##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-Q


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

Commission File
No. 0-24993


LAKES ENTERTAINMENT, INC.


(Exact name of registrant as specified in its charter)


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

(952) 449-9092


(Registrants telephone number, including area code)


þ o


12b-2


o þ o


12b-2 o þ












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##### 










LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


INDEX


|                                                     |  |                                                                                                                                                                                        |  |           |    | 
|---------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | -- | 
|                                                     |  |                                                                                                                                                                                        |  | Page of   |   
|                                                     |  |                                                                                                                                                                                        |  | Form 10-Q |   
|                                                     |  |                                                                                                                                                                                        |  |           |   
|PART I. FINANCIAL INFORMATION                       
|ITEM 1.                                              |  | FINANCIAL STATEMENTS                                                                                                                                                                   |  |           |    | 
|                                                     |  | Condensed Consolidated Balance Sheets as of
    July 2, 2006 (Unaudited) and January 1, 2006                                                                                           |  |           | 3  | 
|                                                     |  | Condensed Consolidated Statements of
    Earnings (Loss) and Comprehensive Earnings (Loss) (Unaudited)
    for the three months and six months ended July 2, 2006 and
    July 3, 2005 |  |           | 4  | 
|                                                     |  | Condensed Consolidated Statements of
    Shareholders Equity (Unaudited) for the six months ended
    July 2, 2006 and July 3, 2005                                                   |  |           | 5  | 
|                                                     |  | Condensed Consolidated Statements of Cash
    Flows (Unaudited) for the six months ended July 2, 2006 and
    July 3, 2005                                                             |  |           | 6  | 
|                                                     |  | Notes to Condensed Consolidated Financial
    Statements (Unaudited)                                                                                                                   |  |           | 7  | 
|ITEM 2.                                              |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
    AND RESULTS OF OPERATIONS                                                                                              |  |           | 27 | 
|ITEM 3.                                              |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                                                                             |  |           | 69 | 
|ITEM 4.                                              |  | CONTROLS AND PROCEDURES                                                                                                                                                                |  |           | 70 | 
|PART II. OTHER INFORMATION                          
|ITEM 1.                                              |  | LEGAL PROCEEDINGS                                                                                                                                                                      |  |           | 71 | 
|ITEM 1A                                              |  | RISK FACTORS                                                                                                                                                                           |  |           | 73 | 
|ITEM 4.                                              |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                                                                    |  |           | 73 | 
|ITEM 6.                                              |  | EXHIBITS                                                                                                                                                                               |  |           | 74 | 
|Certification of CEO Pursuant to Section 302        
|Certification of CFO Pursuant to Section 302        
|Certification of CEO and CFO Pursuant to Section 906



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Condensed Consolidated Balance Sheets


July 2, 2006 and January 1, 2006


|                                                                       |                                                                                                                                                                                       |                |         |         |            |   |         |         | 
|---------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | ------- | ---------- | - | ------- | ------- | 
|                                                                       |                                                                                                                                                                                       | July 2,        |         |         | January 1, |  
|                                                                       |                                                                                                                                                                                       | 2006           |         |         | 2006       |  
|                                                                       |                                                                                                                                                                                       |                |         |         |            |  
|                                                                       |                                                                                                                                                                                       | (Unaudited)    |         |         |           
|                                                                       |                                                                                                                                                                                       | (In thousands) |        
|ASSETS                                                                
|Current Assets:                                                        |                                                                                                                                                                                       |                |         |         |            |   |         |        
|                                                                       | Cash and cash equivalents                                                                                                                                                             |                | $       | 37,377  |            |   | $       | 9,912   | 
|                                                                       | (balance includes $6.6 million and $1.7 million of WPT
    Enterprises, Inc. cash)                                                                                                    |                |         |         |            |   |         |         | 
|                                                                       | Short-term investments                                                                                                                                                                |                |         | 44,311  |            |   |         | 26,735  | 
|                                                                       | (balance includes $30.5 million and $26.7 million of
    WPT Enterprises, Inc. short-term investments) Accounts
    receivable, net of allowance of $0.0 million and
    $0.1 million |                |         | 1,951   |            |   |         | 3,072   | 
|                                                                       | Prepaid expenses                                                                                                                                                                      |                |         | 600     |            |   |         | 614     | 
|                                                                       | Other current assets                                                                                                                                                                  |                |         | 1,325   |            |   |         | 1,810   | 
|                                                                       |                                                                                                                                                                                       |                |         |         |            |  
|Total current assets                                                   |                                                                                                                                                                                       |                | 85,564  |         |            |   | 42,143  |        
|                                                                       |                                                                                                                                                                                       |                |         |         |            |  
|Property and equipment, net                                            |                                                                                                                                                                                       |                | 15,209  |         |            |   | 13,451  |        
|Long-term assets related to Indian casino projects:                    |                                                                                                                                                                                       |                |         |         |            |   |         |        
|                                                                       | Notes receivable from Indian tribes                                                                                                                                                   |                |         | 139,913 |            |   |         | 87,062  | 
|                                                                       | Land held for development                                                                                                                                                             |                |         | 16,197  |            |   |         | 16,248  | 
|                                                                       | Intangible assets related to acquisition of management
    contracts, net                                                                                                             |                |         | 53,103  |            |   |         | 46,088  | 
|                                                                       | Other                                                                                                                                                                                 |                |         | 5,174   |            |   |         | 3,360   | 
|                                                                       |                                                                                                                                                                                       |                |         |         |            |  
|Total long-term assets related to Indian casino projects               |                                                                                                                                                                                       |                | 214,387 |         |            |   | 152,758 |        
|Other assets:                                                          |                                                                                                                                                                                       |                |         |         |            |   |         |        
|                                                                       | Restricted cash                                                                                                                                                                       |                |         | 19,535  |            |   |         | 249     | 
|                                                                       | Investments                                                                                                                                                                           |                |         | 4,576   |            |   |         | 10,640  | 
|                                                                       | Deferred tax asset                                                                                                                                                                    |                |         | 4,540   |            |   |         | 6,852   | 
|                                                                       | Debt issuance costs                                                                                                                                                                   |                |         | 2,212   |            |   |         | 19      | 
|                                                                       | Other long-term assets                                                                                                                                                                |                |         | 4,939   |            |   |         | 4,498   | 
|                                                                       |                                                                                                                                                                                       |                |         |         |            |  
|Total other assets                                                     |                                                                                                                                                                                       |                | 35,802  |         |            |   | 22,258  |        
|                                                                       |                                                                                                                                                                                       |                |         |         |            |  
|Total Assets                                                           |                                                                                                                                                                                       | $              | 350,962 |         |            | $ | 230,610 |        
|                                                                       |                                                                                                                                                                                       |                |         |         |            |  
|                                                                      
|LIABILITIES AND SHAREHOLDERS EQUITY                                  
|Current Liabilities:                                                   |                                                                                                                                                                                       |                |         |         |            |   |         |        
|                                                                       | Accounts payable                                                                                                                                                                      |                | $       | 5,989   |            |   | $       | 8,394   | 
|                                                                       | Income taxes payable                                                                                                                                                                  |                |         | 13,575  |            |   |         | 10,933  | 
|                                                                       | Accrued payroll and related costs                                                                                                                                                     |                |         | 1,816   |            |   |         | 1,125   | 
|                                                                       | Deferred revenue                                                                                                                                                                      |                |         | 3,351   |            |   |         | 5,150   | 
|                                                                       | Other accrued expenses                                                                                                                                                                |                |         | 2,191   |            |   |         | 2,159   | 
|                                                                       |                                                                                                                                                                                       |                |         |         |            |  
|Total current liabilities                                              |                                                                                                                                                                                       |                | 26,922  |         |            |   | 27,761  |        
|                                                                       |                                                                                                                                                                                       |                |         |         |            |  
|Long-term debt, related party                                          |                                                                                                                                                                                       |                |        |         |            |   | 10,000  |        
|Long-term debt, other, net of unamortized discount of
    $1.0 million |                                                                                                                                                                                       |                | 104,117 |         |            |   |        |        
|                                                                       |                                                                                                                                                                                       |                |         |         |            |  
|Total Liabilities                                                      |                                                                                                                                                                                       |                | 131,039 |         |            |   | 37,761  |        
|                                                                       |                                                                                                                                                                                       |                |         |         |            |  
|Commitments and Contingencies                                          |                                                                                                                                                                                       |                |         |         |            |   |         |        
|Minority interest in subsidiary                                        |                                                                                                                                                                                       |                | 16,400  |         |            |   | 14,466  |        
|Shareholders Equity:                                                  |                                                                                                                                                                                       |                |         |         |            |   |         |        
|                                                                       | Series A preferred stock, $.01 par value; authorized
    7,500 shares; 4,458 and 0 issued and outstanding at
    July 2, 2006 and January 1, 2006, respectively                       |                |         | 45      |            |   |         |        | 
|                                                                       | Common stock, $.01 par value; authorized
    200,000 shares; 22,875 and 22,300 common shares issued and
    outstanding at July 2, 2006, and January 1, 2006,
    respectively        |                |         | 229     |            |   |         | 223     | 
|                                                                       | Additional paid-in capital                                                                                                                                                            |                |         | 170,720 |            |   |         | 154,301 | 
|                                                                       | Retained earnings                                                                                                                                                                     |                |         | 28,342  |            |   |         | 13,410  | 
|                                                                       | Accumulated other comprehensive earnings                                                                                                                                              |                |         | 4,187   |            |   |         | 10,449  | 
|                                                                       |                                                                                                                                                                                       |                |         |         |            |  
|Total shareholders equity                                             |                                                                                                                                                                                       |                | 203,523 |         |            |   | 178,383 |        
|                                                                       |                                                                                                                                                                                       |                |         |         |            |  
|Total Liabilities and Shareholders Equity                             |                                                                                                                                                                                       | $              | 350,962 |         |            | $ | 230,610 |        
|                                                                       |                                                                                                                                                                                       |                |         |         |            |  



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Condensed Consolidated Statements of Earnings (Loss) and
Comprehensive Earnings (Loss)


