R.S. Employer
    Identification No.)130 Cheshire Lane, Suite 101
    Minnetonka, Minnesota(Address of principal
    executive offices)

55305(Zip
    Code)   (952) 449-9092
 (Registrants telephone
    number, including area code)
   þ o
  Rule 12b-2
 o þ o
  Rule 12b-2 o þ




---



##### 



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

FINANCIAL STATEMENTSCondensed Consolidated Balance Sheets as of
    September 30, 2007 (unaudited) and December 31,
    2006


3Unaudited Condensed Consolidated Statements of
    Earnings (Loss) and Comprehensive Earnings (Loss) for the three
    months and nine months ended September 30, 2007 and
    October 1, 2006


4Unaudited Condensed Consolidated Statements of
    Cash Flows for the nine months ended September 30, 2007 and
    October 1, 2006


5Notes to Unaudited Condensed Consolidated
    Financial Statements


6ITEM 2.

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


20ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK


47ITEM 4.

CONTROLS AND PROCEDURES


48PART II. OTHER INFORMATIONITEM 1.

LEGAL PROCEEDINGS


49ITEM 1A.

RISK FACTORS


49ITEM 6.

EXHIBITS


51302 Certification of CEO302 Certification of CFO906 Certification of CEO and CFO   2




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Condensed Consolidated Balance Sheets
  September 302007


December 31,(Unaudited)


2006(In thousands)ASSETSCurrent assets:Cash and cash equivalents

$
7,921


$
9,759(balances include $4.5 million and $8.4 million of
    WPT Enterprises, Inc.)Restricted cash






12,738Investments in marketable securities


51,572



52,901(balances include $21.4 million and $24.3 million of
    WPT Enterprises, Inc.)Accounts receivable


4,453



2,963Notes receivable  current


3,029



Other current assets


3,087



2,706Total current assets


70,062



81,067Property and equipment, net


16,857



17,460Long-term assets related to Indian casino projects:Notes receivable from Indian tribes


79,278



164,308Land held for development


7,597



16,790Intangible assets, net of accumulated amortization of
    $1.1 million at September 30, 2007


66,942



54,279Other


5,615



8,450Total long-term assets related to Indian casino projects


159,432



243,827Other assets:Investments in marketable securities


9,004



6,962Investments


2,923



2,923Deferred tax asset


6,333



6,248Debt issuance costs






1,972Other long-term assets


546



717Total other assets


18,806



18,822Total assets

$
265,157


$
361,176LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable

$
2,348


$
5,345Income taxes payable


16,632



14,593Accrued payroll and related costs


2,395



2,480Deferred revenue


4,458



4,740Current portion of contract acquisition costs payable related to
    Indian casino projects, net of $1.2 million discount


1,850



Other accrued expenses


2,209



2,191Total current liabilities


29,892



29,349Long-term Liabilities:Long-term debt, other, net of unamortized discount of
    $0.9 million at December 31, 2006






104,471Contract acquisition costs payable related to Indian casino
    projects, net of $2.8 million discount


7,923



Warrant liability






5,816Long-term liabilities


7,923



110,287Total liabilities


37,815



139,636Commitments and contingenciesMinority interest in subsidiary


14,570



16,764Shareholders equity:Series A preferred stock, $.01 par value; authorized
    7,500 shares; 4,458 issued and outstanding at
    September 30, 2007 and December 31, 2006, respectively


45



45Common stock, $.01 par value; authorized
    200,000 shares; 24,456 and 22,949 issued and outstanding at
    September 30, 2007, and December 31, 2006, respectively


245



229Additional paid-in capital


189,148



171,710Retained earnings


23,353



33,250Accumulated other comprehensive loss


(19
)


(458
)Total shareholders equity


212,772



204,776Total liabilities and shareholders equity

$
265,157


$
361,176    3




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Condensed Consolidated Statements of Earnings (Loss) and
    Comprehensive Earnings (Loss)
  Three months ended


Nine months endedSeptember 30,


October 1,


September 30,


October 1,2007


2006


2007


2006(In thousands, except per share data)(Unaudited)Revenues:License fee income

$
2,695


$
4,672


$
12,535


$
18,098Host fees, sponsorship, online gaming and other


1,732



1,221



4,158



5,315Management, consulting and development fees


2,580



15



3,415



345Total revenues


7,007



5,908



20,108



23,758Costs and expenses:Selling, general and administrative


10,058



8,772



29,747



26,787Production costs


1,355



1,737



6,594



8,333Loss on abandonment of online gaming assets










2,270



Net impairment losses










331



Amortization of intangible assets related to Indian casino
    projects


1,121



6



1,126



6Depreciation and amortization


192



158



573



431Total costs and expenses


12,726



10,673



40,641



35,557Net realized and unrealized gains (losses) on notes
    receivable


(600
)


5,788



8,503



38,911Earnings (loss) from operations


(6,319
)


1,023



(12,030
)


27,112Other income (expense):Interest income


981



1,209



7,613



2,299Interest expense, related party














(137
)Interest expense, other


(330
)


(360
)


(646
)


(5,000
)Amortization of debt issuance costs






(139
)


(95
)


(450
)Loss on extinguishment of debt










(3,830
)


(6,821
)Gain on sale of investment






4,541







10,216Other


50



5



78



81Total other income, net


701



5,256



3,120



188Earnings (loss) before income taxes and minority interest in
    net (earnings) loss of subsidiary


(5,618
)


6,279



(8,910
)


27,300Income taxes


453



2,195



1,142



8,742Earnings (loss) before minority interest in net (earnings)
    loss of subsidiary


(6,071
)


4,084



(10,052
)


18,558Minority interest in net (earnings) loss of subsidiary


859



(1,035
)


3,035



(3,383
)Net earnings (loss)


(5,212
)


3,049



(7,017
)


15,175Stock warrant inducement discount










1,444



Net earnings (loss) available to common shareholders


(5,212
)


3,049



(8,461
)


15,175Other comprehensive earnings (loss):Unrealized gains (loss) on marketable securities, net of tax


30



125



30



(301
)Change in estimated fair value of derivative






(468
)


409



(629
)Comprehensive earnings (loss)

$
(5,182
)

$
2,706


$
(8,022
)

$
14,245Earnings (loss) available to common shareholders per
    share  basic

$
(0.21
)

$
0.13


$
(0.36
)

$
0.67Earnings (loss) available to common shareholders per
    share  diluted

$
(0.21
)

