<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                    FORM 10-Q
                                   (Mark One)

       X       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     -----     SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 4, 2004

                                       OR

               TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     -----     SECURITIES EXCHANGE ACT OF 1934

                For the transition period from ________ to ______
                          Commission File No. 0-24993

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

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

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

                                 (952) 449-9092
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

       Yes   X                      No
           -----                       -----

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

       Yes                          No   X
           -----                       -----

As of May 12, 2004, there were 22,207,634 shares of Common Stock, $0.01 par
value per share, outstanding, reflecting a two-for-one stock split (the "Stock
Split") in the form of a 100% stock dividend paid on May 3, 2004 to shareholders
of record on April 26, 2004. All share and per share data has been retroactively
restated to give effect to the stock split.

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                                      INDEX

<Table>
<Caption>

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

         ITEM 1.  FINANCIAL STATEMENTS

                  Condensed Consolidated Balance Sheets as of                     3
                  April 4, 2004 and December 28, 2003

                  Condensed Consolidated Statements of Loss for the three         4
                  months ended April 4, 2004 and March 30, 2003

                  Condensed Consolidated Statements of Comprehensive              5
                  Loss for the three months ended April 4, 2004
                  and March 30, 2003

                  Condensed Consolidated Statements of Cash Flows for             6
                  the three months ended April 4, 2004 and March 30,
                  2003

                  Notes to Condensed Consolidated Financial Statements            7

         ITEM 2.  MANAGEMENT'S DISCUSSION AND                                    17
                  ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS

         ITEM 3.  QUANTITATIVE AND QUALITATIVE                                   24
                  DISCLOSURES ABOUT MARKET RISK

         ITEM 4.  CONTROLS AND PROCEDURES                                        24

PART II. OTHER INFORMATION

         ITEM 1.  LEGAL PROCEEDINGS                                              25

         ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                               27
</Table>


                                        2

<PAGE>

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


<Table>
<Caption>

                                                                 (UNAUDITED)
                                                      APRIL 4, 2004     DECEMBER 28, 2003
                                                      -------------     -----------------
<S>                                                   <C>               <C>
ASSETS
Current Assets:
    Cash and cash equivalents                          $   24,951          $   25,340
    Accounts receivable, net                                  371               1,038
    Deferred tax asset                                      5,385               5,385
    Prepaids                                                3,220               2,119
    Other current assets                                    1,846               1,645
                                                       ----------          ----------
Total Current Assets                                       35,773              35,527
                                                       ----------          ----------
Property and Equipment-Net                                  6,435               6,492
                                                       ----------          ----------
Other Assets:
    Land held under contract for sale                       4,795               4,612
    Land held for development                              14,590              14,536
    Notes receivable                                       89,908              84,682
    Investments                                             7,611               8,717
    Deferred tax asset                                      7,242               6,634
    Other long-term assets                                  8,920               8,860
                                                       ----------          ----------
Total Other Assets                                        133,066             128,041
                                                       ----------          ----------
TOTAL ASSETS                                           $  175,274          $  170,060
                                                       ==========          ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
    Accounts payable                                   $    2,113          $    1,906
    Income taxes payable                                    7,258               7,215
    Litigation and claims accrual                             126                 250
    Accrued payroll and related costs                         304                 497
    Other accrued expenses                                  5,055               2,768
                                                       ----------          ----------
Total Current Liabilities                                  14,856              12,636
                                                       ----------          ----------
TOTAL LIABILITIES                                          14,856              12,636
                                                       ----------          ----------

COMMITMENTS AND CONTINGENCIES
Shareholders' Equity:
    Capital stock, $.01 par value; authorized
    200,000 shares; 22,198 and 21,474 common
    shares issued and outstanding
    at April 4, 2004, and
    December 28, 2003, respectively                           222                 215
    Additional paid-in-capital                            136,038             132,291
    Retained Earnings                                      24,158              24,918
                                                       ----------          ----------
Total Shareholders' Equity                                160,418             157,424
                                                       ----------          ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY             $  175,274          $  170,060
                                                       ==========          ==========
</Table>

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

                                        3

<PAGE>


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

<Table>
<Caption>

                                                                              (UNAUDITED)
                                                                           THREE MONTHS ENDED

                                                                    APRIL 4, 2004       MARCH 30, 2003
                                                                    -------------       --------------
<S>                                                                 <C>                 <C>
REVENUES:
     License fee income                                              $    4,140           $      550
                                                                     ----------           ----------
         Total Revenues                                                   4,140                  550
                                                                     ----------           ----------
COSTS AND EXPENSES:
     Selling, general and administrative                                  3,260                2,078
     Production costs                                                     2,472                  901
     Depreciation and amortization                                          143                  128
                                                                     ----------           ----------
         Total Costs and Expenses                                         5,875                3,107
                                                                     ----------           ----------

LOSS FROM OPERATIONS                                                     (1,735)              (2,557)
                                                                     ----------           ----------
OTHER INCOME (EXPENSE):
     Interest income                                                         48                  237
     Equity in earnings (loss) of unconsolidated affiliates                 419                  (87)
     Other                                                                   42                  159
                                                                     ----------           ----------
         Total other income, net                                            509                  309
                                                                     ----------           ----------

Loss before income taxes                                                 (1,226)              (2,248)
Benefit for income taxes                                                   (466)                (921)
                                                                     ----------           ----------

NET LOSS                                                             $     (760)          $   (1,327)
                                                                     ==========           ==========

BASIC LOSS PER SHARE                                                 $    (0.03)          $    (0.06)
                                                                     ==========           ==========

DILUTED LOSS PER SHARE                                               $    (0.03)          $    (0.06)
                                                                     ==========           ==========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                               21,770               21,276
DILUTIVE EFFECT OF STOCK COMPENSATION PROGRAMS                               --                   --
                                                                     ----------           ----------
WEIGHTED AVERAGE COMMON AND DILUTED
  SHARES OUTSTANDING                                                     21,770               21,276
                                                                     ==========           ==========
</Table>