|                                                                                                                                                              |                                                                |                                       |        |        |                  |   |        |         |        |   |         |        |        |   |        |        |        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------- | ------------------------------------- | ------ | ------ | ---------------- | - | ------ | ------- | ------ | - | ------- | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                                                                                                              |                                                                | Three Months Ended                    |        |        | Six Months Ended |  
|                                                                                                                                                              |                                                                |                                       |        |        |                  |  
|                                                                                                                                                              |                                                                | July 2,                               |        |        | July 3,          |   |        | July 2, |        |   | July 3, |       
|                                                                                                                                                              |                                                                | 2006                                  |        |        | 2005             |   |        | 2006    |        |   | 2005    |       
|                                                                                                                                                              |                                                                |                                       |        |        |                  |   |        |         |        |   |         |       
|                                                                                                                                                              |                                                                | (In thousands, except per share data) |       
|                                                                                                                                                              |                                                                | (Unaudited)                           |       
|Revenues:                                                                                                                                                     |                                                                |                                       |        |        |                  |   |        |         |        |   |         |        |        |   |        |       
|                                                                                                                                                              | License fee income                                             |                                       | $      | 8,750  |                  |   | $      | 5,341   |        |   | $       | 13,426 |        |   | $      | 8,804  |       
|                                                                                                                                                              | Host fees, sponsorship and other                               |                                       |        | 2,470  |                  |   |        | 1,260   |        |   |         | 4,424  |        |   |        | 1,901  |       
|                                                                                                                                                              |                                                                |                                       |        |        |                  |   |        |         |        |   |         |       
|                                                                                                                                                              |                                                                | Total Revenues                        |        |        | 11,220           |   |        |         | 6,601  |   |         |        | 17,850 |   |        |        | 10,705 | 
|                                                                                                                                                              |                                                                |                                       |        |        |                  |   |        |         |        |   |         |       
|Costs and Expenses:                                                                                                                                           |                                                                |                                       |        |        |                  |   |        |         |        |   |         |        |        |   |        |       
|                                                                                                                                                              | Selling, general and administrative                            |                                       |        | 8,833  |                  |   |        | 6,970   |        |   |         | 18,015 |        |   |        | 13,435 |       
|                                                                                                                                                              | Production costs                                               |                                       |        | 4,176  |                  |   |        | 4,377   |        |   |         | 6,596  |        |   |        | 7,564  |       
|                                                                                                                                                              | Depreciation and amortization                                  |                                       |        | 315    |                  |   |        | 113     |        |   |         | 584    |        |   |        | 204    |       
|                                                                                                                                                              |                                                                |                                       |        |        |                  |   |        |         |        |   |         |       
|                                                                                                                                                              |                                                                | Total Costs and Expenses              |        |        | 13,324           |   |        |         | 11,460 |   |         |        | 25,195 |   |        |        | 21,203 | 
|                                                                                                                                                              |                                                                |                                       |        |        |                  |   |        |         |        |   |         |       
|Net unrealized gains (losses) on notes receivable                                                                                                             |                                                                |                                       | 17,647 |        |                  |   | (956   | )       |        |   | 33,123  |        |        |   | 1,880  |       
|                                                                                                                                                              |                                                                |                                       |        |        |                  |   |        |         |        |   |         |       
|Earnings (Loss) From Operations                                                                                                                               |                                                                |                                       | 15,543 |        |                  |   | (5,815 | )       |        |   | 25,778  |        |        |   | (8,618 | )     
|                                                                                                                                                              |                                                                |                                       |        |        |                  |   |        |         |        |   |         |       
|Other Income (Expense):                                                                                                                                       |                                                                |                                       |        |        |                  |   |        |         |        |   |         |        |        |   |        |       
|                                                                                                                                                              | Interest income                                                |                                       |        | 657    |                  |   |        | 364     |        |   |         | 1,090  |        |   |        | 814    |       
|                                                                                                                                                              | Interest expense, related party                                |                                       |        |       |                  |   |        |        |        |   |         | (137   | )      |   |        |       |       
|                                                                                                                                                              | Interest expense, other                                        |                                       |        | (1,303 | )                |   |        |        |        |   |         | (1,834 | )      |   |        |       |       
|                                                                                                                                                              | Loss on extinguishment of debt                                 |                                       |        | (6,821 | )                |   |        |        |        |   |         | (6,821 | )      |   |        |       |       
|                                                                                                                                                              | Realized gain on sale of investment                            |                                       |        |       |                  |   |        |        |        |   |         | 5,675  |        |   |        |       |       
|                                                                                                                                                              | Other                                                          |                                       |        | (10    | )                |   |        |        |        |   |         | 76     |        |   |        |       |       
|                                                                                                                                                              |                                                                |                                       |        |        |                  |   |        |         |        |   |         |       
|                                                                                                                                                              |                                                                | Total other income (expense), net     |        |        | (7,477           | ) |        |         | 364    |   |         |        | (1,951 | ) |        |        | 814    | 
|                                                                                                                                                              |                                                                |                                       |        |        |                  |   |        |         |        |   |         |       
|Earnings (loss) before income taxes, equity in earnings
    (loss) of unconsolidated investees and minority interest in net
    (earnings) loss of subsidiary |                                                                |                                       | 8,066  |        |                  |   | (5,451 | )       |        |   | 23,827  |        |        |   | (7,804 | )     
|Income taxes                                                                                                                                                  |                                                                |                                       | 3,837  |        |                  |   | 352    |         |        |   | 6,547   |        |        |   | 707    |       
|                                                                                                                                                              |                                                                |                                       |        |        |                  |   |        |         |        |   |         |       
|Earnings (loss) before equity in earnings (loss) of
    unconsolidated investees and minority interest in net (earnings)
    loss of subsidiary               |                                                                |                                       | 4,229  |        |                  |   | (5,803 | )       |        |   | 17,280  |        |        |   | (8,511 | )     
|Equity in earnings (loss) of unconsolidated investees, net of tax                                                                                             |                                                                |                                       |       |        |                  |   | (7     | )       |        |   |        |        |        |   | 6      |       
|Minority interest in net (earnings) loss of subsidiary                                                                                                        |                                                                |                                       | (981   | )      |                  |   | 159    |         |        |   | (2,348  | )      |        |   | 735    |       
|                                                                                                                                                              |                                                                |                                       |        |        |                  |   |        |         |        |   |         |       
|Net earnings (loss)                                                                                                                                           |                                                                | $                                     | 3,248  |        |                  | $ | (5,651 | )       |        | $ | 14,932  |        |        | $ | (7,770 | )     
|Other comprehensive earnings (loss):                                                                                                                          |                                                                |                                       |        |        |                  |   |        |         |        |   |         |        |        |   |        |       
|                                                                                                                                                              | Unrealized gains (losses) on marketable securities, net of tax |                                       |        | (855   | )                |   |        | 6       |        |   |         | (426   | )      |   |        | (36    | )     
|                                                                                                                                                              | Change in estimated fair value of derivatives                  |                                       |        | (161   | )                |   |        |        |        |   |         | (161   | )      |   |        |       |       
|                                                                                                                                                              |                                                                |                                       |        |        |                  |   |        |         |        |   |         |       
|Comprehensive earnings (loss)                                                                                                                                 |                                                                | $                                     | 2,232  |        |                  | $ | (5,645 | )       |        | $ | 14,345  |        |        | $ | (7,806 | )     
|                                                                                                                                                              |                                                                |                                       |        |        |                  |   |        |         |        |   |         |       
|Earnings (loss) per share  basic                                                                                                                             |                                                                | $                                     | 0.14   |        |                  | $ | (0.25  | )       |        | $ | 0.66    |        |        | $ | (0.35  | )     
|                                                                                                                                                              |                                                                |                                       |        |        |                  |   |        |         |        |   |         |       
|Earnings (loss) per share  diluted                                                                                                                           |                                                                | $                                     | 0.13   |        |                  | $ | (0.25  | )       |        | $ | 0.61    |        |        | $ | (0.35  | )     
|                                                                                                                                                              |                                                                |                                       |        |        |                  |   |        |         |        |   |         |       
|Weighted-average common shares outstanding 
    basic                                                                                                        |                                                                |                                       | 22,875 |        |                  |   | 22,300 |         |        |   | 22,642  |        |        |   | 22,289 |       
|                                                                                                                                                              |                                                                |                                       |        |        |                  |   |        |         |        |   |         |       
|Dilutive effect of common stock equivalents                                                                                                                   |                                                                |                                       | 2,041  |        |                  |   |       |         |        |   | 1,862   |        |        |   |       |       
|                                                                                                                                                              |                                                                |                                       |        |        |                  |   |        |         |        |   |         |       
|Weighted-average common shares outstanding 
    diluted                                                                                                      |                                                                |                                       | 24,916 |        |                  |   | 22,300 |         |        |   | 24,504  |        |        |   | 22,289 |       
|                                                                                                                                                              |                                                                |                                       |        |        |                  |   |        |         |        |   |         |       



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Condensed Consolidated Statements of Shareholders
Equity


Six months ended July 2, 2006 and July 3, 2005


|                          |                                                                                     |                 |       |       |              |   |    |            |  |             |          |     |       |               |     |       |               |   |         |                 |   |   |        |        |   |   |        |        |   |   |         |        |  
|------------------------- | ----------------------------------------------------------------------------------- | --------------- | ----- | ----- | ------------ | - | -- | ---------- |  | ----------- | -------- | --- | ----- | ------------- | --- | ----- | ------------- | - | ------- | --------------- | - | - | ------ | ------ | - | - | ------ | ------ | - | - | ------- | ------ | -
|                          |                                                                                     |                 |       |       |              |   |    |            |  | Accumulated |          |     |      
|                          |                                                                                     | Preferred Stock |       |       | Common Stock |   |    | Additional |  |             |          |     | Other |               |     | Total |              
|                          |                                                                                     |                 |       |       |              |   |    | Paid-In    |  |             | Retained |     |       | Comprehensive |     |       | Shareholders |  
|                          |                                                                                     | Shares          |       |       | Amount       |   |    | Shares     |  |             | Amount   |     |       | Capital       |     |       | Earnings      |   |         | Earnings (Loss) |   |   | Equity |       
|                          |                                                                                     |                 |       |       |              |   |    |            |  |             |          |     |       |               |     |       |               |   |         |                 |   |   |        |       
|                          |                                                                                     | (In thousands)  |      
|                          |                                                                                     | (Unaudited)     |      
|2006                      |                                                                                     |                 |       |       |              |   |    |            |  |             |          |     |       |               |     |       |               |   |         |                 |   |   |        |        |   |   |        |        |   |   |         |       
|                          |                                                                                     |                 |       |       |              |   |    |            |  |             |          |     |       |               |     |       |               |   |         |                 |   |   |        |       
|Balances, January 1, 2006 |                                                                                     |                 |      |       |              |   |   |            |  |             | 22,300   |     |       | $             | 223 |       |               | $ | 154,301 |                 |   | $ | 13,410 |        |   | $ | 10,449 |        |   | $ | 178,383 |       
|                          | Other comprehensive loss                                                            |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         |                |   |   |        |       |   |   |        | (587   | ) |   |         | (587   | )
|                          | Realized gain on sale of investment                                                 |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         |                |   |   |        |       |   |   |        | (5,675 | ) |   |         | (5,675 | )
|                          | Issuance of preferred stock and warrants                                            |                 |       | 4,458 |              |   | $  | 45         |  |             |          |    |       |               |     |      |               |   |         | 4,709           |   |   |        |       |   |   |        |       |   |   |         | 4,754  |  
|                          | Issuance of stock on options exercised  net                                        |                 |       |      |              |   |    |           |  |             |          | 575 |       |               |     | 6     |               |   |         | 3,226           |   |   |        |       |   |   |        |       |   |   |         | 3,232  |  
|                          | Subsidiary stock options issued to consultants and employees                        |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         | 1               |   |   |        |       |   |   |        |       |   |   |         | 1      |  
|                          | Shareholder trading settlement                                                      |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         | 2,805           |   |   |        |       |   |   |        |       |   |   |         | 2,805  |  
|                          | Effect of share-based compensation                                                  |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         | 3,805           |   |   |        |       |   |   |        |       |   |   |         | 3,805  |  
|                          | Income tax benefit of stock option exercises                                        |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         | 1,457           |   |   |        |       |   |   |        |       |   |   |         | 1,457  |  
|                          | Net minority interest of above components, net of increase in
    subsidiary equity |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         | 416             |   |   |        |       |   |   |        |       |   |   |         | 416    |  
|                          | Net earnings                                                                        |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         |                |   |   |        | 14,932 |   |   |        |       |   |   |         | 14,932 |  
|                          |                                                                                     |                 |       |       |              |   |    |            |  |             |          |     |       |               |     |       |               |   |         |                 |   |   |        |       
|Balances, July 2, 2006    |                                                                                     |                 | 4,458 |       |              | $ | 45 |            |  |             | 22,875   |     |       | $             | 229 |       |               | $ | 170,720 |                 |   | $ | 28,342 |        |   | $ | 4,187  |        |   | $ | 203,523 |       
|                          |                                                                                     |                 |       |       |              |   |    |            |  |             |          |     |       |               |     |       |               |   |         |                 |   |   |        |       
|2005                      |                                                                                     |                 |       |       |              |   |    |            |  |             |          |     |       |               |     |       |               |   |         |                 |   |   |        |        |   |   |        |        |   |   |         |       
|                          |                                                                                     |                 |       |       |              |   |    |            |  |             |          |     |       |               |     |       |               |   |         |                 |   |   |        |       
|Balances, January 2, 2005 |                                                                                     |                 |      |       |              |   |   |            |  |             | 22,253   |     |       | $             | 223 |       |               | $ | 157,895 |                 |   | $ | 25,280 |        |   | $ | (6     | )      |   | $ | 183,392 |       
|                          | Other comprehensive loss                                                            |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         |                |   |   |        |       |   |   |        | (36    | ) |   |         | (36    | )
|                          | Net proceeds from issuance of common stock by subsidiary                            |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         | 2               |   |   |        |       |   |   |        |       |   |   |         | 2      |  
|                          | Reduction of deferred compensation                                                  |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         | 2               |   |   |        |       |   |   |        |       |   |   |         | 2      |  
|                          | Issuance of stock on options exercised  net                                        |                 |       |      |              |   |    |           |  |             |          | 47  |       |               |     |      |               |   |         | 150             |   |   |        |       |   |   |        |       |   |   |         | 150    |  
|                          | Subsidiary stock options issued to consultants and employees                        |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         | 800             |   |   |        |       |   |   |        |       |   |   |         | 800    |  
|                          | Interest on common shares subject to repurchase                                     |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         | (21             | ) |   |        |        |   |   |        |        |   |   |         | (21    | )
|                          | Net minority interest of above components, net of increase in
    subsidiary equity |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         | (698            | ) |   |        |       |   |   |        |       |   |   |         | (698   | )
|                          | Net loss                                                                            |                 |       |      |              |   |    |           |  |             |          |    |       |               |     |      |               |   |         |                |   |   |        | (7,770 | ) |   |        |       |   |   |         | (7,770 | )
|                          |                                                                                     |                 |       |       |              |   |    |            |  |             |          |     |       |               |     |       |               |   |         |                 |   |   |        |       
|Balances, July 3, 2005    |                                                                                     |                 |      |       |              |   |   |            |  |             | 22,300   |     |       | $             | 223 |       |               | $ | 158,130 |                 |   | $ | 17,510 |        |   | $ | (42    | )      |   | $ | 175,821 |       
|                          |                                                                                     |                 |       |       |              |   |    |            |  |             |          |     |       |               |     |       |               |   |         |                 |   |   |        |       