$
0.12


$
(0.36
)

$
0.62Weighted-average common shares outstanding 
    basic


24,393



22,876



23,758



22,720Dilutive effect of common stock equivalents






1,752







1,826Weighted-average common shares outstanding 
    diluted


24,393



24,628



23,758



24,546    4




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Condensed Consolidated Statements of Cash Flows
  Nine months endedSeptember 30,


October 1,2007


2006(In thousands)(Unaudited)OPERATING ACTIVITIES:Net earnings (loss)

$
(7,017
)

$
15,175Adjustments to reconcile net earnings (loss) to net cash used in
    operating activities:Depreciation and amortization


818



685Amortization of debt issuance costs


95



450Amortization of debt discount


33



446Decrease in value of warrant liability


(2,272
)


(44
)Amortization of intangible assets related to Indian casino
    projects


1,126



6Share-based compensation


3,607



4,973Loss on extinguishment of debt


2,783



6,821Loss on abandonment of online gaming assets


2,270



Net realized and unrealized gains on notes receivable


(9,565
)


(38,911
)Minority interest in net earnings (loss) of subsidiary


(3,035
)


3,383Gain on sale of investment






(10,216
)Deferred income taxes


(85
)


5,495Net impairment losses


331



Changes in operating assets and liabilities:Accounts receivable


(1,501
)


294Other current assets


(666
)


(52
)Income taxes payable


601



3,114Accounts payable


30



(1,054
)Deferred revenue


(281
)


(11
)Accrued expenses


(68
)


1,461Contract acquisition costs payable


(227
)


Net cash used in operating activities


(13,023
)


(7,985
)INVESTING ACTIVITIES:Purchase of marketable securities


(90,861
)


(78,202
)Sale/maturity of marketable securities


90,179



39,351Proceeds from sale of land held for development


8,758



Collections on notes receivable


3,759



2,955Increases in long-term assets related to Indian casino projects


(15,120
)


(37,412
)Advances to unconsolidated investees






(2,923
)Advances on notes receivable  current


(3,029
)


Proceeds from sale of investment






10,236Purchase of property and equipment


(2,158
)


(4,682
)Increase in other long-term assets






(78
)Net cash used in investing activities


(8,472
)


(70,755
)FINANCING ACTIVITIES:Decrease (increase) in restricted cash


12,844



(16,099
)Debt issuance costs






(5,004
)Restricted cash proceeds from long-term debt






19,090Unrestricted cash proceeds from long-term debt






109,860Repayment of long-term debt


(105,000
)


(35,000
)Cash proceeds from issuance of common and preferred stock


9,699



3,283Shareholder trading settlement






2,805Cash proceeds from sale of participation notes


102,114



Net cash provided by financing activities


19,657



78,935Net increase (decrease) in cash and cash equivalents


(1,838
)


195Cash and cash equivalents  beginning of period


9,759



9,912Cash and cash equivalents  end of period

$
7,921


$
10,107    5




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to Unaudited Condensed Consolidated Financial
    Statements
  1.
    Basis of
    Presentation  and/or Form 10-K
      2.
    Long-Term
    Assets Related to Indian Casino Projects    September 30, 2007ShinglePokagon


Springs


JamulBand


Tribe


Tribe


Other


Total(Unaudited)Notes receivable, at estimated fair value

$



$
52,176


$
23,616


$
3,486


$
79,278Land held for development










6,751



846



7,597Intangible assets related to Indian casino projects, net(*)


32,454



21,812



11,556



1,120



66,942Other


60



767



1,016



3,772



5,615$
32,514


$
74,755


$
42,939


$
9,224


$
159,432   6




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
  December 31, 2006ShinglePokagon


Springs


JamulBand


Tribe


Tribe


Other


TotalNotes receivable, at estimated fair value

$
100,544


$
40,912


$
20,754


$
2,098


$
164,308Land held for development






8,739



6,710



1,341



16,790Intangible assets related to Indian casino projects, net(*)


23,573



20,387



9,760



559



54,279Other


60



2,041



2,207



4,142



8,450$
124,177


$
72,079


$
39,431


$
8,140


$
243,827     (*)
    
    Intangible assets consist primarily of contractual rights to
    develop, finance and/or manage Indian-owned casino properties.
    Amortization of intangible assets begins once the related
    project becomes operational, and is calculated using the
    straight line method over the term of the underlying contract.  Pokagon
    Band.
      Accounting for Transfers and
    Servicing of Financial Assets and Extinguishment of
    Liabilities
   7




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
  Shingle
    Springs Tribe.
    As of September 30, 2007

As of December 31, 2006(Unaudited)Face value of note (principal and interest)

$65,460

$55,942($47,068 principal and $18,392 interest)

($42,310 principal and $13,632 interest)Estimated months until casino opens (weighted-average of three
    scenarios)

15 months

28 monthsProjected interest rate until casino opens

9.67%

9.98%Projected interest rate during the loan repayment term

10.28%

9.76%Discount rate

15%

15%Repayment terms of
    note(*)

84 months

Projected repayment terms of note (**)



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

95%

85%     (*)
    
    Note is payable in even monthly installments over the course of
    the management agreement subsequent to the casino opening.(**)
    
    Note was previously payable in varying monthly installments
    based on contract terms subsequent to the casino opening.     8




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
  Jamul
    Tribe.
    As of September 30, 2007

As of December 31, 2006(Unaudited)Face value of note (principal and interest)

$40,591

$32,952($29,278 principal and $11,313 interest)

($24,509 principal and $8,443 interest)Estimated months until casino opens (weighted-average of three
    scenarios)

29 months

29 monthsProjected interest rate until casino opens

9.67%

9.98%Projected interest rate during the loan repayment term

10.49%

9.76%Discount rate

17.50%

15.75%Projected repayment terms of note

120 months

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

85%

85%     3.
    Intangible
    assets related to Indian casino projects and related
    obligations    ShinglePokagon


Springs


JamulBand


Tribe


Tribe


Other


TotalBalance as of January 1, 2006

$
18,356


$
18,755


$
7,872


$
1,105


$
46,088Allocation of advances made to Indian tribes


4,167



1,632



1,888



590



8,277Acquisition of management contract rights


1,050











74



1,124Amortization expense














(9
)


(9
)Impairment loss














(1,201
)


(1,201
)Balance as of December 31, 2006


23,573



20,387



9,760



559



54,279Allocation of advances made to Indian tribes






1,425



1,796



598



3,819Acquisition of management contract rights


10,000















10,000Amortization expense


(1,119
)