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

                                        4

<PAGE>


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

<Table>
<Caption>

                                                                  (UNAUDITED)
                                                               THREE MONTHS ENDED

                                                        APRIL 4, 2004         MARCH 30, 2003
                                                        -------------         --------------
<S>                                                     <C>                   <C>
NET LOSS                                                  $     (760)          $   (1,327)

OTHER COMPREHENSIVE EARNINGS (LOSS), NET OF TAX:
     Unrealized gains (losses) on securities                      --                   --
                                                          ----------           ----------
COMPREHENSIVE LOSS                                        $     (760)          $   (1,327)
                                                          ==========           ==========
</Table>

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

                                        5

<PAGE>


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

<Table>
<Caption>

                                                                                         (UNAUDITED)
                                                                                     THREE MONTHS ENDED

                                                                              APRIL 4, 2004        MARCH 30, 2003
                                                                              -------------        --------------
<S>                                                                           <C>                  <C>
OPERATING ACTIVITIES:
     Net loss                                                                   $     (760)          $   (1,327)
     Adjustments to reconcile net loss to net cash
      provided by (used in) operating activities:
      Depreciation and amortization                                                    143                  128
      Unit-based compensation expense                                                   94                   --
      Equity in (earnings) loss of unconsolidated affiliates                          (419)                  87
      Deferred income taxes                                                           (608)                (330)
      Changes in operating assets and liabilities:
           Accounts receivable                                                         667                 (648)
           Income taxes                                                                 43                  283
           Accounts payable                                                            207                 (118)
           Accrued expenses                                                          1,970                 (191)
           Other                                                                    (1,295)                (899)
                                                                                ----------           ----------
Net Cash Provided by (Used in) Operating Activities                                     42               (3,015)
                                                                                ----------           ----------

INVESTING ACTIVITIES:
     Payments for land held under contract for sale                                   (183)                (221)
     Payments made for land held for development                                       (54)              (1,433)
     Advances on notes receivable                                                   (5,238)              (3,492)
     Investment in and notes receivable from unconsolidated affiliates               1,537                 (285)
     Increase in restricted cash, net                                                   --                  (13)
     Increase in other long-term assets                                                (60)                (156)
     Reduction of (payments for) property and equipment, net                           (86)                   9
                                                                                ----------           ----------
Net Cash Used in Investing Activities                                               (4,084)              (5,591)
                                                                                ----------           ----------

FINANCING ACTIVITIES:

     Proceeds from issuance of common stock                                          3,653                   --
                                                                                ----------           ----------
Net Cash Provided by Financing Activities                                            3,653                   --
                                                                                ----------           ----------

Net decrease in cash and cash equivalents                                             (389)              (8,606)
Cash and cash equivalents - beginning of period                                     25,340               14,106
                                                                                ----------           ----------
CASH AND CASH EQUIVALENTS - END OF PERIOD                                       $   24,951           $    5,500
                                                                                ==========           ==========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid during the period for:
      Interest                                                                  $       --           $       --
      Income taxes                                                                      12                    5
     Noncash operating activities:
      Capitalized television costs related to unit options issued to
         consultants                                                                   213                   --
</Table>

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

                                        6

<PAGE>


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

1.     BUSINESS

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

Lakes' primary business is to develop and manage Indian-owned casino properties
that offer the opportunity for long-term development of related entertainment
facilities, including hotels, theaters, recreational vehicle parks and other
complementary amenities designed to enhance the customers' total entertainment
experience and to differentiate facilities managed by Lakes from its
competitors. Lakes provides experienced corporate and casino management and
develops and implements a wide scale of marketing programs. In conjunction with
this part of Lakes' business strategy, Lakes has entered into development and
management agreements relating to one casino project in Michigan, two casino
projects in California, and one casino project on the east coast, with
development of each subject to regulatory approvals. Lakes has also explored,
and will continue to explore, numerous other possible development projects.

World Poker Tour, LLC ("WPT"), a 78% owned subsidiary of Lakes, has created a
circuit of previously-established poker tournaments affiliated under the "World
Poker Tour" name, and has produced the World Poker Tour television series. WPT
signed an agreement for a second season with the Travel Channel, LLC ("TRV"),
for broadcast of the World Poker Tour series on cable television. TRV was also
granted options for five additional seasons. WPT receives a series of fixed
license payments from TRV.

During January of 2004, World Poker Tour announced that it will seek to raise
approximately $20 million pursuant to an underwritten initial public offering of
common stock at a price to be determined. World Poker Tour will be converted
into a Delaware corporation immediately before the offering. It is expected that
proceeds from the offering will be used to expand World Poker Tour's
entertainment production business and for its working capital. There will be no
selling shareholders participating in the offering. Lakes does not expect to
recognize a gain on this transaction and the proceeds will be reflected as a
minority interest. Lakes has included $0.4 million of direct costs related to
this offering in other current assets as of April 4, 2004. These costs will be
reflected as a reduction of proceeds when the offering is completed or as an
expense if the offering is unsuccessful.

Lakes has recently created a new division to buy, license and/or market new
table game concepts for licensing to casinos. The Company is currently testing a
number of new games and there may be revenue from this effort beginning during
2004. See also Note 7.

LAND HELD UNDER CONTRACT FOR SALE

On December 28, 2001, the Company transferred title and ownership obligations of
the Polo Plaza shopping center property to Metroflag Polo, LLC. In conjunction
with this transaction, Lakes transferred to Metroflag BP, LLC, rights to and
obligations of the adjacent Travelodge property consisting of a long-term land
lease and a motel operation. During 2002, Lakes and Metroflag restructured the
terms of the Polo Plaza and Travelodge property transactions due to
deteriorating economic conditions. The parties reduced the purchase price for
the Polo Plaza property from $23.8 million to $21.8 million.