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Condensed Consolidated Statements of Cash Flows


Six months ended July 2, 2006 and July 3, 2005


|                                                     |                                                                                                          |                                                               |                      |         |         |        |        |        |        |       | 
|---------------------------------------------------- | -------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | -------------------- | ------- | ------- | ------ | ------ | ------ | ------ | ----- | 
|                                                     |                                                                                                          | Six Months Ended                                              |                     
|                                                     |                                                                                                          |                                                               |                     
|                                                     |                                                                                                          | July 2,                                                       |                      |         | July 3, |       
|                                                     |                                                                                                          | 2006                                                          |                      |         | 2005    |       
|                                                     |                                                                                                          |                                                               |                      |         |         |       
|                                                     |                                                                                                          | (In thousands)                                                |                     
|                                                     |                                                                                                          | (Unaudited)                                                   |                     
|OPERATING ACTIVITIES:                                |                                                                                                          |                                                               |                      |         |         |        |        |       
|                                                     | Net earnings (loss)                                                                                      |                                                               | $                    | 14,932  |         |        | $      | (7,770 | )     
|                                                     | Adjustments to reconcile net earnings (loss) to net cash
    provided by (used in) operating activities: |                                                               |                      |         |         |        |        |        |       
|                                                     |                                                                                                          | Depreciation and amortization                                 |                      |         | 431     |        |        |        | 336    |      
|                                                     |                                                                                                          | Amortization of deferred financing costs and discount on debt |                      |         | 705     |        |        |        |       |      
|                                                     |                                                                                                          | Share-based compensation                                      |                      |         | 3,689   |        |        |        | 800    |      
|                                                     |                                                                                                          | Loss on extinguishment of debt                                |                      |         | 6,821   |        |        |        |       |      
|                                                     |                                                                                                          | Net unrealized gains on notes receivable                      |                      |         | (33,123 | )      |        |        | (1,879 | )    
|                                                     |                                                                                                          | Realized gain on sale of investment                           |                      |         | (5,675  | )      |        |        |       |      
|                                                     |                                                                                                          | Minority interest in net earnings (loss) of subsidiary        |                      |         | 2,348   |        |        |        | (735   | )    
|                                                     |                                                                                                          | Equity in earnings of unconsolidated investees                |                      |         |        |        |        |        | (6     | )    
|                                                     |                                                                                                          | Deferred income taxes                                         |                      |         | 3,769   |        |        |        | (25    | )    
|                                                     |                                                                                                          | Increases in operating (assets) and liabilities:              |                      |         |         |        |        |        |        |      
|                                                     |                                                                                                          |                                                               | Accounts receivable  |         |         | 1,022  |        |        |        | 636   | 
|                                                     |                                                                                                          |                                                               | Prepaid expenses     |         |         | 14     |        |        |        | 549   | 
|                                                     |                                                                                                          |                                                               | Other                |         |         | 603    |        |        |        | 558   | 
|                                                     |                                                                                                          |                                                               | Income taxes payable |         |         | 2,642  |        |        |        | 4,912 | 
|                                                     |                                                                                                          |                                                               | Accounts payable     |         |         | (1,094 | )      |        |        | 999   | 
|                                                     |                                                                                                          |                                                               | Deferred revenue     |         |         | (1,799 | )      |        |        | 168   | 
|                                                     |                                                                                                          |                                                               | Accrued expenses     |         |         | 723    |        |        |        | 2,303 | 
|                                                     |                                                                                                          |                                                               |                      |         |         |       
|Net Cash Provided by (Used in) Operating Activities  |                                                                                                          |                                                               | (3,992               | )       |         |        | 846    |       
|                                                     |                                                                                                          |                                                               |                      |         |         |       
|INVESTING ACTIVITIES:                                |                                                                                                          |                                                               |                      |         |         |        |        |       
|                                                     | Short-term investments, purchases                                                                        |                                                               |                      | (39,346 | )       |        |        | 2,328  |       
|                                                     | Short-term investments, sales/maturities                                                                 |                                                               |                      | 21,722  |         |        |        |       |       
|                                                     | Proceeds from repayment of notes receivable                                                              |                                                               |                      | 2,865   |         |        |        |       |       
|                                                     | Increases in long-term assets related to Indian casino projects                                          |                                                               |                      | (31,880 | )       |        |        | (6,695 | )     
|                                                     | Advances to unconsolidated investees                                                                     |                                                               |                      |        |         |        |        | (10    | )     
|                                                     | Distributions from unconsolidated investees                                                              |                                                               |                      |        |         |        |        | 850    |       
|                                                     | Proceeds from sale of investment                                                                         |                                                               |                      | 5,686   |         |        |        |       |       
|                                                     | Payments for other long-term assets                                                                      |                                                               |                      |        |         |        |        | (521   | )     
|                                                     | (Increase) decrease in other long-term assets                                                            |                                                               |                      | (445    | )       |        |        | 197    |       
|                                                     | Purchase of property and equipment                                                                       |                                                               |                      | (2,886  | )       |        |        | (1,430 | )     
|                                                     |                                                                                                          |                                                               |                      |         |         |       
|Net Cash Used in Investing Activities                |                                                                                                          |                                                               | (44,284              | )       |         |        | (5,281 | )     
|                                                     |                                                                                                          |                                                               |                      |         |         |       
|FINANCING ACTIVITIES:                                |                                                                                                          |                                                               |                      |         |         |        |        |       
|                                                     | Proceeds from issuance of common and preferred stock                                                     |                                                               |                      | 3,277   |         |        |        | 154    |       
|                                                     | Debt issuance costs                                                                                      |                                                               |                      | (5,004  | )       |        |        |       |       
|                                                     | Shareholder trading settlement                                                                           |                                                               |                      | 2,805   |         |        |        |       |       
|                                                     | Repayment of debt                                                                                        |                                                               |                      | (35,000 | )       |        |        |       |       
|                                                     | Increase in WPTE restricted cash                                                                         |                                                               |                      | (197    | )       |        |        |       |       
|                                                     | Restricted cash proceeds from long-term debt                                                             |                                                               |                      | 19,090  |         |        |        |       |       
|                                                     | Restricted cash proceeds from long-term debt available as of
    quarter end                             |                                                               |                      | (19,090 | )       |        |        |       |       
|                                                     | Unrestricted cash proceeds from long-term debt                                                           |                                                               |                      | 109,860 |         |        |        |       |       
|                                                     |                                                                                                          |                                                               |                      |         |         |       
|Net Cash Provided by Financing Activities            |                                                                                                          |                                                               | 75,741               |         |         |        | 154    |       
|                                                     |                                                                                                          |                                                               |                      |         |         |       
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                                                          |                                                               | 27,465               |         |         |        | (4,281 | )     
|Cash and Cash Equivalents  Beginning of Period      |                                                                                                          |                                                               | 9,912                |         |         |        | 28,717 |       
|                                                     |                                                                                                          |                                                               |                      |         |         |       
|Cash and Cash Equivalents  End of Period            |                                                                                                          | $                                                             | 37,377               |         |         | $      | 24,436 |       
|                                                     |                                                                                                          |                                                               |                      |         |         |       



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements




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

10-K








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





|   |                                                    
|-- | ---------------------------------------------------
|3. | Long-Term Assets Related to Indian Casino Projects:



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




|                                                                 |  |              |         |         |         |   |        |       |  |   |        |  |  |       |       |  |  |   |         | 
|---------------------------------------------------------------- |  | ------------ | ------- | ------- | ------- | - | ------ | ----- |  | - | ------ |  |  | ----- | ----- |  |  | - | ------- | 
|                                                                 |  | July 2, 2006 |        
|                                                                 |  |              |        
|                                                                 |  |              |         | Shingle |         |   |       
|                                                                 |  | Pokagon      |         |         | Springs |   |        | Jamul |  |   |       
|                                                                 |  | Band         |         |         | Tribe   |   |        | Tribe |  |   | Other  |  |  | Total |      
|                                                                 |  |              |         |         |         |   |        |       |  |   |        |  |  |       |      
|Notes receivable, at estimated fair value                        |  | $            | 82,214  |         |         | $ | 30,439 |       |  | $ | 21,830 |  |  | $     | 5,430 |  |  | $ | 139,913 | 
|Intangible assets related to acquisition of management contracts |  |              | 23,548  |         |         |   | 19,756 |       |  |   | 8,288  |  |  |       | 1,511 |  |  |   | 53,103  | 
|Land held for development                                        |  |              |        |         |         |   | 8,720  |       |  |   | 6,679  |  |  |       | 798   |  |  |   | 16,197  | 
|Other                                                            |  |              | 60      |         |         |   | 1,587  |       |  |   | 2,291  |  |  |       | 1,236 |  |  |   | 5,174   | 
|                                                                 |  |              |         |         |         |   |        |       |  |   |        |  |  |       |      
|                                                                 |  | $            | 105,822 |         |         | $ | 60,502 |       |  | $ | 39,088 |  |  | $     | 8,975 |  |  | $ | 214,387 | 
|                                                                 |  |              |         |         |         |   |        |       |  |   |        |  |  |       |      

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





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

|                                                                              |  |                                          |  |                                         
|----------------------------------------------------------------------------- |  | ---------------------------------------- |  | ----------------------------------------
|                                                                              |  | As of July 2, 2006                       |  | As of January 1, 2006                   
|                                                                              |  |                                          |  |                                         
|Face value of note (principal and interest)                                   |  | $98,152                                  |  | $61,827                                 
|                                                                              |  | ($71,176 principal and $26,976 interest) |  | ($46,445 principal and $15,382 interest)
|Estimated months until casino opens (weighted-average of three
    scenarios) |  | 13 months                                |  | 32 months                               
|Projected interest rate until casino opens                                    |  | 9.0%                                     |  | 8.2%                                    
|Projected interest rate during the loan repayment term                        |  | 9.0%                                     |  | 8.2%                                    
|Discount rate                                                                 |  | 15%                                      |  | 15%                                     
|Repayment terms of note                                                       |  | 60 months                                |  | 60 months                               
|Probability rate of casino opening (weighting of four scenarios)              |  | 99%                                      |  | 90%                                     