(6
)


(1,125
)Impairment loss














(31
)


(31
)Balance as of September 30, 2007 (unaudited)

$
32,454


$
21,812


$
11,556


$
1,120


$
66,942  9




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
            4.
    Long-Term
    Debt    5.
    Stock
    Warrant     10




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
    6.
    Share-based
    Compensation  Share-Based Payment-Revised 2004
  Three months ended


Nine months endedSeptember 30,


October 1,


September 30,


October 1,2007


2006


2007


2006(Unaudited, in thousands)Total cost of share-based payment plans

$
1,172


$
1,283


$
3,607


$
4,960         Lakes
    stock option plans:
  Three months ended


Nine months endedSeptember 30,


October 1,


September 30,


October 1,Key valuation assumptions:

2007


2006


2007


2006Expected volatility



*


58.21
%


54.95
%


59.99
%Expected dividend yield



*










Risk-free interest rate



*


4.72
%


4.89
%


4.78
%Expected term (in years)



*


8.2 years



8.2 years



8.2 years     *
    
    There were no options granted during the three months ended
    September 30, 2007. 11




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
   
    Expected volatility  The volatility assumption is
    based on the historical weekly price data of Lakes stock
    over a two-year period. Management evaluated whether there were
    factors during that period which were unusual and which would
    distort the volatility figure if used to estimate future
    volatility and concluded that there were no such factors.
    Forfeiture rate  As share-based compensation expense
    recognized is based on awards ultimately expected to vest,
    expense for grants beginning upon adoption of SFAS 123(R)
    will be reduced for estimated forfeitures. SFAS 123(R)
    requires forfeitures to be estimated at the time of grant and
    revised, if necessary, in subsequent periods if actual
    forfeitures differ from those estimates. The Company has
    reviewed the historical forfeitures which are minimal, and as
    such will amortize the grants to the end of the vesting period
    and will adjust for forfeitures at the end of the term.
    Risk free interest rate  The risk free interest rate
    assumption is based on the U.S. Treasury yield curve in
    effect at the time of grant and with maturities consistent with
    the expected term of options.
    Expected term  The expected term of employee stock
    options represents the weighted-average period that the stock
    options are expected to remain outstanding. It is based upon an
    analysis of the historical behavior of option holders during the
    period from September 1995 to September 30, 2007.
    Management believes historical data is reasonably representative
    of future exercise behavior.   12




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
    Number of common sharesWeighted-avg.Options





Available


exerciseoutstanding


Exercisable


for grant


price2007Balance at December 31, 2006


4,716,400



3,712,350



35,500


$
6.15Authorized














Granted














Forfeited/cancelled/expired














Exercised


(112,500
)










5.82Balance at April 1, 2007


4,603,900



4,025,750



35,500


$
6.15Authorized










500,000



Granted


2,500







(2,500
)


11.84Forfeited/cancelled/expired


(44,500
)






44,500



9.79Exercised


(74,500
)










5.83Balance at July 1, 2007


4,487,400



3,954,500



577,500


$
6.13Authorized














Granted














Forfeited/cancelled/expired


(1,500
)






1,500



8.13Exercised


(75,000
)










5.63Balance at September 30, 2007


4,410,900



3,881,200



579,000


$
6.132006Balance at January 1, 2006


5,307,626



4,153,476



94,500


$
6.03Authorized














Granted


30,000







(30,000
)


9.77Forfeited/cancelled/expired














Exercised


(550,000
)










5.65Balance at April 2, 2006


4,787,626



3,711,626



64,500


$
6.10Authorized














Granted


5,000







(5,000
)


12.10Forfeited/cancelled/expired


(5,000
)






5,000



8.15Exercised


(25,000
)










4.75Balance at July 2, 2006


4,762,626



3,718,126



64,500


$
6.11Authorized














Granted


2,000







(2,000
)


7.92Forfeited/cancelled/expired


(1,500
)










5.67Exercised


(2,000
)










8.25Balance at October 1, 2006


4,761,126



3,750,326



62,500


$
6.11  13




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
    Options outstanding at September 30, 2007





Options exercisable at September 30, 2007Weighted-average





Aggregate








AggregateNumber


remaining


Weighted-average


intrinsic


Number


Weighted-


intrinsicRange of exercise prices

outstanding


contractual life


exercise price


value


exercisable


average price


value$ (3.25  3.63)


286,200



3.7 years


$
3.45


$
1,738,086



286,200


$
3.45


$
1,738,086(3.64  5.45)


2,324,700



1.5 years



4.21



12,355,612



2,324,700



4.21



12,355,612(5.46  7.26)


60,000



6.2 years



7.18



141,300



45,000



7.18



105,975(7.27  9.08)


1,412,000



6.0 years



8.13



1,980,330



1,074,000



8.13



1,506,285(9.09  10.90)


72,000



6.3 years



10.36







27,450



10.48



(10.91  12.71)


91,000



7.4 years



11.47







41,350



11.44



(12.72  14.53)


95,000



7.4 years



14.00







45,500



14.01



(14.54  16.34)


5,000



7.3 years



16.11







2,000



16.11



(16.35  18.16)


65,000



6.5 years



17.91







35,000



17.97



4,410,900



3.6 years


$
6.13


$
16,215,328



3,881,200


$
5.64


$
15,705,958     WPTE
    stock option plan:
  Three months ended


Nine months endedSeptember 30,


October 1,


September 30,


October 1,2007


2006


2007


2006Expected volatility


69.89
%


77.31
%


71.98
%


79.44
%Forfeiture rate


16.71
%


4.13
%


16.71
%


4.13
%Expected dividend yield














Risk-free interest rate


4.07
%


4.62
%


4.46
%


4.65
%Expected term (in years)


6 years



6.5 years



6 years



6.5 years   
    Expected volatility  As WPTE has a relatively short
    operating history and no definitive peer or peer groups,
    expected volatility was based on historical volatility of
    WPTEs stock price since it began trading in August 2004.
    Forfeiture rate  As share-based compensation expense
    recognized is based on awards ultimately expected to vest,
    expense for grants beginning upon adoption of SFAS 123(R)
    will be reduced for estimated forfeitures. SFAS 123(R)
    requires forfeitures to be estimated at the time of grant and
    revised, if necessary, in subsequent periods if actual
    forfeitures differ from those estimates. WPTE used historical
    data to estimate employee departure behavior in estimating
    future forfeitures.
    Risk free interest rate  The risk free interest rate
    assumption is based on the U.S. Treasury yield curve in
    effect at the time of grant and with maturities consistent with
    the expected term of options.
    Expected term  Due to WPTEs limited operating
    history including stock option exercises and forfeitures, WPTE
    calculated expected term using the Simplified Method
    in accordance with Staff Accounting Bulletin 107. 14