                                        7

<PAGE>



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

During March of 2003, Lakes and Metroflag agreed to additional revisions to the
terms of the Polo Plaza and Travelodge property transactions. The parties
increased the price of the Polo Plaza property from $21.8 million to $25.8
million and extended the payment date to May 15, 2003. On the payment date,
$16.8 million of the purchase price was paid to Lakes in cash, $4.0 million was
paid through the issuance to Lakes of a preferred membership interest in
Metroflag and $4.0 million was paid through the issuance to Lakes of a
subordinated membership interest in Metroflag. Previously, Metroflag paid $1.0
million in cash as a down payment. Lakes can require Metroflag to repurchase the
$4.0 million preferred interest any time on or after December 24, 2006. The
subordinated interest must be repurchased for $4.0 million at the time of
repayment by Metroflag of an outstanding $3.5 million contractual commitment in
connection with the Travelodge property, which is scheduled on or before
December 28, 2004.

In March of 2003, the parties decreased the sale price of the Travelodge
property from $7.5 million to $3.5 million. At that time, the contractual
commitment to pay Lakes was also decreased from $7.5 million to $3.5 million, as
a result of the increase in the purchase price of the Polo Plaza property
discussed above. During 2003, Lakes took a $1.0 million impairment charge on the
Travelodge property. If the Travelodge commitment is not repaid by December 28,
2004, ownership of the Travelodge lease rights would revert back to Lakes. Lakes
has also agreed to loan to Metroflag BP up to $3.0 million related to Travelodge
operating shortfalls through December 28, 2004. As of April 4, 2004 and December
28, 2003, the outstanding loan balance was $2.3 million and $2.1 million,
respectively. This loan is scheduled to be repaid on December 28, 2004. If at
any time the Polo Plaza property is sold and the Travelodge commitment has not
been repaid, Metroflag is required to repurchase the subordinated interest for
the lesser of $4.0 million or any portion of the net cash proceeds from such
sale or refinancing that exceeds $60.0 million.

LAND HELD FOR DEVELOPMENT

Included in land held for development is land held for possible transfer to
Indian tribes for use in future casino resort projects.

2. BASIS OF PRESENTATION

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

Lakes' investments in unconsolidated affiliates include a 50 percent ownership
interest in PCG Santa Rosa, LLC, a joint venture formed to develop a casino on
Indian-owned land in California and a 50% ownership interest in 2022 Ranch, LLC,
a joint venture formed to develop and/or sell approximately 2000 acres owned by
the joint venture in Eastern San Diego County. This land was sold during the
first quarter of 2004. The sale of the land reduced Lakes' investment in 2022
Ranch to less than $0.1 million.

                                        8

<PAGE>



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

The condensed consolidated financial statements have been prepared by the
Company in accordance with accounting principles generally accepted in the
United States of America for interim financial information, in accordance with
the rules and regulations of the Securities and Exchange Commission. Pursuant to
such rules and regulations, certain financial information and footnote
disclosures normally included in the condensed consolidated financial statements
have been condensed or omitted.

In the opinion of management, all adjustments considered necessary for fair
presentation have been included. Operating results for the three months ended
April 4, 2004 are not necessarily indicative of the results that may be expected
for the year ending January 2, 2005. The condensed consolidated financial
statements should be read in conjunction with the condensed consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended December 28, 2003.

3. STOCK-BASED COMPENSATION

At April 4, 2004, the Company has two stock-based employee compensation plans.
The Company accounts for those plans under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. No stock-based employee compensation cost is reflected
in net income, as all options granted under those plans had an exercise price
equal to the market value of the underlying common stock on the date of grant.

WPT also has a unit-based compensation plan for both employees and consultants.
WPT has a 2002 Unit Option Plan (the "2002 Plan") which is approved to issue up
to an aggregate of 7,000 Class B non-voting units of WPT in connection with unit
option grants to employees and consultants. The options become exercisable in
quarterly installments on each of the first four anniversaries of the date of
the grant and each installment expires six years after being exercisable. The
employee must be employed by the Company on the anniversary date in order to
vest in any units that year. If the employee is terminated (voluntarily or
involuntarily) prior to the vesting of any portion of a unit option, the
unvested portion will be forfeited.

For WPT unit options issued to employees, deferred stock compensation for the
unit options is measured at the units' fair value in excess of the exercise
price on the date of grant and is being amortized over the vesting period of
four years. For WPT unit options issued to consultants, compensation expense is
measured at the option's fair value. Fair value is measured when the unit
options vest in quarterly installments on each of the first four anniversaries
of the date of the grant. Compensation expense is estimated in periods prior to
vesting based on the then current fair value. Changes in the estimated fair
value of unvested options are recorded in the periods the change occurs.

Additionally, on March 4, 2002, WPT granted 15,000 Class A voting units to its
President under a management agreement. The restricted units vest in four equal
installments annually beginning February 25, 2003. If there is a change of
control, all non-vested restricted units vest immediately.

                                        9

<PAGE>



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

The Company accounts for the WPT unit-based employee compensation under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations. Compensation expense for
unit option grants issued to employees is recorded to the extent the fair market
value of the units on the date of grant exceeds the option price. Compensation
expense for restricted unit grants is measured based on the fair market value of
the units on the date of grant. The compensation expense is amortized ratably
over the vesting period of the awards.

The Company accounts for WPT unit-based consultant compensation according to the
recognition and measurement principles of EITF 96-18, Accounting for Equity
Instruments That are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services. Compensation expense for unit
option grants issued to consultants is recorded at the fair market value of the
options at the measurement date, defined as the date the options vest and
services have been provided.

The following table illustrated the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation under the Lakes' plans and unit-based employee and
consultant compensation under the WPT Plans (in thousands except per share
data).