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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)






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

|                                                                              |  |                                          |  |                                        
|----------------------------------------------------------------------------- |  | ---------------------------------------- |  | ---------------------------------------
|                                                                              |  | As of July 2, 2006                       |  | As of January 1, 2006                  
|                                                                              |  |                                          |  |                                        
|Face value of note (principal and interest)                                   |  | $51,194                                  |  | $46,446                                
|                                                                              |  | ($40,327 principal and $10,867 interest) |  | ($37,905 principal and $8,541 interest)
|Estimated months until casino opens (weighted-average of three
    scenarios) |  | 37 months                                |  | 37 months                              
|Projected interest rate until casino opens                                    |  | 10.06%                                   |  | 9.2%                                   
|Projected interest rate during the loan repayment term                        |  | 9.97%                                    |  | 9.1%                                   
|Discount rate                                                                 |  | 15%                                      |  | 15%                                    
|Projected repayment terms of note*                                            |  | 24 months                                |  | 24 months                              
|Probability rate of casino opening (weighting of four scenarios)              |  | 70%                                      |  | 70%                                    






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



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




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

|                                                                              |  |                                         |  |                                        
|----------------------------------------------------------------------------- |  | --------------------------------------- |  | ---------------------------------------
|                                                                              |  | As of July 2, 2006                      |  | As of January 1, 2006                  
|                                                                              |  |                                         |  |                                        
|Face value of note (principal and interest)                                   |  | $24,781                                 |  | $21,247                                
|                                                                              |  | ($18,822 principal and $5,959 interest) |  | ($16,858 principal and $4,389 interest)
|Estimated months until casino opens (weighted-average of three
    scenarios) |  | 34 months                               |  | 34 months                              
|Projected interest rate until casino opens                                    |  | 17.0%                                   |  | 9.2%                                   
|Projected interest rate during the loan repayment term                        |  | 17.0%                                   |  | 9.2%                                   
|Discount rate                                                                 |  | 17.5%                                   |  | 15%                                    
|Projected repayment terms of note                                             |  | 24 months                               |  | 84 months                              
|Probability rate of casino opening (weighting of four scenarios)              |  | 85%                                     |  | 80%                                    





|   |                 
|-- | ----------------
|4. | Restricted Cash:





|   |                       
|-- | ----------------------
|5. | Long-Term Investments:







|   |                
|-- | ---------------
|6. | Long-Term Debt:



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




one-to








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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)






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





|   |                                              
|-- | ---------------------------------------------
|8. | Regulatory Approval of Management Agreements:



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



Recognition of Interest
Income and Balance Sheet Classification of Structured Notes


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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




| |            
| | -----------
| | Iowa Tribe:





|   |                                                                       
|-- | ----------------------------------------------------------------------
|9. | Development Financing and Services Agreement with the Jamul
    Tribe:







|    |                                              
|--- | ---------------------------------------------
|10. | Settlement Agreement with a Beneficial Owner:





|    |                          
|--- | -------------------------
|11. | Stock Options and Awards:



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





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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




| |                        
| | -----------------------
| | WPTE Stock Option Plan:







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

Share-Based Payment-Revised 2004


Accounting for Stock Issued to
Employees and related interpretations .


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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




|                                                          |  |                    |       |                  |  |   |       | 
|--------------------------------------------------------- |  | ------------------ | ----- | ---------------- |  | - | ----- | 
|                                                          |  | Three Months Ended |       | Six Months Ended
|                                                          |  | July 2, 2006       |       | July 2, 2006    
|                                                          |  |                    |       |                 
|                                                          |  | (In thousands)    
|Total cost of share-based payment plans                   |  | $                  | 1,424 |                  |  | $ | 3,676 | 
|Amounts capitalized in deferred television costs          |  |                    |      |                  |  |   |      | 
|Amounts charged against income, before income tax benefit |  | $                  | 1,424 |                  |  | $ | 3,676 | 
|Amount of related income tax benefit recognized in income |  |                    |      |                  |  |   |      | 







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

|                                |  |                    |           |                  |  |   |           |  
|------------------------------- |  | ------------------ | --------- | ---------------- |  | - | --------- | -
|                                |  | Three Months Ended |           | Six Months Ended
|                                |  | July 2, 2006       |           | July 2, 2006    
|                                |  |                    |           |                 
|Expected volatility             |  |                    | 55.55     | %                |  |   | 55.55     | %
|Expected dividend yield         |  |                    |          |                  |  |   |          |  
|Average risk-free interest rate |  |                    | 5.1       | %                |  |   | 5.1       | %
|Expected term (in years)        |  |                    | 8.2 years |                  |  |   | 8.2 years |  
|Weighted-average fair value     |  | $                  | 7.97      |                  |  | $ | 7.97      |  



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)










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

|                                |  |                    |           |   |                  |   |           |  
|------------------------------- |  | ------------------ | --------- | - | ---------------- | - | --------- | -
|                                |  | Three Months Ended |           |   | Six Months Ended |  
|                                |  | July 2, 2006       |           |   | July 2, 2006     |  
|                                |  |                    |           |   |                  |  
|Expected volatility             |  |                    | 78.91     | % |                  |   | 81.57     | %
|Expected dividend yield         |  |                    |          |   |                  |   |          |  
|Average risk-free interest rate |  |                    | 5.06      | % |                  |   | 4.68      | %
|Expected term (in years)        |  |                    | 6.5 years |   |                  |   | 6.5 years |  
|Weighted-average fair value     |  | $                  | 3.80      |   |                  | $ | 4.24      |  





| |   |                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Expected volatility  As WPTE has limited operating
    history and no definitive peer or peer groups, expected
    volatility was based on historical volatility of WPTEs
    stock price since it began trading in August 2004. 
|
| |  | Forfeiture rate  WPTE used historical data to
    estimate employee departure behavior in estimating future
    forfeitures.                                                                                                      
|
| |  | Expected term  Due to WPTEs limited operating
    history including stock option exercises and forfeitures, WPTE
    calculated expected term using the Simplified Method
    in accordance with Staff Accounting Bulletin 107.
|
| |  | Risk free interest rate  For periods within the
    expected term of the share option, risk free interest rate is
    based on the U.S. Treasury yield curve in effect at the
    time of grant.                                  

16



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)


The following table summarizes Lakes stock option
activity through the three months and six months ended
July 2, 2006 and July 3, 2005:


|                           |                             |             |           |                         |             |           |           |           |  |          |         |          |   |   |      |       | 
|-------------------------- | --------------------------- | ----------- | --------- | ----------------------- | ----------- | --------- | --------- | --------- |  | -------- | ------- | -------- | - | - | ---- | ----- | 
|                           |                             |             |           | Number of Common Shares |            
|                           |                             |             |           |                         |            
|                           |                             |             |           |                         |             | Weighted- |          
|                           |                             |             |           |                         |             | Avg.      |          
|                           |                             | Options     |           |                         |             |           | Available |           |  | Exercise |        
|                           |                             | Outstanding |           |                         | Exercisable |           |           | for Grant |  |          | Price   |         
|                           |                             |             |           |                         |             |           |           |           |  |          |         |         
|2006                       |                             |             |           |                         |             |           |           |           |  |          |         |          |   |   |      |      
|Balance at January 1, 2006 |                             |             | 5,307,626 |                         |             |           | 4,153,476 |           |  |          | 94,500  |          |   | $ | 6.03 |      
|                           | Authorized                  |             |           |                        |             |           |           |           |  |          |         |          |   |   |      |       | 
|                           | Granted                     |             |           | 30,000                  |             |           |           |          |  |          |         | (30,000  | ) |   |      | 9.77  | 
|                           | Forfeited/cancelled/expired |             |           |                        |             |           |           |          |  |          |         |         |   |   |      |      | 
|                           | Exercised                   |             |           | (550,000                | )           |           |           |          |  |          |         |         |   |   |      | 5.65  | 
|                           |                             |             |           |                         |             |           |           |           |  |          |         |         
|Balance at April 2, 2006   |                             |             | 4,787,626 |                         |             |           | 3,711,626 |           |  |          | 64,500  |          |   | $ | 6.10 |      
|                           | Authorized                  |             |           |                         |             |           |           |           |  |          |         |          |   |   |      |       | 
|                           | Granted                     |             |           | 5,000                   |             |           |           |          |  |          |         | (5,000   | ) |   |      | 12.10 | 
|                           | Forfeited/cancelled/expired |             |           | (5,000                  | )           |           |           |          |  |          |         | 5,000    |   |   |      | 8.15  | 
|                           | Exercised                   |             |           | (25,000                 | )           |           |           |          |  |          |         |         |   |   |      | 4.75  | 
|                           |                             |             |           |                         |             |           |           |           |  |          |         |         
|Balance at July 2, 2006    |                             |             | 4,762,626 |                         |             |           | 3,718,126 |           |  |          | 64,500  |          |   | $ | 6.11 |      
|                           |                             |             |           |                         |             |           |           |           |  |          |         |         
|2005                       |                             |             |           |                         |             |           |           |           |  |          |         |          |   |   |      |      
|Balance at January 2, 2005 |                             |             | 5,193,676 |                         |             |           | 3,591,276 |           |  |          | 266,000 |          |   | $ | 5.72 |      
|                           | Authorized                  |             |           |                        |             |           |           |           |  |          |         |          |   |   |      |       | 
|                           | Granted                     |             |           | 155,000                 |             |           |           |          |  |          |         | (155,000 | ) |   |      | 15.75 | 
|                           | Forfeited/cancelled/expired |             |           |                        |             |           |           |          |  |          |         |         |   |   |      |      | 
|                           | Exercised                   |             |           | (57,550                 | )           |           |           |          |  |          |         |         |   |   |      | 5.67  | 
|                           |                             |             |           |                         |             |           |           |           |  |          |         |         
|Balance at April 3, 2005   |                             |             | 5,291,126 |                         |             |           | 3,641,326 |           |  |          | 111,000 |          |   | $ | 6.01 |      
|                           | Authorized                  |             |           |                        |             |           |           |           |  |          |         |          |   |   |      |       | 
|                           | Granted                     |             |           | 10,000                  |             |           |           |          |  |          |         | (10,000  | ) |   |      | 13.22 | 
|                           | Forfeited/cancelled/expired |             |           |                        |             |           |           |          |  |          |         |         |   |   |      |      | 
|                           | Exercised                   |             |           |                        |             |           |           |          |  |          |         |         |   |   |      |      | 
|                           |                             |             |           |                         |             |           |           |           |  |          |         |         
|Balance at July 3, 2005    |                             |             | 5,301,126 |                         |             |           | 3,641,326 |           |  |          | 101,000 |          |   | $ | 6.03 |      
|                           |                             |             |           |                         |             |           |           |           |  |          |         |         

17



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)