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
     Number of common sharesWeighted-avg.Options





Available


exerciseoutstanding


Exercisable


for grant


price2007Balance at December 31, 2006


2,318,166



1,050,200



983,501


$
6.76Authorized














Granted


287,000







(287,000
)


4.80Forfeited/cancelled/expired


(90,466
)






90,466



8.49Exercised














Balance at April 1, 2007


2,514,700



1,010,533



786,967


$
6.47Authorized














Granted


182,000







(182,000
)


4.53Forfeited/cancelled/expired


(85,667
)






85,667



5.25Exercised


(113,660
)










0.0049Balance at July 1, 2007


2,497,373



912,139



690,634


$
6.67Authorized














Granted


220,000







(220,000
)


3.50Forfeited/cancelled/expired


(202,599
)






202,599



7.26Exercised














Balance at September 30, 2007


2,514,774



1,307,106



673,233


$
6.342006Balance at January 1, 2006


2,158,000



620,333



283,667


$
7.14Authorized














Granted


219,000







(219,000
)


6.20Forfeited/cancelled/expired


(159,333
)






159,333



8.13Exercised


(115,000
)










0.0049Balance at April 2, 2006


2,102,667



785,500



224,000


$
7.36Authorized










1,080,000



Granted


109,500







(109,500
)


5.18Forfeited/cancelled/expired


(153,501
)






153,501



10.07Exercised


(105,000
)










0.0049Balance at July 2, 2006


1,953,666



619,333



1,348,001


$
7.42Authorized














Granted


249,000







(249,000
)


4.22Forfeited/cancelled/expired


(15,333
)






15,333



13.50Exercised














Balance at October 1, 2006


2,187,333



1,043,167



1,114,334


$
7.01  15




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
   Options outstanding


Options exercisableWeighted-avg.


Weighted-


Aggregate








AggregateRange of

Number


remaining


avg. exercise


intrinsic


Number


Weighted-


intrinsicexercise prices

outstanding


contractual life


price


value


exercisable


avg. price


value$ 0.0049


111,340



4.41


$
0.0049


$
320,114



111,340


$
0.0049


$
320,114$ 3.50 - 4.80


910,500



9.46



4.19







37,500



4.21



$ 5.18 - 9.92


1,317,600



7.23



7.57







1,073,600



7.93



$11.95 - 14.51


166,000



7.88



12.17







77,333



12.27



$15.05 - 19.50


9,334



7.83



15.53







7,333



15.45



2,514,774



7.96


$
6.34


$
320,114



1,307,106


$
7.45


$
320,114     7.
    Earnings
    (Loss) Available to Common Shareholders Per Share    8.
    Income
    Taxes     16




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
    and/or
  Accounting for Uncertainty in Income Taxes
        9.
    Commitments
    and contingencies  IRS tax audit.
  Louisiana Department of Revenue Litigation Tax
    Matter.
 17




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
  WPTE China agreement and related
    commitment.
  WPTE poker player litigation.
  Miscellaneous legal matters.
  10.
    Segment
    Information  ®
  18




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
  Industry segmentsIndiancasino


WPT


Corporate and


Totalprojects


Enterprises, Inc.


eliminations


consolidated(Unaudited)Total assets as of September 30, 2007

$
163.8


$
44.7


$
56.7


$
265.2Total assets as of December 31, 2006

$
242.8


$
51.3


$
67.1


$
361.2For the three months ended September 30, 2007Revenue

$
2.6


$
4.4


$



$
7.0Earnings (loss) from operations


0.1



(2.6
)


(3.8
)


(6.3
)Depreciation and amortization expense






0.1



0.1



0.2For the three months ended October 1, 2006Revenue

$



$
5.9


$



$
5.9Earnings (loss) from operations


5.6



(0.4
)


(4.2
)


1.0Depreciation and amortization expense






0.1



0.1



0.2For the nine months ended September 30, 2007Revenue

$
3.4


$
16.6


$
0.1


$
20.1Earnings (loss) from operations


10.1



(9.1
)


(13.0
)


(12.0
)Depreciation and amortization expense






0.3



0.3



0.6For the nine months ended October 1, 2006Revenue

$
0.3


$
23.4


$
0.1


$
23.8Earnings (loss) from operations


38.1



1.0



(12.0
)


27.1Depreciation and amortization expense






0.2



0.2



0.4   11.
    Subsequent
    Event  WPTE Israel office closure.
 19




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Overview
    ®
  WPT Studios.
     20




---



##### Table of Contents



Date of

Number ofagreement or

episodesWorld Poker

option for

(including


Production period and deliveryTour®
    season

season

specials)


of episodes

Initial telecast of episodes in seasonSeason One

January 2003


15


February 2002  June 2003

March 2003  June 2003Season Two

August 2003


25


July 2003  June 2004

December 2003  September 2004Season Three

May 2004


21


May 2004  April 2005

October 2004  August 2005Season Four

March 2005


21


May 2005  April 2006

October 2005  June 2006Season Five

March 2006


22


May 2006  April 2007

August 2006  August 2007Season Six

April 2007


23


May 2007  April 2008 (projected)

March 2008  August 2008 (projected)         WPT Global Marketing.
    WPT Online.
   21




---



##### Table of Contents



® ®
      WPT China.
    Results
    of Operations
  Form 10-Q
 22




---



##### Table of Contents



Three
    months ended September 30, 2007 compared to the three
    months ended October 1, 2006
  Revenues.
    Selling, general and administrative
    expense.
  Production costs.
  Amortization of intangible assets related to Indian casino
    projects.
  Net unrealized gains (losses) on notes
    receivable.
       23




---



##### Table of Contents



Other income.
  Income taxes.
  Minority interest.
  Nine
    months ended September 30, 2007 compared to the nine months
    ended October 1, 2006
  Revenues.
    Selling, general and administrative
    expense.
  Production costs.
 24




---



##### Table of Contents



Loss on abandonment of online gaming
    assets.
  Impairment losses.
  Amortization of intangible assets related to Indian casino
    projects.
  Net realized and unrealized gains on notes
    receivable.
    Other income (expense).
   25