<Table>
<Caption>
                                                                THREE MONTHS ENDED
                                                                ------------------
                                                         APRIL 4, 2004         MARCH 30, 2003
                                                         -------------         --------------
<S>                                                      <C>                   <C>
Net loss:                                                 $      (760)          $    (1,327)
    As reported
    Add:  Unit-based compensation expense                          94                    --
        included in reported net loss
    Less:  Total stock-based compensation                        (451)                 (374)
        expense determined under the fair
        value method, net of related tax effects
    Pro forma                                                  (1,117)               (1,701)
Net loss per share:
    As reported -- Basic                                  $     (0.03)          $     (0.06)
    Pro forma -- Basic                                          (0.05)                (0.08)
    As reported -- Diluted                                      (0.03)                (0.06)
    Pro forma -- Diluted                                        (0.05)                (0.08)
</Table>


                                       10

<PAGE>



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

4. MANAGEMENT CONTRACTS FOR INDIAN-OWNED CASINOS

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

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

Lakes has a contract to be the exclusive developer and manager of an
Indian-owned gaming resort near New Buffalo, Michigan with the Pokagon Band of
Potawatomi Indians. The Company has formed partnerships that hold contracts to
develop and manage two casinos to be owned by Indian tribes in California, one
near San Diego with the Jamul Indian Village, and the other near Sacramento with
the Shingle Springs Band of Miwok Indians. The Company has also signed contracts
with the Nipmuc Nation of Massachusetts for development and management of a
potential future gaming resort in the eastern United States; however, this tribe
has received a negative finding regarding federal recognition from the Bureau of
Indian Affairs (BIA). The tribe has submitted additional information for
reconsideration (see Note 9).

5. NOTES RECEIVABLE

The notes receivable from Indian Tribes result from costs incurred by the
Company for the development of gaming properties under which the Company has
signed management contracts. The repayment terms are specific to each tribe and
are largely dependent upon the operating performance of each gaming property.
Repayments of the aforementioned notes receivable are required to be made only
if distributable profits are available from the operation of the related
casinos. Repayments are also the subject of certain distribution priorities
specified in the management contracts. In addition, repayment of the notes
receivable and the manager's fees under the management contracts are
subordinated to certain other financial obligations of the respective tribes.

                                       11

<PAGE>



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

Notes receivable consist of the following (in thousands):

<Table>
<Caption>

                                                                              April 4, 2004      December 28, 2003
                                                                              -------------      -----------------
<S>                                                                           <C>                <C>
Properties under development:

Notes from the Pokagon Band of Potawatomi Indians with
variable interest rates (not to exceed 10%) (5.00% at April 4, 2004),
receivable in 60 monthly installments
subsequent to commencement date                                                $   42,846          $   41,729

Notes from the Shingle Springs Band of Miwok Indians with
variable interest rates (6.00% at April 4, 2004), receivable
in varying monthly installments based on contract
terms subsequent to commencement date                                              27,370              24,428

Notes from Jamul Indian Village with variable interest
rates (6.00% at April 4, 2004), receivable in 60 monthly
installments subsequent to commencement date                                       13,011              12,336

Notes from the Nipmuc Nation with variable interest
rates (6.00% at April 4, 2004) receivable in varying installments
based on contract terms subsequent to commencement date                             5,105               4,634

Other                                                                               1,576               1,555
                                                                               ----------          ----------

Total notes receivable                                                         $   89,908          $   84,682
                                                                               ==========          ==========
</Table>

Interest income on notes receivable from Indian Tribes related to properties
under development is deferred because realizability of the interest is
contingent upon the completion and positive cash flow from operation of the
casino. Interest deferred during the development period is recognized over the
remaining life of the note using the effective interest method. As of April 4,
2004 and December 28, 2003, $16.8 million and $15.2 million of interest on notes
related to properties under development has been deferred.

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

                                       12

<PAGE>



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

6. COMMITMENTS AND CONTINGENCIES:

LEASES

The Company leases certain property and equipment, including an airplane, under
a non-cancelable operating lease. The airplane lease expired May 1, 2003 and was
renewed for a one-year period. The lease provides for one additional one-year
renewal term, which began May 1, 2004. Approximate future minimum lease
payments, due under this lease as of April 4, 2004, are as follows (in
thousands):

<Table>
<Caption>

                                            Operating Leases
                                            ----------------
<S>                                         <C>
                 2004                            $   450
                 2005                                200
                                                 -------
                                                 $   650
                                                 =======
</Table>

PURCHASE OPTIONS

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

INDEMNIFICATION AGREEMENT

As a part of the transaction establishing Lakes as a separate public company on
December 31, 1998, the Company agreed to indemnify Grand through December 28,
2004 against all costs, expenses and liabilities incurred in connection with or
arising out of certain pending and threatened claims and legal proceedings
against Grand and to pay all related settlements and judgments. The Company's
indemnification obligations include the obligation to provide the defense of all
claims made in proceedings against Grand and to pay all related settlements and
judgments.

As a part of the indemnification agreement, Lakes agreed that it will not
declare or pay any dividends, make any distribution on account of Lakes' equity
interests, or otherwise purchase, redeem, defease or retire for value any equity
interests in Lakes without the written consent of Caesars Entertainment, Inc,
the parent Company of Grand.

LEGAL PROCEEDINGS

SLOT MACHINE LITIGATION

In 1994, William H. Poulos filed a class-action lawsuit in the United States
District Court for the Middle District of Florida against various parties,
including Grand and numerous other parties alleged to be casino operators or
slot machine manufacturers. This lawsuit was followed by several additional
lawsuits of the same nature against the same, as well as additional defendants,
all of which were subsequently consolidated into a single class-action pending
in the United States District Court for the District of Nevada.