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


|                         |  |                                     |           |           |                                     |  |           |                  |           |   |           |  |  |             |            |  |               |  |           |           |  |   |       |  |  |   |            | 
|------------------------ |  | ----------------------------------- | --------- | --------- | ----------------------------------- |  | --------- | ---------------- | --------- | - | --------- |  |  | ----------- | ---------- |  | ------------- |  | --------- | --------- |  | - | ----- |  |  | - | ---------- | 
|                         |  | Options Outstanding at July 2, 2006 |           |           | Options Exercisable at July 2, 2006 | 
|                         |  |                                     |           |           |                                     | 
|                         |  |                                     |           | Weighted- |                                     |  |           |                  |          
|                         |  |                                     |           | Average   |                                     |  |           |                  | Aggregate |   |           |  |  | Aggregate   |           
|                         |  | Number                              |           |           | Remaining                           |  |           | Weighted-Average |           |   | Intrinsic |  |  | Number      |            |  | Weighted-     |  |           | Intrinsic | 
|Range of Exercise Prices |  | Outstanding                         |           |           | Contractual Life                    |  |           | Exercise Price   |           |   | Value     |  |  | Exercisable |            |  | Average Price |  |           | Value     | 
|                         |  |                                     |           |           |                                     |  |           |                  |           |   |           |  |  |             |            |  |               |  |           |           | 
|$ (3.25   3.63)         |  |                                     | 289,000   |           |                                     |  | 5.0 years |                  |           | $ | 3.45      |  |  | $           | 2,496,000  |  |               |  | 255,600   |           |  | $ | 3.48  |  |  | $ | 2,201,000  | 
|(3.64   5.45)           |  |                                     | 2,510,700 |           |                                     |  | 2.7 years |                  |           |   | 4.23      |  |  |             | 19,725,000 |  |               |  | 2,486,700 |           |  |   | 4.24  |  |  |   | 19,528,000 | 
|(5.46   7.26)           |  |                                     | 106,426   |           |                                     |  | 4.5 years |                  |           |   | 6.52      |  |  |             | 593,000    |  |               |  | 76,426    |           |  |   | 6.26  |  |  |   | 445,000    | 
|(7.27   9.08)           |  |                                     | 1,528,000 |           |                                     |  | 7.0 years |                  |           |   | 8.13      |  |  |             | 6,055,000  |  |               |  | 824,000   |           |  |   | 8.13  |  |  |   | 3,265,000  | 
|(9.09  10.90)           |  |                                     | 77,000    |           |                                     |  | 8.7 years |                  |           |   | 10.44     |  |  |             | 127,000    |  |               |  | 10,400    |           |  |   | 10.60 |  |  |   | 16,000     | 
|(10.91  12.71)          |  |                                     | 86,500    |           |                                     |  | 8.5 years |                  |           |   | 11.47     |  |  |             | 56,000     |  |               |  | 19,750    |           |  |   | 11.40 |  |  |   | 14,000     | 
|(12.72  14.53)          |  |                                     | 95,000    |           |                                     |  | 8.6 years |                  |           |   | 14.00     |  |  |             |           |  |               |  | 21,750    |           |  |   | 14.07 |  |  |   |           | 
|(14.54  16.34)          |  |                                     | 5,000     |           |                                     |  | 8.5 years |                  |           |   | 16.11     |  |  |             |           |  |               |  | 1,000     |           |  |   | 16.11 |  |  |   |           | 
|(16.35  18.16)          |  |                                     | 65,000    |           |                                     |  | 7.8 years |                  |           |   | 17.91     |  |  |             |           |  |               |  | 22,500    |           |  |   | 18.01 |  |  |   |           | 
|                         |  |                                     |           |           |                                     |  |           |                  |           |   |           |  |  |             |            |  |               |  |           |           | 
|                         |  |                                     | 4,762,626 |           |                                     |  | 4.7 years |                  |           | $ | 6.11      |  |  | $           | 29,052,000 |  |               |  | 3,718,126 |           |  | $ | 5.29  |  |  | $ | 25,469,000 | 
|                         |  |                                     |           |           |                                     |  |           |                  |           |   |           |  |  |             |            |  |               |  |           |           | 



18



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)


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


|                           |                             |             |           |                         |             |           |           |           |  |          |           |           |   |   |      |        | 
|-------------------------- | --------------------------- | ----------- | --------- | ----------------------- | ----------- | --------- | --------- | --------- |  | -------- | --------- | --------- | - | - | ---- | ------ | 
|                           |                             |             |           | Number of Common Shares |            
|                           |                             |             |           |                         |            
|                           |                             |             |           |                         |             | Weighted- |          
|                           |                             |             |           |                         |             | Avg.      |          
|                           |                             | Options     |           |                         |             |           | Available |           |  | Exercise |          
|                           |                             | Outstanding |           |                         | Exercisable |           |           | for Grant |  |          | Price     |          
|                           |                             |             |           |                         |             |           |           |           |  |          |           |          
|2006                       |                             |             |           |                         |             |           |           |           |  |          |           |           |   |   |      |       
|Balance at January 1, 2006 |                             |             | 2,158,000 |                         |             |           | 620,333   |           |  |          | 283,667   |           |   | $ | 7.14 |       
|                           | Authorized                  |             |           |                        |             |           |           |           |  |          |           |           |   |   |      |        | 
|                           | Granted                     |             |           | 219,000                 |             |           |           |          |  |          |           | (219,000  | ) |   |      | 6.20   | 
|                           | Forfeited/cancelled/expired |             |           | (159,333                | )           |           |           |          |  |          |           | 159,333   |   |   |      | 8.13   | 
|                           | Exercised                   |             |           | (115,000                | )           |           |           |          |  |          |           |          |   |   |      | 0.0049 | 
|                           |                             |             |           |                         |             |           |           |           |  |          |           |          
|Balance at April 2, 2006   |                             |             | 2,102,667 |                         |             |           | 785,500   |           |  |          | 224,000   |           |   | $ | 7.36 |       
|                           | Authorized                  |             |           |                         |             |           |           |           |  |          |           |           |   |   |      |        | 
|                           | Granted                     |             |           | 109,500                 |             |           |           |          |  |          |           | 1,080,000 |   |   |      | 5.18   | 
|                           | Forfeited/cancelled/expired |             |           | (153,501                | )           |           |           |          |  |          |           | (109,500  | ) |   |      | 10.07  | 
|                           | Exercised                   |             |           | (105,000                | )           |           |           |          |  |          |           | 153,501   |   |   |      | 0.0049 | 
|                           |                             |             |           |                         |             |           |           |           |  |          |           |          
|Balance at July 2, 2006    |                             |             | 1,953,666 |                         |             |           | 619,333   |           |  |          | 1,348,001 |           |   | $ | 7.42 |       
|                           |                             |             |           |                         |             |           |           |           |  |          |           |          
|2005                       |                             |             |           |                         |             |           |           |           |  |          |           |           |   |   |      |       
|Balance at January 2, 2005 |                             |             | 2,561,000 |                         |             |           | 560,000   |           |  |          | 559,000   |           |   | $ | 4.61 |       
|                           | Authorized                  |             |           |                        |             |           |           |           |  |          |           |           |   |   |      |        | 
|                           | Granted                     |             |           | 24,500                  |             |           |           |          |  |          |           | (24,500   | ) |   |      | 19.50  | 
|                           | Forfeited/cancelled/expired |             |           | (32,000                 | )           |           |           |           |  |          |           | 32,000    |   |   |      | 8.60   | 
|                           | Exercised                   |             |           | (640,000                | )           |           |           |          |  |          |           |          |   |   |      | 0.0049 | 
|                           |                             |             |           |                         |             |           |           |           |  |          |           |          
|Balance at April 3, 2005   |                             |             | 1,913,500 |                         |             |           | 200,000   |           |  |          | 566,500   |           |   | $ | 6.27 |       
|                           | Authorized                  |             |           |                        |             |           |           |           |  |          |           |           |   |   |      |        | 
|                           | Granted                     |             |           | 34,000                  |             |           |           |          |  |          |           | (34,000   | ) |   |      | 17.25  | 
|                           | Forfeited/cancelled/expired |             |           | (31,500                 | )           |           |           |          |  |          |           | 31,500    |   |   |      | 8.31   | 
|                           | Exercised                   |             |           | (35,000                 | )           |           |           |          |  |          |           |          |   |   |      | 0.0049 | 
|                           |                             |             |           |                         |             |           |           |           |  |          |           |          
|                           | Balance at July 3, 2005     |             |           | 1,881,000               |             |           |           | 165,000   |  |          |           | 564,000   |   |   | $    | 6.55   | 
|                           |                             |             |           |                         |             |           |           |           |  |          |           |          

The following table summarizes significant ranges of WPTE
outstanding and exercisable options as of July 2,
2006:


|                         |  |                     |           |               |                     |  |           |               |  |           |           |  |  |             |           |  |            |  |         |           |  |   |        |  |  |   |           | 
|------------------------ |  | ------------------- | --------- | ------------- | ------------------- |  | --------- | ------------- |  | --------- | --------- |  |  | ----------- | --------- |  | ---------- |  | ------- | --------- |  | - | ------ |  |  | - | --------- | 
|                         |  | Options Outstanding |           |               | Options Exercisable | 
|                         |  |                     |           |               |                     | 
|                         |  |                     |           | Weighted-Avg. |                     |  | Weighted- |               |  | Aggregate |           |  |  |             | Aggregate | 
|                         |  | Number              |           |               | Remaining           |  |           | Avg. Exercise |  |           | Intrinsic |  |  | Number      |           |  | Weighted-  |  |         | Intrinsic | 
|Range of Exercise Prices |  | Outstanding         |           |               | Contractual Life    |  |           | Price         |  |           | Value     |  |  | Exercisable |           |  | Avg. Price |  |         | Value     | 
|                         |  |                     |           |               |                     |  |           |               |  |           |           |  |  |             |           |  |            |  |         |           | 
|$ 0.0049                 |  |                     | 225,000   |               |                     |  | 5.65      |               |  | $         | 0.0049    |  |  | $           | 1,353,398 |  |            |  | 225,000 |           |  | $ | 0.0049 |  |  | $ | 1,353,398 | 
|$ 5.18 - 9.92            |  |                     | 1,464,667 |               |                     |  | 8.45      |               |  |           | 7.59      |  |  |             | 87,800    |  |            |  | 378,334 |           |  |   | 8.05   |  |  |   |          | 
|$11.95 - 14.51           |  |                     | 225,333   |               |                     |  | 9.09      |               |  |           | 12.24     |  |  |             |          |  |            |  | 8,666   |           |  |   | 14.51  |  |  |   |          | 
|$15.05 - 19.50           |  |                     | 38,666    |               |                     |  | 9.03      |               |  |           | 15.99     |  |  |             |          |  |            |  | 7,333   |           |  |   | 17.71  |  |  |   |          | 
|                         |  |                     |           |               |                     |  |           |               |  |           |           |  |  |             |           |  |            |  |         |           | 
|                         |  |                     | 1,953,666 |               |                     |  | 8.21      |               |  | $         | 7.42      |  |  | $           | 1,441,178 |  |            |  | 619,333 |           |  | $ | 5.33   |  |  | $ | 1,353,398 | 
|                         |  |                     |           |               |                     |  |           |               |  |           |           |  |  |             |           |  |            |  |         |           | 

19



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)


in-the






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



|                                                                     |             |                           |        |       |              |   |        |       |  
|-------------------------------------------------------------------- | ----------- | ------------------------- | ------ | ----- | ------------ | - | ------ | ----- | -
|                                                                     |             | Three Months              |        |       | Six Months   |  
|                                                                     |             | Ended                     |        |       | Ended        |  
|                                                                     |             | July 3, 2005              |        |       | July 3, 2005 |  
|                                                                     |             |                           |        |       |              |  
|                                                                     |             | (In thousands, except per |       
|                                                                     |             | share amounts)            |       
|Net loss as reported                                                 |             | $                         | (5,651 | )     |              | $ | (7,770 | )    
|Less: total share-based compensation expense  fair
    value method |             |                           | (1,037 | )     |              |   | (2,044 | )    
|                                                                     |             |                           |        |       |              |  
|Pro forma net loss                                                   |             | $                         | (6,688 | )     |              | $ | (9,814 | )    
|                                                                     |             |                           |        |       |              |  
|Net loss per share  basic and diluted                               |             |                           |        |       |              |   |        |      
|                                                                     | As reported |                           | $      | (0.25 | )            |   | $      | (0.35 | )
|                                                                     |             |                           |        |       |              |  
|                                                                     | Pro forma   |                           | $      | (0.30 | )            |   | $      | (0.44 | )
|                                                                     |             |                           |        |       |              |  



|    |                           
|--- | --------------------------
|12. | Earnings (Loss) Per Share:





|    |              
|--- | -------------
|13. | Income Taxes:



20



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)








|    |                               
|--- | ------------------------------
|14. | Commitments and Contingencies:



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



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





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





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



21



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)