---



##### Table of Contents



Income taxes.
    Minority interest.
  Liquidity
    and Capital Resources
            and/or
   26




---



##### Table of Contents



Payment due by periodLess than








More thanContractual obligations

Total


1 year


1-3 years


3-5 years


5 years(Unaudited)Remaining casino development commitment(1)Jamul Tribe(2)

$



$



$



$



$
Shingle Springs Tribe(3)


















Pokagon Band(4)


9.8



1.9



3.8



4.1



Iowa Tribe  Ioway Project(5)


















Lakes operating lease(6)


0.5



0.5











Lakes FIN 48 liability(7)


4.3



4.3











WPTE operating leases(8)


3.3



0.8



1.8



0.7



WPTE purchase obligations(9)


2.7



1.4



1.3







$
20.6


$
8.9


$
6.9


$
4.8


$
     (1)
    
    We 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 (see (2),
    (3) and (5) below). Any guarantees by us or similar
    off-balance sheet liabilities will increase our potential
    exposure in the event of a default by any of these tribes. No
    such guarantees or similar off-balance sheet liabilities exist
    at September 30, 2007.(2)
    
    Effective March 30, 2006, we entered into a development
    financing and services agreement with the Jamul Tribe. As part
    of the agreement, we will use our best efforts to obtain
    financing from which advances will be made to the Jamul Tribe of
    up to $350 million to pay for the design and construction
    of a casino project. It has been determined that the proposed
    gaming facility will be reduced in size and scope. The current
    plan is for the gaming facility to decrease in size and become a
    solely class II electronic gaming device facility which
    will not require a compact with the state of California. The
    agreement between Lakes and the Jamul Tribe is being modified to
    reflect the new economics of the revised casino plan but will
    not be subject to approval by the State of California or the
    NIGC.(3)
    
    The development agreement between Lakes and the Shingle Springs
    Tribe, as amended, provides for pre-construction advances Lakes
    may make to the Shingle Springs Tribe in the form of a
    transition loan and land loan up to a maximum combined amount of
    $75.0 million, but it does not contractually require us to
    make such advances.(4)
    
    We are obligated to pay approximately $11 million to an
    unrelated third party now that the Four Winds Casino Resort is
    open and we are the manager of the casino. The payment is
    payable quarterly for five years and is only payable if we are
    the manager and the casino is open and operational. The payment
    is part of a settlement and release agreement associated with
    our obtaining the management contract with the Pokagon Band. We
    are also obligated to pay approximately $3 million over
    24 months to a separate unrelated third party on behalf of
    the Pokagon Band in accordance with the management contract
    which commenced when the casino opened. These obligations do not
    have a stated interest rate and have payments terms which extend
    beyond one fiscal year. As a result, these obligations have been
    recorded at their net present value and the difference between
    the face amount and the net present value of the obligations is
    recorded as a discount, which is amortized to interest expense
    as the payments are made pursuant to the respective agreement.(5)
    
    We have agreed to make advances to the Iowa Tribe subject to a
    project budget to be agreed upon by us and the Iowa Tribe and
    certain other conditions. The development loan will be for
    preliminary development costs under the Ioway project budget. We
    have also agreed to use reasonable efforts to assist the Iowa
    Tribe in obtaining permanent financing for any projects
    developed under the Iowa consulting agreement.(6)
    
    We lease an airplane under a non-cancelable operating lease that
    expires on May 1, 2008.(7)
    
    We believe it is reasonably possible that, within the next
    12 months, we could be required to pay up to approximately
    $3.2 million plus accrued interest related to an IRS tax
    matter. 27




---



##### Table of Contents



(8)
    
    WPTE operating lease obligations include rent payments for WPTE
    corporate offices pursuant to two lease agreements. For the
    first lease, monthly lease payments began at approximately
    $38,000 and escalate to approximately $45,000 over the six-year
    lease term. For the second lease, monthly payments began at
    approximately $28,000 and escalate up to approximately $33,000
    over the five-year lease term. The amounts set forth in the
    table above include monthly lease payments through June 2011.(9)
    
    WPTE purchase obligations include minimum guarantees to
    CryptoLogic and operational expenses associated with WPTEs
    online gaming division, as well as a $0.5 million annual
    payment to the CLSAC for exclusive marketing and sponsorship
    opportunities in China (the table does not include commitments
    for years two through five, as the agreement terminates for
    failure of payment). Additionally, included in purchase
    obligations are open purchase orders of approximately
    $0.5 million as of September 30, 2007. These
    liabilities are included in Other Accrued Expenses within the
    Unaudited Condensed Consolidated Balance Sheets.    Critical
    Accounting Policies and Estimates
      Revenue recognition.
  No. 00-2, Accounting by Producers or Distributors of Films (SOP 00-2):
  
    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.   28




---



##### Table of Contents



99-19, Reporting Revenue Gross as a Principal versus Net as an
    Agent (EITF 99-19).
  EITF 99-19.
  EITF 99-19,
    Deferred television costs. SOP 00-2.
  Share-based compensation expense.
    Income taxes. Accounting for Income
    Taxes
 29




---



##### Table of Contents



Accounting for Uncertainty in Income Taxes
  Long-term assets related to Indian casino projects:
  Notes receivable.
  
    Has the U.S. Governments Bureau of Indian Affairs
    federally recognized the tribe as a tribe?
    Does the tribe hold or have the right to acquire land to be
    used for the casino site?
    Has the Department of the Interior put the land into trust
    for purposes of being used as a casino site?
    Has the tribe entered into a gaming agreement with the state
    in which the land is located, if required by the state?
    Has the tribe obtained approval by the National Indian Gaming
    Commission of the management agreement?
    Do other legal and political obstacles exist that could block
    development of the project and, if so, what is the likelihood of
    the tribe successfully prevailing?
    An evaluation by management of the financial projections of
    the project given the projects geographic location and the
    feasibility of the projects success given such
    location;
    The structure and stability of the tribal government;
    The scope of the proposed project, including the physical
    scope of the contemplated facility and the expected financial
    scope of the related development;
    An evaluation of the proposed projects ability to be
    built as contemplated and the likelihood that financing will be
    available; and
    The nature of the business opportunity to us, including
    whether the project would be a financing, development
    and/or
    management opportunity.  No. 96-12, Recognition of Interest Income and Balance Sheet
    Classification of Structured Notes No. 96-12).
 30