                                       13

<PAGE>



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

Following a court order dismissing all pending pleadings and allowing the
plaintiffs to re-file a single complaint, a complaint has been filed containing
substantially identical claims, alleging that the defendants fraudulently
marketed and operated casino video poker machines and electronic slot machines,
and asserting common law fraud and deceit, unjust enrichment and negligent
misrepresentation and claims under the federal Racketeering-Influenced and
Corrupt Organizations Act. Various motions were filed by the defendants seeking
to have this new complaint dismissed or otherwise limited. In December 1997, the
Court, in general, ruled on all motions in favor of the plaintiffs. The
plaintiffs then filed a motion seeking class certification and the defendants
opposed it. In June 2002, the Court entered an order denying class
certification, and the plaintiffs have appealed this order to the 9th Circuit
Court of Appeals. Briefing is complete, an oral hearing took place in January
2004, and no ruling has yet been issued.

WILLARD EUGENE SMITH LITIGATION

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

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

EL DORADO COUNTY, CALIFORNIA LITIGATION

On January 3, 2003, El Dorado County filed an action in the Superior Court of
the State of California, seeking to prevent the construction of a highway
interchange that was approved by a California state agency. The action does not
seek relief directly against Lakes. However, the interchange is necessary to
permit the construction of a casino to be developed and managed by Lakes through
a joint venture.

                                       14

<PAGE>



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

The casino will be owned by the Shingle Springs Band of Miwok Indians. The
matter was tried to the court on August 22, 2003. On January 2, 2004, Judge
Lloyd G. Connelly, Judge of the Superior Court for the State of California,
issued his ruling on the matter. The Court denied the petition in all respects
except one. As to the one exception, the Court sought clarification as to
whether the transportation conformity determination used to determine the
significance of the air quality impact of the interchange operations considered
the impact on attainment of the state ambient air quality standard for ozone.
The California Department of Transportation prepared and filed the clarification
sought by the Court. Prior to the Court's determination of the adequacy of the
clarification, El Dorado County appealed Judge Connelly's ruling to the
California Court of Appeals. Judge Connelly ruled on April 9, 2004, that he has
jurisdiction to determine the adequacy of the clarification and has scheduled
another hearing for May 21, 2004 to hear argument on whether the last issue has
been satisfactorily resolved.

OTHER LITIGATION

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

7. RELATED PARTY TRANSACTIONS

Lakes is currently in the process of negotiating a license agreement with
Sklansky Games, LLC ("Sklansky") and World Poker Tour, LLC pursuant to which
Lakes will develop a casino table game jointly with Sklansky utilizing the World
Poker Tour brand name. Sklansky, through a joint venture with an unrelated third
party, is also in negotiations to license the World Poker Tour brand in
connection with the joint venture's development of an electronic poker-related
gaming machine. In addition to our indirect majority ownership in World Poker
Tour, LLC through one of our wholly owned subsidiaries, Mr. Berman and his son,
Brad Berman, each own an equity interest in Sklansky. Mr. Berman owns 28% and
Brad Berman owns 44% of Sklansky.

Effective as of February 24, 2004, Lakes' majority-owned subsidiary, World Poker
Tour, LLC entered into a non-exclusive license agreement with G-III Apparel
Group, Ltd. ("G-III"). Morris Goldfarb, a Lakes director, is a director,
Co-Chairman of the Board and Chief Executive Officer of G-III. Under the
agreement, G-III licenses the World Poker Tour name, logo and trademark from
World Poker Tour, LLC in connection with G-III's production of certain types of
apparel for distribution in authorized channels within the United States, its
territories and possessions and in certain circumstances, Canada. As
consideration for this non-exclusive license, G-III pays royalties and certain
other fees to World Poker Tour, LLC.

                                       15

<PAGE>



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

8. SEGMENT INFORMATION

Lakes' principal business is the development and management of gaming related
properties. Additionally, the Company is the majority owner of the World Poker
Tour, LLC. (See Note 1). Substantially, all of our operations are conducted in
the United States. Lakes' reportable segments are as follows (in millions):

                                Industry Segments

<Table>
<Caption>

                                   Real Estate           World Poker         Corporate &             Total
                                   Development              Tour             Eliminations         Consolidated
                                   -----------           -----------         ------------         ------------
<S>                                <C>                   <C>                 <C>                  <C>
For the Three Months
Ended/as of April 4, 2004
Revenue                             $       --           $      4.1           $       --           $      4.1
Operating income (loss)                   (0.1)                 0.8                 (1.5)                (0.8)
Total assets                             133.2                  2.5                 39.6                175.3
Depreciation expense                        --                   --                  0.1                  0.1

For the Three Months
Ended/as of March 30, 2003
Revenue                             $       --           $      0.6           $       --           $      0.6
Operating loss                            (0.1)                (0.4)                (0.8)                (1.3)
Total assets                             150.7                  0.8                 22.7                174.2
Depreciation expense                        --                   --                  0.1                  0.1
</Table>

9. SUBSEQUENT EVENTS

During April of 2004, the Company's Board of Directors declared a two-for-one
stock split, payable in the form of a 100% stock dividend on Lakes' outstanding
common stock. The stock dividend was paid on May 3, 2004 to shareholders of
record as of April 26, 2004.

As a result of the stock split, shareholders received one additional share of
common stock for every share they held on the record date. Upon completion of
the split, the number of common shares outstanding was approximately 22.2
million. In connection with the stock split, the Company introduced a direct
registration program to provide for uncertified shares through Wells Fargo
Shareowner Services, the Company's transfer agent and registrar. As a result,
the additional shares were issued in "book-entry" form without stock
certificates and are registered on the books of the Company maintained by Wells
Fargo Shareowner Services. All share and per share data reflected in this
quarterly report has been retroactively restated to give effect to the stock
split.

During April of 2004, the Nipmuc Nation was notified by the Director, Office of
Federal Acknowledgement (OFA) within the Bureau of Indian Affairs (BIA), that
the projected date of the BIA's final determination on federal recognition
(Petition 69A) was extended by forty-five days. In a letter to the Nipmuc Nation
Chief Walter Vickers, the BIA projects issuing the Nipmuc final determination by
June 15, 2004, rather than the previously projected date of May 1, 2004.