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



Tribal Casino Development Advances/ Commitments


As of July 2, 2006


|                                                                                                                                              |  |                  |      |  |               |   |     |            |  |   |     | 
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ---- |  | ------------- | - | --- | ---------- |  | - | --- | 
|                                                                                                                                              |  | Pre-Construction |      |  | Land Held for |   |     | Remaining  | 
|                                                                                                                                              |  | Advances         |      |  | Development   |   |     | Commitment | 
|                                                                                                                                              |  |                  |      |  |               |   |     |            | 
|                                                                                                                                              |  | (In millions)    |     
|Jamul Tribe                                                                                                                                   |  | $                | 18.8 |  |               | $ | 6.7 |            |  | $ |    | 
|Shingle Springs Tribe                                                                                                                         |  |                  | 40.3 |  |               |   | 8.7 |            |  |   | 1.3 | 
|Pokagon Band                                                                                                                                  |  |                  | 71.2 |  |               |   |    |            |  |   |    | 
|Iowa Tribe                                                                                                                                    |  |                  | 1.2  |  |               |   |    |            |  |   | 0.8 | 
|Wholly-owned subsidiaries of the Pawnee Tribal Development
    Corporation (Pawnee TDC referred to collectively as
    the Pawnee Nation) |  |                  | 4.9  |  |               |   |    |            |  |   | 0.1 | 







Legal proceedings




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



22



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)






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







23



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)








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





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



24



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




|    |                     
|--- | --------------------
|15. | Segment Information:



|                                        |  |                   |       |                   |  |              |      |              |  |   |      |   |  |   |       |  
|--------------------------------------- |  | ----------------- | ----- | ----------------- |  | ------------ | ---- | ------------ |  | - | ---- | - |  | - | ----- | -
|                                        |  | Industry Segments
|                                        |  |                  
|                                        |  | Casino            |       | WPT               |  | Corporate &  |      | Total       
|                                        |  | Projects          |       | Enterprises, Inc. |  | Eliminations |      | Consolidated
|                                        |  |                   |       |                   |  |              |      |             
|Total assets as of July 2, 2006         |  | $                 | 209.4 |                   |  | $            | 48.4 |              |  | $ | 93.2 |   |  | $ | 351.0 |  
|Total assets as of January 1, 2006      |  | $                 | 160.6 |                   |  | $            | 46.4 |              |  | $ | 23.6 |   |  | $ | 230.6 |  
|For the Three Months Ended July 2, 2006 |  |                   |       |                   |  |              |      |              |  |   |      |   |  |   |       |  
|Revenue                                 |  | $                 | 0.2   |                   |  | $            | 11.0 |              |  | $ |     |   |  | $ | 11.2  |  
|Earnings (loss) from operations         |  |                   | 14.3  |                   |  |              | 2.5  |              |  |   | (1.3 | ) |  |   | 15.5  |  
|Depreciation expense                    |  |                   |      |                   |  |              |     |              |  |   | 0.3  |   |  |   | 0.3   |  
|For the Three Months Ended July 3, 2005 |  |                   |       |                   |  |              |      |              |  |   |      |   |  |   |       |  
|Revenue                                 |  | $                 |      |                   |  | $            | 6.6  |              |  | $ |     |   |  | $ | 6.6   |  
|Loss from operations                    |  |                   | (1.5  | )                 |  |              | (0.6 | )            |  |   | (3.7 | ) |  |   | (5.8  | )
|Depreciation expense                    |  |                   |      |                   |  |              |     |              |  |   | 0.1  |   |  |   | 0.1   |  
|For the Six Months Ended July 2, 2006   |  |                   |       |                   |  |              |      |              |  |   |      |   |  |   |       |  
|Revenue                                 |  | $                 | 0.4   |                   |  | $            | 17.5 |              |  | $ |     |   |  | $ | 17.9  |  
|Earnings (loss) from operations         |  |                   | 27.2  |                   |  |              | 1.4  |              |  |   | (2.8 | ) |  |   | 25.8  |  
|Depreciation expense                    |  |                   |      |                   |  |              | 0.1  |              |  |   | 0.5  |   |  |   | 0.6   |  
|For the Six Months Ended July 3, 2005   |  |                   |       |                   |  |              |      |              |  |   |      |   |  |   |       |  
|Revenue                                 |  | $                 |      |                   |  | $            | 10.7 |              |  | $ |     |   |  | $ | 10.7  |  
|Earnings (loss) from operations         |  |                   | 1.0   |                   |  |              | (2.5 | )            |  |   | (7.1 | ) |  |   | (8.6  | )
|Depreciation expense                    |  |                   |      |                   |  |              | 0.1  |              |  |   | 0.1  |   |  |   | 0.2   |  



|    |                   
|--- | ------------------
|16. | Subsequent Events:



| |                                   
| | ----------------------------------
| | Lakes interest rate swap agreement





25



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)










| |                                                                          
| | -------------------------------------------------------------------------
| | WPTE amendment to Brand License and Online Casino
    Operating agreement





| |                                       
| | --------------------------------------
| | WPTE licensing agreement with 3G Scene





| |                
| | ---------------
| | WPTE litigation



26



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##### Table of Contents








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

Overview




®


WPT Studios tm


®


27



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







WPT Consumer Products


WPT Corporate Alliances


28



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##### Table of Contents





WPT Online Gaming








29



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##### Table of Contents



Financial Overview




Results of Operations




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



| |        
| | -------
| | Revenue





| |                                             
| | --------------------------------------------
| | Production costs, expenses and gross margins





| |                                              
| | ---------------------------------------------
| | Selling, general and administrative expenses.



30



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



96-12. 96-12,




| |                       
| | ----------------------
| | Other income (expense)





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

Accounting for Income Taxes


31



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





| |                                                                                
| | -------------------------------------------------------------------------------
| | Six Months Ended July 2, 2006 Compared to the Six
    Months Ended July 3, 2005



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





| |                                             
| | --------------------------------------------
| | Production costs, expenses and gross margins



32



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| |                                             
| | --------------------------------------------
| | Selling, general and administrative expenses





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



96-12,




| |                       
| | ----------------------
| | Other income (expense)



33



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##### Table of Contents







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









| |                  
| | -----------------
| | Minority Interest



34



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##### Table of Contents



Liquidity and Capital Resources












35



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##### Table of Contents









|                                           |                                                                    |                       |       |           |        |   |     |           |           |   |           |   |  |         |       |   |  |   |   |   | 
|------------------------------------------ | ------------------------------------------------------------------ | --------------------- | ----- | --------- | ------ | - | --- | --------- | --------- | - | --------- | - |  | ------- | ----- | - |  | - | - | - | 
|                                           |                                                                    | Payment Due by Period
|                                           |                                                                    |                      
|                                           |                                                                    |                       |       | Less Than |        |   |     |           | More Than
|Contractual Obligations                    |                                                                    | Total                 |       |           | 1 Year |   |     | 1-3 Years |           |   | 3-5 Years |   |  | 5 Years
|                                           |                                                                    |                       |       |           |        |   |     |           |           |   |           |   |  |        
|Remaining Casino Development Commitment(1) |                                                                    |                       |       |           |        |   |     |           |           |   |           |   |  |         |       |   |  |   |   |  
|                                           | Jamul Tribe(2)                                                     |                       | $     |          |        |   | $   |          |           |   | $         |  |  |         | $     |  |  |   | $ |  | 
|                                           | Shingle Springs Tribe(9)                                           |                       |       | 1.3       |        |   |     | 1.3       |           |   |           |  |  |         |       |  |  |   |   |  | 
|                                           | Pokagon Band(3)                                                    |                       |       |          |        |   |     |          |           |   |           |  |  |         |       |  |  |   |   |  | 
|                                           | Pawnee Nation of Oklahoma (Pawnee
    Nation)  Travel Plaza(11) |                       |       | 0.1       |        |   |     | 0.1       |           |   |           |  |  |         |       |  |  |   |   |  | 
|                                           | Iowa Tribe  Ioway Project(10)                                     |                       |       | 0.8       |        |   |     | 0.8       |           |   |           |  |  |         |       |  |  |   |   |  | 
|Employee obligations(4)                    |                                                                    |                       | 2.2   |           |        |   | 0.9 |           |           |   | 1.3       |   |  |         |      |   |  |   |  |  
|Operating leases(5)                        |                                                                    |                       | 1.5   |           |        |   | 0.8 |           |           |   | 0.7       |   |  |         |      |   |  |   |  |  
|BofA financing facility(6)                 |                                                                    |                       | 105.0 |           |        |   |    |           |           |   |          |   |  |         | 105.0 |   |  |   |  |  
|WPTE operating leases(7)                   |                                                                    |                       | 4.3   |           |        |   | 0.8 |           |           |   | 1.7       |   |  |         | 1.8   |   |  |   |  |  
|WPTE employee obligations(8)               |                                                                    |                       | 0.3   |           |        |   | 0.3 |           |           |   |          |   |  |         |      |   |  |   |  |  
|                                           |                                                                    |                       |       |           |        |   |     |           |           |   |           |   |  |         |      
|                                           |                                                                    | $                     | 115.5 |           |        | $ | 5.0 |           |           | $ | 3.7       |   |  | $       | 106.8 |   |  | $ |  |  
|                                           |                                                                    |                       |       |           |        |   |     |           |           |   |           |   |  |         |      






| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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. 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 existed at July 2, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | (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 the project. There can be no assurance that third party
    financing will be available. If we are unable to obtain the
    appropriate amount of financing for this project, the project
    may not be completed as planned. This agreement will help assist
    the Jamul Tribe in developing a casino with related
    amenities/services (Jamul Casino) on its existing
    six-acre reservation which the Jamul Tribe will manage. We will
    receive a flat fee of $15 million for our development
    design services, and a flat fee of $15 million for our
    construction oversight services, payable evenly over the first
    five years after the opening date of the Jamul Casino. In
    connection with our financing of the Jamul Casino, the Jamul
    Tribe will pay interest over a ten year period on sums advanced
    by us equal to the rate charged to us for obtaining the funds
    necessary plus 5%. Amounts previously advanced by us to the
    Jamul Tribe in connection with the Jamul Tribes proposed
    casino resort are included in the development financing and
    services agreement financing amount.
|
| | (3) | We will be obligated to pay an amount to an unrelated third
    party once the Pokagon Casino is open and we are the manager of
    the casino. The amount is payable quarterly for five years and
    is only payable if we are the manager of the casino. The payment
    is part of a settlement and release agreement associated                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

36



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##### Table of Contents



| |  |                                                                                                                                                                                                                                                                                                                                                                                  
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | with our obtaining the management contract with the Pokagon
    Band. The maximum liability over the five-year period is
    approximately $11 million. We will also be obligated to pay
    approximately $3.3 million to a third party on behalf of
    the Pokagon Band; in accordance with the management contract
    which is payable once the casino opens over 24 months.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (4) | Employee obligations include the base salaries payable to Lyle
    Berman and Timothy Cope under their respective employment
    agreements.                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (5) | We lease an airplane under a non-cancelable operating lease that
    expires on May 1, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (6) | On June 22, 2006, we closed on a $105 million
    financing facility. Any funds drawn on the facility bear
    interest at the rate of LIBOR plus 6.25% per annum,
    interest payable in arrears quarterly, and are due and payable
    in full on the fourth anniversary of the closing date.                                                                                                                                                                                                                                       
|
| | (7) | 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 assumes monthly lease payments through June 2011.
|
| | (8) | WPTE employee obligations include the base salary payable to
    Steven Lipscomb under his employment agreement.                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (9) | We plan to increase our commitment to the Shingle Springs Tribe,
    subject to amendment of the development loan agreement, which is
    currently in progress.                                                                                                                                                                                                                                                                                                                                                                       



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | In addition to the information in the above table, additional
    amounts are expected to be advanced to the Iowa Tribe for the
    Ioway Project based upon an approved budget yet to be finalized.                                                                                                                                                                                                                                                                                                                                                      
|    
|(11) | Lakes made a commitment of $1.0 million to the Pawnee
    Nation related to the Travel Plaza project based upon an
    approved budget. In addition to the information in the above
    table, we have been advancing funds to the Pawnee Nation related
    to the Chilocco project. The funding amount is based upon an
    approved budget, yet to be finalized. Additional amounts are
    expected to be advanced to the Pawnee Nation for the new casino
    project and Travel Plaza project based upon an approved budget
    yet to be finalized.