---



##### Table of Contents



Accounting by Creditors for Impairment of a
    Loan.
  Intangible assets related to Indian casino
    projects. Goodwill and Other Intangible Assets
  Land held for development.
  Other.
   31




---



##### Table of Contents



September 30, 2007ShinglePokagon


Springs


JamulBand


Tribe


Tribe


Other


Total(Unaudited)Notes receivable, at estimated fair value

$



$
52,176


$
23,616


$
3,486


$
79,278Land held for development










6,751



846



7,597Intangible assets related to Indian casino projects, net


32,454



21,812



11,556



1,120



66,942Other


60



767



1,016



3,772



5,615$
32,514


$
74,755


$
42,939


$
9,224


$
159,432   December 31, 2006ShinglePokagon


Springs


JamulBand


Tribe


Tribe


Other


TotalNotes receivable, at estimated fair value

$
100,544


$
40,912


$
20,754


$
2,098


$
164,308Land held for development






8,739



6,710



1,341



16,790Intangible assets related to Indian casino projects, net


23,573



20,387



9,760



559



54,279Other


60



2,041



2,207



4,142



8,450$
124,177


$
72,079


$
39,431


$
8,140


$
243,827    32




---



##### Table of Contents



Shingle Springs Tribe:
  As of September 30, 2007

As of December 31, 2006(Unaudited)Face value of note (principal and interest)

$65,460

$55,942($47,068 principal and $18,392 interest)

($42,310 principal and $13,632 interest)Estimated months until casino opens (weighted-average of three
    scenarios)

15 months

28 monthsProjected interest rate until casino opens

9.67%

9.98%Projected interest rate during the loan repayment term

10.28%

9.76%Discount rate

15%

15%Repayment terms of note(*)

84 months

Projected repayment terms of note (**)



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

95%

85%     (*)
    
    Note is payable in even monthly installments over the course of
    the management agreement subsequent to the casino opening.(**)
    
    Note was previously payable in varying monthly installments
    based on contract terms subsequent to the casino opening.    Jamul
    Tribe:
  As of September 30, 2007

As of December 31, 2006(Unaudited)Face value of note (principal and interest)

$40,591

$32,952($29,278 principal and $11,313 interest)

($24,509 principal and $8,443 interest)Estimated months until casino opens (weighted-average of three
    scenarios)

29 months

29 monthsProjected interest rate until casino opens

9.67%

9.98%Projected interest rate during the loan repayment term

10.49%

9.76%Discount rate

17.50%

15.75%Projected repayment terms of note

120 months

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

85%

85%    33




---



##### Table of Contents



September 30,
    2007 (unaudited)
  Estimated fair


Sensitivity analysisvalue notes


5% less


One year





5% increased


One yearreceivable


probable


delay


Both


probability


sooner


Both(In thousands)Shingle Springs

$
52,176


$
49,411


$
49,942


$
47,294


$
54,941


$
54,509


$
57,398Jamul


23,616



22,231



22,135



20,837



25,001



25,196



26,675$
75,792


$
71,642


$
72,077


$
68,131


$
79,942


$
79,705


$
84,073   December 31,
    2006
  Estimated fair


Sensitivity analysisvalue notes


5% less


One year





5% increased


One yearreceivable


probable


delay


Both


probability


sooner


Both(In thousands)Shingle Springs

$
40,912


$
38,469


$
39,269


$
36,923


$
43,355


$
42,623


$
45,166Jamul


20,754



19,548



19,815



18,664



21,960



21,738



23,002$
61,666


$
58,017


$
59,084


$
55,587


$
65,315


$
64,361


$
68,168       As of September 30, 2007ShingleAdvances Principal Balance

Springs


Jamul


Other


Total(Unaudited)(In thousands)Note receivable, pre-construction(a),(c)

$
47,068


$
28,328


$
3,031


$
78,427Note receivable, land(b),(c)






950



973



1,923$
47,068


$
29,278


$
4,004


$
80,350   As of December 31, 2006ShingleAdvances Principal Balance

Springs


Jamul


Other


Total(In thousands)Note receivable, pre-construction(a),(c)

$
42,310


$
23,559


$
1,386


$
67,255Note receivable, land(b),(c)






950



756



1,706$
42,310


$
24,509


$
2,142


$
68,961     (a)
    
    We fund certain costs incurred to develop the casino project.
    These costs relate to construction costs, legal fees in
    connection with various regulatory approvals and litigation,
    environmental costs and design consulting, and 34




---



##### Table of Contents



we, in order to obtain the development agreement and management
    contract, agree to advance a monthly amount used by the tribe
    for a variety of tribal expenses.(b)
    
    We purchased land to be used and transferred to the tribe in
    connection with the casino project.(c)
    
    Amounts listed under the other column represent amounts advanced
    under the agreements with the Iowa Tribe.    September 30,


December 31,Shingle Springs Tribe

2007


2006(Unaudited)Monthly stipend

$
9,290


$
7,690Construction


1,922



1,657Legal


14,193



13,790Environmental


1,739



1,680Design


11,230



9,554Gaming license


3,726



3,626Lobbyist


4,968



4,313$
47,068


$
42,310   September 30,


December 31,Jamul Tribe

2007


2006(Unaudited)Monthly stipend

$
4,915


$
4,451Construction


1,091



649Legal


4,272



3,675Environmental


2,272



1,985Design


12,343



9,578Gaming license


745



641Lobbyist


2,690



2,580$
28,328


$
23,559   Evaluation
    of impairment related to our long-term assets related to Indian
    casino projects, excluding the notes receivable, which are
    valued at fair value:
     35




---



##### Table of Contents



Jamul
    Tribe
    September 30,


December 31,2007


2006(Unaudited)No. of Class II electronic gaming devices


1,000



1,000No. of Table games


20



20No. of Poker tables


5



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

$
172


$
250Win/Table game/day  1st year

$
471


$
900Win/Poker table/day  1st year

$
312


$
650     Shingle
    Springs Tribe
  September 30,

December 31,2007

2006(Unaudited)No. of Class III slot machines

349

349No. of Class II electronic gaming devices

1,651

1,651No. of Table games

100

100Win/Class II & III electronic gaming devices/slot
    machine/day  1st year

$350

$350Win/Table game/day  1st year

$1,275

$1,275Expected increase (decrease) in management fee cash flowsYear 2  17.6%

Year 2  8.0%Year 3  10.5%

Year 3  7.5%Year 4  7.9%

Year 4  7.1%Year 5  8.8%

Year 5  6.4%Year 6  (4.0)%

Year 6 -- (12.3)%(management fees were
    reduced in year six)

(management fees were
    reduced in year six)Year 7  5.0%

Year 7  11.7%  36




---



##### Table of Contents



Description
    of each Indian casino project and evaluation of critical
    milestones:
  Pokagon
    Band
  Business arrangement.
  Shingle
    Springs Tribe
  Business arrangement.
         37




---



##### Table of Contents



Our evaluation of the critical milestones.
  Critical milestone


September 30, 2007


December 31, 2006


January 1, 2006Federal recognition of the tribe


Yes


Yes


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


Yes


Yes


YesUsable 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


Yes


Yes


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


Yes


Yes


YesNIGC approval of management contract in current and desired
    form


Yes


Yes


Yes  approval received in 2004.Resolution of all litigation and legal obstacles


No  See below.