                                       16

<PAGE>


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

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

OVERVIEW

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

As a result of the Distribution, Lakes operates the Indian casino management
business and holds various other assets previously owned by Grand. Lakes' main
business is the development, construction and management of casinos and related
hotel and entertainment facilities in emerging and established gaming
jurisdictions. Lakes has entered into contracts for the development, management
and/or financing of new casino operations, all of which are subject to various
regulatory approvals before construction can begin. Lakes has contracts to
develop and manage Indian-owned gaming resorts for the following:

    o    Shingle Springs Band of Miwok Indians near Sacramento, California

    o    Pokagon Band of Potawatomi Indians near New Buffalo, Michigan

    o    Jamul Indian Village near San Diego, California

    o    Nipmuc Nation on the East Coast of the United States

In addition, Lakes owns options to purchase the patent rights for various new
casino games and is actively marketing these new games to the casino industry in
an attempt to license the games for use in their operations.

World Poker Tour, a majority-owned subsidiary of Lakes, has created a circuit of
previously-established poker tournaments affiliated under the "World Poker Tour"
name, and has produced the World Poker Tour television series. World Poker Tour
signed an agreement for a second season with the Travel Channel, LLC ("TRV") for
broadcast of the World Poker Tour series on cable television which is currently
airing. TRV was also granted options for five additional seasons. WPT receives a
series of fixed license payments from TRV.

During January of 2004, World Poker Tour announced that it will seek to raise
approximately $20 million through a newly formed corporation pursuant to an
underwritten initial public offering of common stock at a price to be
determined. It is expected that proceeds from the offering will be used to
expand World Poker Tour's entertainment production business and for its working
capital. There will be no selling shareholders participating in the offering.
Lakes does not expect to recognize a gain or loss on this transaction and the
proceeds will be reflected as a minority interest.

Additionally, Lakes continually evaluates other opportunities to diversify the
Company's activities and bring in new revenue streams.

                                       17

<PAGE>


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

SIGNIFICANT ACCOUNTING POLICIES

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

REVENUE RECOGNITION: Revenue from the management of Indian-owned casino gaming
facilities is recognized when earned according to the terms of the management
contracts. Currently all of the Indian-owned casino projects that Lakes is
involved with are in development stages and are not yet open. Therefore, until a
project is open and operating, Lakes will not recognize revenue related to
Indian casino management. Interest income on notes receivable for Indian tribes
related to casino development projects is deferred because realizability of the
interest is contingent upon the completion and generation of cash flow from the
operation of the casino. Interest deferred during the development period is
recognized over the remaining life of the note using the effective interest
method. License revenue from the World Poker Tour series airing on TRV is
recognized upon delivery of completed episodes. WPT sponsorship and host casino
revenue is recognized upon airing of episodes. Any payments received in excess
of WPT revenue earned are deferred and recoginized upon delivery or airing of
episodes.

IMPAIRMENT OF LONG-TERM ASSETS: Currently, the Company's notes receivable from
Indian Tribes are generally for the pre-construction development of gaming
properties to be managed by the Company. The repayment terms are specific to
each tribe and are largely dependent upon the operating performance of each
gaming property. Repayments of the notes receivable are required to be made only
if distributable profits are available from the operation of the related
casinos. Repayments are also subject to certain distribution priorities
specified in the management contracts. In addition, repayment of the notes
receivable and the manager's fees under the management contracts are
subordinated to certain other financial obligations of the respective tribes.
Through April 4, 2004, no impairments have been recorded under these provisions.
Management periodically evaluates the recoverability of such notes receivable
based on the current and projected operating results of the underlying facility
and an assessment of the underlying facility and an assessment as to the
liklihood of project completion. If the Company determines an impairment has
occurred, the notes receivable would be written down to their estimated fair
value.

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

The following discussion and analysis should be read in conjunction with the
condensed consolidated financial statements and notes thereto and management's
discussion and analysis included in the Company's Annual Report on Form 10-K for
the year ended December 28, 2003.

                                       18

<PAGE>



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

RESULTS OF OPERATIONS

Revenues are calculated in accordance with accounting principles generally
accepted in the United States of America and are presented in a manner
consistent with industry practice.

THREE MONTHS ENDED APRIL 4, 2004 COMPARED TO THE THREE MONTHS ENDED MARCH 30,
2003

Revenues

Total revenues were $4.1 million for the three months ended April 4, 2004,
compared to $0.6 million in the prior year period. Revenues for the current and
prior year periods were primarily derived from license fees related to the WPT
series. The increase in revenue is the result of a greater number of episodes
delivered to the Travel Channel in the current year period compared to the prior
year period.

Costs and Expenses

Total costs and expenses were $5.9 million for the three months ended April 4,
2004, compared to $3.1 million for the same period in the prior year. Selling,
general and administrative expenses increased from $2.1 million for the three
months ended March 30, 2003 to $3.3 million for the three months ended April 4,
2004. This increase is due to an increase in costs associated with World Poker
Tour and an increase in professional fees incurred by Lakes, related to
development projects. World Poker Tour production costs increased from $0.9
million for the three months ended March 30, 2003 to $2.5 million for the three
months ended April 4, 2004. Production costs consist of capitalizable direct
costs, production overhead and development costs for each episode and are
generally expensed as revenues are recognized upon delivery and acceptance of
the completed episode. However, the $0.9 million in production costs recognized
in the 2003 period does not include an additional $1.0 million in production
costs that were previously expensed in 2002 even though the episodes were not
delivered until 2003. These previous costs were not capitalized as of December
29, 2002, because World Poker Tour did not have a contract for the sale of
episodes at that time.