37



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##### Table of Contents





Critical Accounting Policies and Estimates






Revenue recognition:


00-2, Accounting by Producers or Distributors of Films 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.                                                                                                                                  

99-19, Reporting Revenue Gross as a Principal versus Net as an Agent 99-9).


99-19.


99-19,


38



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##### Table of Contents







Deferred television costs:


Investment:




Accounting for
Certain Investments in Debt and Equity Securities


Share-Based Compensation Expense:




39



---



##### Table of Contents



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






123(R)-3, Transition Election Related to Accounting for the Tax Effects
of Share-Based Payment Awards 123R-3). 123R-3 123R-3 123R-3 123R-3.


Derivative Financial Instruments: Accounting
for Derivative Instruments and Hedging Activities, as
amended






40



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##### Table of Contents





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



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





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



41



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##### Table of Contents



96-12.






Accounting by
Creditors for Impairment of a Loan.




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

Goodwill and
Other Intangible Assets




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



42



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##### Table of Contents





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







|                                                                 |  |              |         |         |         |   |        |       |  |   |        |  |  |       |       |  |  |   |         | 
|---------------------------------------------------------------- |  | ------------ | ------- | ------- | ------- | - | ------ | ----- |  | - | ------ |  |  | ----- | ----- |  |  | - | ------- | 
|                                                                 |  | July 2, 2006 |        
|                                                                 |  |              |        
|                                                                 |  |              |         | Shingle |         |   |       
|                                                                 |  | Pokagon      |         |         | Springs |   |        | Jamul |  |   |       
|                                                                 |  | Band         |         |         | Tribe   |   |        | Tribe |  |   | Other  |  |  | Total |      
|                                                                 |  |              |         |         |         |   |        |       |  |   |        |  |  |       |      
|Notes receivable, at estimated fair value                        |  | $            | 82,214  |         |         | $ | 30,439 |       |  | $ | 21,830 |  |  | $     | 5,430 |  |  | $ | 139,913 | 
|Intangible assets related to acquisition of management contracts |  |              | 23,548  |         |         |   | 19,756 |       |  |   | 8,288  |  |  |       | 1,511 |  |  |   | 53,103  | 
|Land held for development                                        |  |              |        |         |         |   | 8,720  |       |  |   | 6,679  |  |  |       | 798   |  |  |   | 16,197  | 
|Other                                                            |  |              | 60      |         |         |   | 1,587  |       |  |   | 2,291  |  |  |       | 1,236 |  |  |   | 5,174   | 
|                                                                 |  |              |         |         |         |   |        |       |  |   |        |  |  |       |      
|                                                                 |  | $            | 105,822 |         |         | $ | 60,502 |       |  | $ | 39,088 |  |  | $     | 8,975 |  |  | $ | 214,387 | 
|                                                                 |  |              |         |         |         |   |        |       |  |   |        |  |  |       |      

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



43



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Pokagon Band:


|                                                                              |  |                                          |  |                                         
|----------------------------------------------------------------------------- |  | ---------------------------------------- |  | ----------------------------------------
|                                                                              |  | As of July 2, 2006                       |  | As of January 1, 2006                   
|                                                                              |  |                                          |  |                                         
|Face value of note (principal and interest)                                   |  | $98,152                                  |  | $61,827                                 
|                                                                              |  | ($71,176 principal and $26,976 interest) |  | ($46,445 principal and $15,382 interest)
|Estimated months until casino opens (weighted-average of three
    scenarios) |  | 13 months                                |  | 32 months                               
|Projected interest rate until casino opens                                    |  | 9.0%                                     |  | 8.2%                                    
|Projected interest rate during the loan repayment term                        |  | 9.0%                                     |  | 8.2%                                    
|Discount rate                                                                 |  | 15%                                      |  | 15%                                     
|Repayment terms of note                                                       |  | 60 months                                |  | 60 months                               
|Probability rate of casino opening (weighting of four scenarios)              |  | 99%                                      |  | 90%                                     





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

|                                                                              |  |                                          |  |                                        
|----------------------------------------------------------------------------- |  | ---------------------------------------- |  | ---------------------------------------
|                                                                              |  | As of July 2, 2006                       |  | As of January 1, 2006                  
|                                                                              |  |                                          |  |                                        
|Face value of note (principal and interest)                                   |  | $51,194                                  |  | $46,446                                
|                                                                              |  | ($40,327 principal and $10,867 interest) |  | ($37,905 principal and $8,541 interest)
|Estimated months until casino opens (weighted-average of three
    scenarios) |  | 37 months                                |  | 37 months                              
|Projected interest rate until casino opens                                    |  | 10.06%                                   |  | 9.2%                                   
|Projected interest rate during the loan repayment term                        |  | 9.97%                                    |  | 9.1%                                   
|Discount rate                                                                 |  | 15%                                      |  | 15%                                    
|Projected repayment terms of note*                                            |  | 24 months                                |  | 24 months                              
|Probability rate of casino opening (weighting of four scenarios)              |  | 70%                                      |  | 70%                                    






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



44



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##### Table of Contents





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

|                                                                              |  |                                         |  |                                        
|----------------------------------------------------------------------------- |  | --------------------------------------- |  | ---------------------------------------
|                                                                              |  | As of July 2, 2006                      |  | As of January 1, 2006                  
|                                                                              |  |                                         |  |                                        
|Face value of note (principal and interest)                                   |  | $24,781                                 |  | $21,247                                
|                                                                              |  | ($18,822 principal and $5,959 interest) |  | ($16,858 principal and $4,389 interest)
|Estimated months until casino opens (weighted-average of three
    scenarios) |  | 34 months                               |  | 34 months                              
|Projected interest rate until casino opens                                    |  | 17.0%                                   |  | 9.2%                                   
|Projected interest rate during the loan repayment term                        |  | 17.0%                                   |  | 9.2%                                   
|Discount rate                                                                 |  | 17.5%                                   |  | 15%                                    
|Projected repayment terms of note                                             |  | 24 months                               |  | 84 months                              
|Probability rate of casino opening (weighting of four scenarios)              |  | 85%                                     |  | 80%                                    





|                |  |                  |         |                      |          |   |         |          |  |   |         |  |              |             |         |          |        |   |         |      |  |   |         |  |  |   |         | 
|--------------- |  | ---------------- | ------- | -------------------- | -------- | - | ------- | -------- |  | - | ------- |  | ------------ | ----------- | ------- | -------- | ------ | - | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|                |  |                  |         | Sensitivity Analysis |         
|                |  | July 2, 2006     |         |                      |          |  
|                |  | Fair Value       |         |                      | 5% Less  |   |         | One Year |  |   |         |  | 5% Increased |             |         | One Year |        |   |        
|                |  | Notes Receivable |         |                      | Probable |   |         | Delay    |  |   | Both    |  |              | Probability |         |          | Sooner |   |         | Both | 
|                |  |                  |         |                      |          |   |         |          |  |   |         |  |              |             |         |          |        |   |         |      | 
|                |  | (In thousands)   |        
|Pokagon         |  | $                | 82,214  |                      |          | $ | 78,072  |          |  | $ | 78,207  |  |              | $           | 74,267  |          |        | $ | 83,043  |      |  | $ | 86,428  |  |  | $ | 87,299  | 
|Shingle Springs |  | $                | 30,439  |                      |          | $ | 28,262  |          |  | $ | 29,257  |  |              | $           | 27,164  |          |        | $ | 32,707  |      |  | $ | 31,758  |  |  | $ | 34,028  | 
|Jamul           |  | $                | 21,830  |                      |          | $ | 20,555  |          |  | $ | 21,994  |  |              | $           | 20,710  |          |        | $ | 23,105  |      |  | $ | 21,667  |  |  | $ | 22,933  | 
|                |  |                  |         |                      |          |   |         |          |  |   |         |  |              |             |         |          |        |   |         |      | 
|                |  | $                | 134,483 |                      |          | $ | 126,889 |          |  | $ | 129,458 |  |              | $           | 122,141 |          |        | $ | 138,855 |      |  | $ | 139,853 |  |  | $ | 144,260 | 
|                |  |                  |         |                      |          |   |         |          |  |   |         |  |              |             |         |          |        |   |         |      | 

|                |  |                  |        |                      |          |   |        |          |  |   |        |  |              |             |        |          |        |   |        |      |  |   |        |  |  |   |        | 
|--------------- |  | ---------------- | ------ | -------------------- | -------- | - | ------ | -------- |  | - | ------ |  | ------------ | ----------- | ------ | -------- | ------ | - | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|                |  |                  |        | Sensitivity Analysis |         
|                |  | January 1, 2006  |        |                      |          |  
|                |  | Fair Value       |        |                      | 5% Less  |   |        | One Year |  |   |        |  | 5% Increased |             |        | One Year |        |   |       
|                |  | Notes Receivable |        |                      | Probable |   |        | Delay    |  |   | Both   |  |              | Probability |        |          | Sooner |   |        | Both | 
|                |  |                  |        |                      |          |   |        |          |  |   |        |  |              |             |        |          |        |   |        |      | 
|                |  | (In thousands)   |       
|Pokagon         |  | $                | 44,028 |                      |          | $ | 41,751 |          |  | $ | 41,591 |  |              | $           | 39,449 |          |        | $ | 46,305 |      |  | $ | 46,620 |  |  | $ | 49,040 | 
|Shingle Springs |  | $                | 26,550 |                      |          | $ | 24,633 |          |  | $ | 25,187 |  |              | $           | 23,367 |          |        | $ | 28,467 |      |  | $ | 27,985 |  |  | $ | 30,005 | 
|Jamul           |  | $                | 12,957 |                      |          | $ | 12,176 |          |  | $ | 12,322 |  |              | $           | 11,581 |          |        | $ | 13,739 |      |  | $ | 13,626 |  |  | $ | 14,450 | 
|                |  |                  |        |                      |          |   |        |          |  |   |        |  |              |             |        |          |        |   |        |      | 
|                |  | $                | 83,535 |                      |          | $ | 78,560 |          |  | $ | 79,100 |  |              | $           | 74,397 |          |        | $ | 88,511 |      |  | $ | 88,231 |  |  | $ | 93,495 | 
|                |  |                  |        |                      |          |   |        |          |  |   |        |  |              |             |        |          |        |   |        |      | 



45



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|                                     |  |                         |        |         |         |   |        |       |  |   |        |  |  |       |       |  |  |   |         | 
|------------------------------------ |  | ----------------------- | ------ | ------- | ------- | - | ------ | ----- |  | - | ------ |  |  | ----- | ----- |  |  | - | ------- | 
|                                     |  | Balance at July 2, 2006 |       
|                                     |  |                         |       
|                                     |  |                         |        | Shingle |         |   |       
|                                     |  | Pokagon                 |        |         | Springs |   |        | Jamul |  |   | Other  |  |  | Total |      
|                                     |  |                         |        |         |         |   |        |       |  |   |        |  |  |       |      
|                                     |  | (In thousands)          |       
|Note receivable, pre-construction(a) |  | $                       | 47,070 |         |         | $ | 40,327 |       |  | $ | 17,872 |  |  | $     |      |  |  | $ | 105,269 | 
|Note receivable, non-gaming land(b)  |  |                         | 13,176 |         |         |   |       |       |  |   |       |  |  |       |      |  |  |   | 13,176  | 
|Note receivable, land(b)             |  |                         | 10,930 |         |         |   |       |       |  |   | 950    |  |  |       |      |  |  |   | 11,880  | 
|Note receivable, other(c)            |  |                         |        |         |         |   |        |       |  |   |        |  |  |       | 6,404 |  |  |   | 6,404   | 
|                                     |  |                         |        |         |         |   |        |       |  |   |        |  |  |       |      
|                                     |  | $                       | 71,176 |         |         | $ | 40,327 |       |  | $ | 18,822 |  |  | $     | 6,404 |  |  | $ | 136,729 | 
|                                     |  |                         |        |         |         |   |        |       |  |   |        |  |  |       |      