No  See below.


No, Federal and state litigation regarding approval of highway
    interchange, environmental issues and other issues. 
    See below.Financing for construction


Yes. On June 28, 2007 an affiliate of the Shingle Springs Tribe
    closed on a $450 million senior note financing to fund the
    Foothill Oaks Casino project in Shingle Springs, California.


No, however the Shingle Springs Tribe has engaged investment
    banks to assist with obtaining financing.


No, however the Shingle Springs Tribe has engaged investment
    banks to assist with obtaining financing. 38




---



##### Table of Contents



Critical milestone


September 30, 2007


December 31, 2006


January 1, 2006Any 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.   Our evaluation and conclusion regarding the above critical
    milestones and progress:
    Form 10-K,
        Jamul
    Tribe
  Business arrangement. six-acre
   39




---



##### Table of Contents



40




---



##### Table of Contents



Lakes evaluation of the critical
    milestones.
  Critical milestone


September 30, 2007


December 31, 2006


January 1, 2006Federal recognition of the tribe


Yes


Yes


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


Yes


Yes


YesUsable land placed in trust by Federal government


Not necessary, as the land to be used for the project is
    reservation land.


Not necessary, as land is reservation land.


Yes, six acres is reservation land held by the Jamul Tribe on
    which the casino will be built. There is an additional
    82 acres contiguous to the reservation land pending BIA
    approval to be placed into trust that could be used for
    additional development of the project. The Jamul Tribe and Lakes
    prepared an EIS and trust application, which has been submitted
    to, reviewed and recommended for approval by the regional office
    of the BIA. The Washington, D.C. office of the BIA is
    currently reviewing the submission.Usable county agreement, if applicable


N/A


N/A


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


Yes


Yes


YesNIGC approval of management contract in current and desired
    form


N/A as the Jamul Tribe and Lakes entered into a development
    financing and services agreement in March 2006, which does not
    need to be approved by the NIGC.


N/A as the Jamul Tribe and Lakes entered into a development
    financing and services agreement in March 2006, which does not
    need to be approved by the NIGC.


No, submitted for approval by the NIGC in 2000. We are in
    communication with the NIGC and have responded to initial
    comments. Approval is not expected until the process to place
    land in trust by the BIA is complete. 41




---



##### Table of Contents



Critical milestone


September 30, 2007


December 31, 2006


January 1, 2006Resolution of all litigation and legal obstacles


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


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


N/A, there has been some local opposition regarding the project,
    although no formal legal action has been taken.Financing for construction


No, however, preliminary discussions with investment bankers
    regarding assisting in obtaining financing have taken place.


No, however, preliminary discussions with investment bankers
    regarding assisting in obtaining financing have taken place.


No, however, preliminary discussions with investment bankers
    regarding assisting in obtaining financing have taken place.Any other significant project milestones or contingencies,
    the outcome of which could have a material affect on the
    probability of project completion as planned


Yes. The Jamul Tribe and the State of California have had a
    series of meetings to discuss what requirements the State has to
    either allow the project to be built as currently planned or to
    enter into a new compact similar to those approved in 2004 for
    other tribes in the State. The Jamul Tribe has decided to move
    forward with building a casino based solely on class II
    electronic gaming devices. This plan will decrease the size and
    scope of the project, but will allow it to move forward.


Yes. The Jamul Tribe and the State of California have had a
    series of recent meetings to discuss what requirements the State
    has to either allow the project to be built as currently planned
    or to enter into a new compact similar to those approved in 2004
    for other tribes in the State. Based on these discussions, the
    Jamul Tribe is evaluating which of any of these requirements are
    acceptable or in lieu of a compact, building a casino based
    solely on class II electronic gaming devices.


No others known at this time by Lakes.   Lakes evaluation and conclusion regarding the above
    critical milestones and progress.
   42




---



##### Table of Contents



Iowa
    Tribe
  Business arrangement.
    Ioway Casino.
      Cimarron Casino.
 43




---



##### Table of Contents



Arrangement with consultant.
  Lakes evaluation of the Ioway casino
    project.
  Critical milestone


September 30, 2007


December 31, 2006


January 1, 2006Federal recognition of the tribe


Yes


Yes


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


Yes, the Iowa Tribe has Tribal members that own a 74-acre
    allotment on US Route 66 midway between the access points to
    Warwick and Chandler, Oklahoma from I44. The Iowa Tribe has
    obtained the rights to purchase and/or lease this parcel from
    the allottees. An additional 100 acres of fee land has been
    purchased to provide the necessary site area for the beginning
    of the project.


Yes, the Iowa Tribe has members that own a 74-acre allotment on
    US Route 66 midway between the access points to Warwick and
    Chandler, Oklahoma from I44. The Iowa Tribe has obtained the
    rights to purchase and/or lease this parcel from the allottees.
    An additional 100 acres of fee land has been optioned to
    provide the necessary site area for the beginning of the project.


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.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, 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, 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.Usable county agreement, if applicable


N/A


N/A


N/A 44




---



##### Table of Contents



Critical milestone


September 30, 2007


December 31, 2006


January 1, 2006Usable state compact that allows for gaming consistent with
    that outlined in Lakes project plan


Yes


Yes


YesNIGC approval of management contract in current and desired
    form


No, submitted to the NIGC for review on April 22, 2005. The NIGC
    has provided their final comments to the Iowa Tribe on the
    management contract and the Iowa Tribe has approved the
    revisions and returned the contract to the NIGC for final
    action. There have been no comments on the consulting agreement
    from the NIGC and is therefore considered operative.