Other

A subsidiary of Lakes and Land Baron West, LLC are partners in a joint venture
formed to develop or sell land purchased by the joint venture near San Diego,
California. During the first quarter of 2004, the joint venture sold this land.
Lakes' share of the proceeds related to this sale was approximately $1.7 million
in cash after payment of closing costs. The sale resulted in a gain to Lakes of
approximately $0.4 million which is included in the accompanying consolidated
statement of earnings for the three months ended April 4, 2004.

                                       19

<PAGE>


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

Earnings Per Common Share and Net Earnings

For the three months ended April 4, 2004, basic and diluted losses per common
share were $0.03, compared to basic and diluted losses of $0.06 per share, for
the same period in the prior year. Losses for the three months ended April 4,
2004 were $0.8 million compared to losses of $1.3 million for the three months
ended March 30, 2003. This decrease in losses relates primarily to an increase
in net World Poker Tour income during the current year period.

Outlook

It is currently contemplated that there will be no operating revenues for 2004
from existing casino development projects. Revenue from the second season of the
World Poker Tour series will be recognized along with associated production
costs during 2004. The Company anticipates that most of the remaining revenues
from the second season will be recognized in the second quarter of 2004.
Although none of the existing casino development projects are expected to
produce revenue in 2004, Lakes continues to evaluate potential new
revenue-generating business opportunities. Lakes continues to closely monitor
its operating expenses.

After the anticipated initial public offering by World Poker Tour, Lakes will
continue to own a majority of World Poker Tour's equity. Therefore, World Poker
Tour's operating results will continue to be consolidated with our results.

FINANCIAL CONDITION

At April 4, 2004, Lakes had $25.0 million in unrestricted cash and cash
equivalents. Lakes' operating revenues have been minimal since the expiration of
the management contract with the Coushatta Tribe in January 2002. In 2003, the
operating revenues derived from the World Poker Tour were offset almost entirely
by production costs. The Company's primary source of cash the past two years has
been from the planned sale of assets. We expect that proceeds from the sale of
assets will decrease in 2004. During the first quarter of 2004, the 2022 Ranch
land, which was owned by Lakes and its joint venture partner Land Baron West,
LLC, was sold. Lakes received cash in the amount of approximately $1.7 million.

Our management contracts with our tribal partners require that we provide
financial support in the form of notes receivable prior to the beginning of
construction (the 'Pre-construction Financing'). We also have commitments to
provide additional financing to our tribal partners to fund the construction of
the casinos ('the Construction Financing') if it is not available from other
sources. These notes are interest bearing; however, the interest is deferred
until the casino is built and has established profitable operations. In the
event that the casinos are not built, our only recourse is to liquidate the
assets of the development. We currently believe that our existing casino
development projects included in the table below will be constructed and achieve
profitable operation; however, no assurance can be made that this will occur. If
this does not occur, it is likely that Lakes would incur substantial losses in
the liquidation of the collateral.

                                       20

<PAGE>


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

<Table>
<Caption>

                                                       Casino Development Advances/Commitments
                                               ----------------------------------------------------
                                                                    (in millions)
                                               Pre-construction    Land Held for        Remaining
                                                   Advances        Development          Commitment
                                                 as of 4/4/04      as of 4/4/04        as of 4/4/04
                                               ----------------    -------------       ------------
<S>                                            <C>                 <C>                 <C>
    Jamul Indian Village                           $   13.0          $    6.6          $   10.4
    Shingle Springs Band of Miwok Indians              27.4               7.4               0.2
    Pokagon Band of Potawatomi Indians                 42.8                --              25.7
    Nipmuc Nation                                       5.1                --               1.0
</Table>

For the Pokagon 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.

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.

Our major use of cash over the past three years has been Pre-construction
Financing provided to our tribal partners. At April 4, 2004, Lakes had
approximately $89.9 million in notes receivable from Indian tribes. See Note 5
to the Consolidated Financial Statements.

We believe that our cash and cash equivalents, along with expected cash
receipts, will be adequate to fund operating expenses and Pre-construction
Financing in 2004. If the Pokagon casino project begins construction during
2004, it is anticipated that we will require additional capital through either
public or private financings.

Lakes loaned $0.3 million to a former non-tribal partner in one of its Indian
casino development projects. Repayment is expected to be received from this
former partner's future consulting fees related to certain Indian casino
development projects. At April 4, 2004, $0.3 million is outstanding under this
agreement.

As a part of the transaction establishing Lakes as a separate public company on
December 31, 1998, the Company agreed to indemnify Grand through December 28,
2004 against all costs, expenses and liabilities incurred in connection with or
arising out of certain pending and threatened claims and legal proceedings
against Grand and to pay all related settlements and judgments. The Company's
indemnification obligations include the obligation to provide the defense of all
claims made in proceedings against Grand and to pay all related settlements and
judgments.

                                       21

<PAGE>


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

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

SEASONALITY

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

REGULATION AND TAXES

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

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

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on its financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors, except
for the financing commitments previously discussed, and except for Lakes'
investments in unconsolidated affiliates (see Note 2).

PRIVATE SECURITIES LITIGATION REFORM ACT

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

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

                                       22

<PAGE>


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

These risks and uncertainties include, but are not limited to, those relating to
possible delays in completion of Lakes' casino projects, including various
regulatory approvals and numerous other conditions which must be satisfied
before completion of these projects; possible termination or adverse
modification of management contracts; continued indemnification obligations to
Grand Casinos; highly competitive industry; possible changes in regulations;
reliance on continued positive relationships with Indian tribes and repayment of
amounts owed to Lakes by Indian tribes; possible need for future financing to
meet Lakes' expansion goals; risks of entry into new businesses; inability to
achieve financial results from the contemplated business expansion of World
Poker Tour, LLC; and reliance on Lakes' management. For further information
regarding the risks and uncertainties, see the "Business -- Risk Factors"
section of the Company's Annual Report on Form 10-K for the fiscal year ended
December 28, 2003.