No, submitted to the NIGC for review on April 22, 2005. An EA is
    currently being prepared and is necessary for the management
    contract to be approved. Completion of the EA is expected by
    Spring 2007. There have been no comments on the consulting
    agreement from the NIGC and is therefore considered operative.


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.Resolution of all litigation and legal obstacles


None at this time.


None at this time.


None at this time.Financing for construction


No. Preliminary discussions with lending institutions have
    occurred.


No. Preliminary discussions with lending institutions have
    occurred.


No. Preliminary discussions with lending institutions have
    occurred.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.
  Pawnee
    Nation of Oklahoma
  Business arrangement.
   45




---



##### Table of Contents



Recently
    issued accounting pronouncements
  Fair Value Measurements The Fair Value Option for
    Financial Assets and Financial Liabilities  Including
    an amendment of FASB Statement No. 115
  Seasonality
    Regulation
    and taxes
      Off-balance
    sheet arrangements
    Private
    Securities Litigation Reform Act
  Form 10-K
 46




---



##### Table of Contents



Form 10-K,
  ITEM 3.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK       47




---



##### Table of Contents



ITEM 4.
    CONTROLS
    AND PROCEDURES  Rules 13a-15(e)
   48




---



##### Table of Contents



Part II.
    Other Information
  ITEM 1.
    LEGAL
    PROCEEDINGS  WPTE
    litigation.
    Miscellaneous
    legal matters.
    ITEM 1A.
    RISK
    FACTORS  Form 10-K,
  In May
    2006, the NIGC issued proposed regulations concerning
    classification of gaming devices which could negatively affect
    projected management/consulting fees to be received from the
    Shingle Springs and Jamul Casino projects.
     49




---



##### Table of Contents



We
    cannot guarantee the financial results of the expansion of the
    World Poker Tour business, which may negatively impact our
    financial results.
        
    On April 23, 2007, WPTE entered into an agreement with
    CryptoLogic pursuant to which CryptoLogic operates and manages
    WPTEs branded real-money gaming website,
    WorldPokerTour.com, solely in jurisdictions where online gaming
    is not restricted. WPTE cannot be assured that
    CryptoLogics operation of the site going forward will meet
    WPTEs business expectations, the failure of which would
    have a material adverse impact on WPTEs online gaming
    business.
    WPTE is currently reliant on CryptoLogic for WPTEs gaming
    website compliance with all applicable regulations, including
    the initial verification that players who wish to wager are
    actually from non-restricted countries. In addition, WPTE relies
    on CryptoLogic and third party vendors to assure that players
    cannot place improper wagers on an on-going basis. If
    CryptoLogics compliance or verification is inadequate or
    WPTEs third party verification tools fail, regulators in
    the U.S. or other jurisdictions may impose fines or other
    sanctions or threaten or take other actions that could adversely
    affect WPTEs reputation and the revenues WPTE derives from
    the license of rights to CryptoLogic. Additionally, certain
    territories and foreign networks may restrict WPTE from
    incorporating marketing elements related to WPTEs online
    site into WPTEs international telecasts and certain laws
    or regulations may restrict the type of advertising in general
    in those territories. If these restrictions occur, WPTEs
    costs of customer acquisition may be substantially higher than
    anticipated.
    WPTE has developed relationships with key strategic partners in
    many areas of WPTEs business, including poker tournament
    event sponsorship, merchandise licensing, corporate sponsorship,
    Internet gaming and international distribution. If WPTE was to
    fail to manage its existing licensing relationships, this
    failure 50




---



##### Table of Contents



could have a material adverse effect on WPTEs financial
    condition and results of operations. WPTE relies on a limited
    number of contracts under which third parties provide WPTE with
    services vital to WPTEs business. If WPTEs
    relationship with any third party was to be interrupted, or the
    services provided by any third party were to be delayed or
    deteriorate for any reason without being adequately replaced,
    WPTE business could be materially adversely affected. If WPTE is
    forced to find a replacement for any strategic partner, this
    could create disruption in WPTEs business and may result
    in reduced revenues, increased costs or diversion of
    managements attention and resources. In addition, while
    WPTE has significant control over its licensed products and
    advertising, WPTE does not have operational and financial
    control over third parties, and WPTE has limited influence with
    respect to the manner in which they conduct their businesses. If
    any strategic partner experiences a significant downturn in its
    business or were otherwise unable to honor its obligations to
    WPTE, WPTEs business could be materially disrupted.  
    WPTE intends to further expand business in foreign markets,
    including continued international distribution of WPTEs
    U.S. telecasts, creating additional poker tours in foreign
    countries and distributing branded merchandise in foreign
    countries. WPTEs international operations could be
    adversely affected by changes in political and economic
    conditions, trade protection measures and the status of
    regulatory requirements that may restrict the sales of WPTE
    products, increase costs of foreign production or other costs
    that prohibit Internet gaming activities in international
    jurisdictions. Also, changes in exchange rates between the
    U.S. dollar and other currencies could potentially result
    in significant increases in WPTE costs or decreases in earnings.
    The success of WPTEs initiative in China will greatly
    depend upon WPTEs ability to expand the brand and to
    monetize WPTEs rights throughout the territory. WPTE is
    highly dependent upon third-parties for the organization of
    events, acquisition and use of certain business licenses
    throughout China, the marketing of the WPT Traktor Poker Tour
    and the licensing of WPTEs trademark and intellectual
    property rights. If these
    third-parties
    fail to perform as anticipated, business operations in China
    could be severely affected. Furthermore, there is no guarantee
    that WPTE will be able to successfully enforce its rights in
    China against any infringers of WPTE trademarks or other rights
    granted to WPTE.    Form 10-K, Form 10-Q
  ITEM 6.
    EXHIBITS  Exhibits

Description31
.1

Certification of CEO pursuant to Securities Exchange Act
    Rules 13a-15(e)
    and 15d-15(e) as adopted pursuant to Section 302 of the
    Sarbanes-Oxley Act of 200231
.2

Certification of CFO pursuant to Securities Exchange Act
    Rules 13a-15(e)
    and 15d-15(e) as adopted pursuant to Section 302 of the
    Sarbanes-Oxley Act of 200232
.1

Certification of Chief Executive Officer and Chief Financial
    Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  51




---



##### Table of Contents



SIGNATURES
  Form 10-Q
  LAKES ENTERTAINMENT, INC. Registrant
  /s/  LYLE
    BERMAN       
       52