                                       23

<PAGE>



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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

The Company's cash and cash equivalents are not subject to significant interest
rate risk due to the short maturities of these instruments. As of April 4, 2004,
the carrying value of the Company's cash and cash equivalents approximates fair
value. The Company has in the past and may in the future obtain marketable debt
securities (principally consisting of commercial paper, corporate bonds, and
government securities) having a weighted average duration of one year or less.
Consequently, such securities would not be subject to significant interest rate
risk.

The Company's primary exposure to market risk associated with changes in
interest rates involves the Company's notes receivable related to loans for the
development and construction of Native American owned casinos. The loans and
related note balances earn various interest rates based upon a defined reference
rate. The floating rate receivables will generate more or less interest income
if interest rates rise or fall. Interest income is deferred during development
of the casinos because realizability of the interest is contingent upon the
completion and positive cash flow from operation of the casino. As of April 4,
2004, Lakes had $89.9 million of floating rate notes receivables. Based on the
applicable current reference rates and assuming all other factors remain
constant, deferred interest income for a twelve month period would be $5.0
million. A reference rate increase of 100 basis points would result in an
increase in deferred interest income of $0.9 million. A 100 basis point decrease
in the reference rate would result in a decrease of $0.9 million in deferred
interest income over the same twelve month period.

ITEM 4. CONTROLS AND PROCEDURES

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

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

                                       24

<PAGE>


                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                                     PART II
                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

SLOT MACHINE LITIGATION

In 1994, William H. Poulos filed a class-action lawsuit in the United States
District Court for the Middle District of Florida against various parties,
including Grand and numerous other parties alleged to be casino operators or
slot machine manufacturers. This lawsuit was followed by several additional
lawsuits of the same nature against the same, as well as additional defendants,
all of which were subsequently consolidated into a single class-action pending
in the United States District Court for the District of Nevada. Following a
court order dismissing all pending pleadings and allowing the plaintiffs to
re-file a single complaint, a complaint has been filed containing substantially
identical claims, alleging that the defendants fraudulently marketed and
operated casino video poker machines and electronic slot machines, and asserting
common law fraud and deceit, unjust enrichment and negligent misrepresentation
and claims under the federal Racketeering-Influenced and Corrupt Organizations
Act. Various motions were filed by the defendants seeking to have this new
complaint dismissed or otherwise limited. In December 1997, the Court, in
general, ruled on all motions in favor of the plaintiffs. The plaintiffs then
filed a motion seeking class certification and the defendants opposed it. In
June 2002, the Court entered an order denying class certification, and the
plaintiffs have appealed this order to the 9th Circuit Court of Appeals.
Briefing is complete, an oral hearing took place in January 2004, and no ruling
has yet been issued.

WILLARD EUGENE SMITH LITIGATION

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

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

                                       25

<PAGE>



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

EL DORADO COUNTY, CALIFORNIA LITIGATION

On January 3, 2003, El Dorado County filed an action in the Superior Court of
the State of California, seeking to prevent the construction of a highway
interchange that was approved by a California state agency. The action does not
seek relief directly against Lakes. However, the interchange is necessary to
permit the construction of a casino to be developed and managed by Lakes through
a joint venture. The casino will be owned by the Shingle Springs Band of Miwok
Indians. The matter was tried to the court on August 22, 2003. On January 2,
2004, Judge Lloyd G. Connelly, Judge of the Superior Court for the State of
California, issued his ruling on the matter. The Court denied the petition in
all respects except one. As to the one exception, the Court sought clarification
as to whether the transportation conformity determination used to determine the
significance of the air quality impact of the interchange operations considered
the impact on attainment of the state ambient air quality standard for ozone.
The California Department of Transportation prepared and filed the clarification
sought by the Court. Prior to the Court's determination of the adequacy of the
clarification, El Dorado County appealed Judge Connelly's ruling to the
California Court of Appeals. Judge Connelly ruled on April 9, 2004 that he has
jurisdiction to determine the adequacy of the clarification and has scheduled
another hearing for May 21, 2004 to hear argument on whether the last issue has
been satisfactorily resolved.

OTHER LITIGATION

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

                                       26

<PAGE>



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

ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K

(a)    Exhibits

       3.1        (i) Articles of Incorporation of Lakes Entertainment, Inc. (as
                  amended through May 4, 2004)

       10.1       Master Agreement, dated as of August 22, 2003, by and between
                  World Poker Tour, LLC and the Travel Channel, LLC
                  (incorporated by reference to Exhibit 10.2 to the registration
                  statement on Form S-1 of WPT Enterprises, Inc. filed with the
                  Commission on April 15, 2004) *

       10.2       Letter dated as of April 12, 2004 from the Travel Channel, LLC
                  to World Poker Tour, LLC (incorporated by reference to Exhibit
                  10.3 to the registration statement on Form S-1 of WPT
                  Enterprises, Inc. filed with the Commission on April 15,
                  2004)*

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

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

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

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

----------

       *          Confidential treatment has been requested as to certain
                  portions of this exhibit pursuant to Rule 406 of the
                  Securities Act of 1933, as amended.

(b)    Reports on Form 8-K

       (i)        A Form 8-K, Item 5. Other Events, and Item 7. Financial
                  Statements, Pro Forma Financial Information and Exhibits, was
                  filed on January 7, 2004

       (ii)       A Form 8-K, Item 7. Financial Statements, Pro Forma Financial
                  Information and Exhibits, and Item 9. Regulation FD
                  Disclosure, was filed on January 28, 2004

       (iii)      A Form 8-K, Item 7. Financial Statements, Pro Forma Financial
                  Information and Exhibits, and Item 9. Regulation FD
                  Disclosure, was filed on February 23, 2004


                                       27

<PAGE>

                                   SIGNATURES

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

Dated:  May 19, 2004                  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




                                       28