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






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



|    |  |                                                                                                                                                                                                                                                
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | We purchased land to be used and transferred to the tribe in
    connection with the casino project. With respect to the Pokagon
    Casino project, a portion of the land will be used by the tribe
    separate from the casino project land.
|   
|(c) |  | Represents amounts advanced under the agreements with the Iowa
    Tribe and Pawnee Nation.                                                                                                                                                    



|                |  |         |        |  |            |   |        | 
|--------------- |  | ------- | ------ |  | ---------- | - | ------ | 
|                |  | July 2, |        |  | January 1, |  
|Pokagon Band    |  | 2006    |        |  | 2006       |  
|                |  |         |        |  |            |  
|Monthly stipend |  | $       | 12,000 |  |            | $ | 9,625  | 
|Construction    |  |         | 23,411 |  |            |   | 2,635  | 
|Legal           |  |         | 1,898  |  |            |   | 1,634  | 
|Environmental   |  |         | 652    |  |            |   | 650    | 
|Design          |  |         | 9,109  |  |            |   | 7,800  | 
|                |  |         |        |  |            |  
|                |  | $       | 47,070 |  |            | $ | 22,344 | 
|                |  |         |        |  |            |  

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|                      |  |         |        |  |            |   |        | 
|--------------------- |  | ------- | ------ |  | ---------- | - | ------ | 
|                      |  | July 2, |        |  | January 1, |  
|Shingle Springs Tribe |  | 2006    |        |  | 2006       |  
|                      |  |         |        |  |            |  
|Monthly stipend       |  | $       | 6,990  |  |            | $ | 6,390  | 
|Construction          |  |         | 1,634  |  |            |   | 1,623  | 
|Legal                 |  |         | 13,045 |  |            |   | 12,195 | 
|Environmental         |  |         | 1,632  |  |            |   | 1,588  | 
|Design                |  |         | 9,493  |  |            |   | 9,306  | 
|Gaming license        |  |         | 3,526  |  |            |   | 3,426  | 
|Lobbyist              |  |         | 4,007  |  |            |   | 3,377  | 
|                      |  |         |        |  |            |  
|                      |  | $       | 40,327 |  |            | $ | 37,905 | 
|                      |  |         |        |  |            |  

|                |  |         |        |  |            |   |        | 
|--------------- |  | ------- | ------ |  | ---------- | - | ------ | 
|                |  | July 2, |        |  | January 1, |  
|Jamul Tribe     |  | 2006    |        |  | 2006       |  
|                |  |         |        |  |            |  
|Monthly stipend |  | $       | 4,194  |  |            | $ | 3,841  | 
|Construction    |  |         | 386    |  |            |   | 326    | 
|Legal           |  |         | 3,446  |  |            |   | 3,340  | 
|Environmental   |  |         | 1,729  |  |            |   | 1,668  | 
|Design          |  |         | 5,186  |  |            |   | 4,168  | 
|Gaming license  |  |         | 584    |  |            |   | 511    | 
|Lobbyist        |  |         | 2,347  |  |            |   | 2,054  | 
|                |  |         |        |  |            |  
|                |  | $       | 17,872 |  |            | $ | 15,908 | 
|                |  |         |        |  |            |  

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






47



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

|                                               |  |                                                       |  |                
|---------------------------------------------- |  | ----------------------------------------------------- |  | ---------------
|                                               |  | July 2, 2006                                          |  | January 1, 2006
|                                               |  |                                                       |  |                
|No. of Class III slot machines                 |  | 3,000                                                 |  | 3,000          
|No. of Table games                             |  | 90                                                    |  | 90             
|No. of Poker tables                            |  | 20                                                    |  | 20             
|Win/Class III slot machine/day  1st year      |  | $282                                                  |  | $275           
|Win/Table game/day  1st year                  |  | $1,481                                                |  | $1,444         
|Win/Poker game/day  1st year                  |  | $1,025                                                |  | $1,000         
|Expected increase in management fee cash flows |  | Year 2  26.5% (higher management
    fees in year 1) |  | Year 2  2.1%  
|                                               |  | Year 3  4.3%                                         |  | Year 3  1.9%  
|                                               |  | Year 4  3.8%                                         |  | Year 4  3.6%  
|                                               |  | Year 5  4.1%                                         |  | Year 5  2.8%  





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

|                                                   |  |         |       |  |            |   |       | 
|-------------------------------------------------- |  | ------- | ----- |  | ---------- | - | ----- | 
|                                                   |  | July 2, |       |  | January 1, |  
|                                                   |  | 2006    |       |  | 2006       |  
|                                                   |  |         |       |  |            |  
|No. of Class III slot machines                     |  |         | 349   |  |            |   | 349   | 
|No. of Class II slot machines                      |  |         | 1,651 |  |            |   | 1,651 | 
|No. of Table games                                 |  |         | 65    |  |            |   | 65    | 
|No. of Poker tables                                |  |         | 10    |  |            |   | 10    | 
|Win/Class III slot
    machine/day  1st year      |  |         |      |  |            | $ | 307   | 
|Win/Class II slot machine/day  1st year           |  |         |      |  |            | $ | 220   | 
|Win/Class II & III slot
    machine/day  1st year |  | $       | 235   |  |            |   |      | 
|Win/Table game/day  1st year                      |  | $       | 1,100 |  |            | $ | 1,100 | 
|Win/Poker table/day  1st year                     |  | $       | 650   |  |            | $ | 650   | 



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

|                                                          |  |                                                                            |  |                                                                           
|--------------------------------------------------------- |  | -------------------------------------------------------------------------- |  | --------------------------------------------------------------------------
|                                                          |  | July 2, 2006                                                               |  | January 1, 2006                                                           
|                                                          |  |                                                                            |  |                                                                           
|No. of Class III slot machines                            |  | 349                                                                        |  | 349                                                                       
|No. of Class II slot machines                             |  | 1,651                                                                      |  | 1,651                                                                     
|No. of Table games                                        |  | 100                                                                        |  | 100                                                                       
|No. of Poker tables                                       |  | 20                                                                         |  | 20                                                                        
|Win/Class III slot machine/day  1st year                 |  | $350                                                                       |  | $350                                                                      
|Win/Class II slot machine/day  1st year                  |  | $350                                                                       |  | $250                                                                      
|Win/Table game/day  1st year                             |  | $1,275                                                                     |  | $1,275                                                                    
|Win/Poker table/day  1st year                            |  | $624                                                                       |  | $624                                                                      
|Expected increase (decrease) in management fee cash flows |  | Year 2  5.8%                                                              |  | Year 2  5.5%                                                             
|                                                          |  | Year 3  3.5%                                                              |  | Year 3  4.3%                                                             
|                                                          |  | Year 4  3.2%                                                              |  | Year 4  3.0%                                                             
|                                                          |  | Year 5  4.7%                                                              |  | Year 5  5.1%                                                             
|                                                          |  | Year 6  (23.4)% (management fees were reduced
    in years six and seven) |  | Year 6  (17.0)% (management fees were reduced
    in years six and seven)
|                                                          |  | Year 7  1.6%                                                              |  | Year 7  1.5%                                                             





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




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



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







49



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Our evaluation of
critical milestones:




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

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

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|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                              | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                              | 
|Critical Milestone                                                                                                                                                       |  |  | July 2, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  | January 1, 2006                                                                                                                                                                                                                                                                                   |  |  | January 2, 2005                                                                                                                                              | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                              | 
|Usable state compact that allows for gaming consistent with
    that outlined in our project plan                                                                        |  |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |  | Yes                                                                                                                                                                                                                                                                                               |  |  | Yes                                                                                                                                                          | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                              | 
|NIGC approval of management contract in current and desired
    form                                                                                                     |  |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |  | No, submitted to the NIGC for review in 2000 and approval is
    expected in April 2006 as the land was taken into trust by the
    BIA on January 27, 2006.                                                                                                                                      |  |  | No, submitted to the NIGC for review in 2000 and approval is
    expected at approximately the same time the land is being placed
    into trust by the BIA. | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                              | 
|Resolution of all litigation and legal obstacles                                                                                                                         |  |  | No, The Michigan Supreme Court has now agreed to hear the appeal
    by TOMAC that the Compact entered into with the State of
    Michigan is invalid. The Michigan Court of Appeals (lower court)
    refused to hear TOMACs argument. TOMAC is arguing that the
    Compact is invalid as the 8% payment to the Michigan Strategic
    Fund is unconstitutional and invalid (in that it illegally
    bypasses the appropriation requirement). |  |  | No. However on January 6, 2006 the United States Court of
    Appeals for the District of Columbia Circuit ruled in favor of
    the Pokagon Band by affirming the Federal District Courts
    grant of summary judgment in the lawsuit by TOMAC versus the
    U.S. Department of the Interior. |  |  | No, pending litigation regarding land in trust.                                                                                                              | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                              | 
|Financing for construction                                                                                                                                               |  |  | Yes. Financing for the project was completed on June 22,
    2006. A $305 million senior note financing and
    $75 million FF&E credit facility were completed on this
    date.                                                                                                                                                                                                                                                                 |  |  | No, however the Tribe engaged an investment banker to assist
    with obtaining financing, which we expect to occur as early as
    mid 2006.                                                                                                                                                     |  |  | No, however the Tribe engaged an investment banker to assist
    with obtaining financing.                                                                   | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                              | 
|Any other significant project milestones or contingencies,
    the outcome of which could have a material affect on the
    probability of project completion as planned |  |  | No others known at this time by Lakes.                                                                                                                                                                                                                                                                                                                                                                                                            |  |  | No others known at this time by Lakes.                                                                                                                                                                                                                                                            |  |  | No others known at this time by Lakes.                                                                                                                       | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                                                                                                                                                                   |  |  |                                                                                                                                                              | 



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



52



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675-acre










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



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







53



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54



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| |                                           
| | ------------------------------------------
| | Our Evaluation of the Critical Milestones:



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



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



55



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56



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



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









57



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| |                                           
| | ------------------------------------------
| | Our Evaluation of the Critical Milestones:



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

58



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



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





59



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



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





60



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Arrangement with Consultant.


61



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Our Evaluation of the three Pawnee Nation Projects:




|                                                                                                  |  |  |                                                                                                                                                                                                                                                                                                            |  |  |                                                                                                                                                                                                                                                                    |  |  |                                                                                                                                                                      | 
|------------------------------------------------------------------------------------------------- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                                                                  |  |  |                                                                                                                                                                                                                                                                                                            |  |  |                                                                                                                                                                                                                                                                    |  |  |                                                                                                                                                                      | 
|Critical Milestone                                                                                |  |  | Chilocco Casino Project                                                                                                                                                                                                                                                                                    |  |  | Travel Plaza                                                                                                                                                                                                                                                       |  |  | Trading Post                                                                                                                                                         | 
|                                                                                                  |  |  |                                                                                                                                                                                                                                                                                                            |  |  |                                                                                                                                                                                                                                                                    |  |  |                                                                                                                                                                      | 
|Federal recognition of the tribe                                                                  |  |  | Yes                                                                                                                                                                                                                                                                                                        |  |  | Yes                                                                                                                                                                                                                                                                |  |  | Yes                                                                                                                                                                  | 
|                                                                                                  |  |  |                                                                                                                                                                                                                                                                                                            |  |  |                                                                                                                                                                                                                                                                    |  |  |                                                                                                                                                                      | 
|Possession of usable land corresponding with needs based on
    our project plan                  |  |  | Yes, the Pawnee Nation currently holds land in trust where the
    Chilocco casino will be built.                                                                                                                                                                                                          |  |  | Yes, the Pawnee Nation is currently leasing land from tribal
    members, which is held in trust for the individual tribal
    members by the United States Government. The BIA approved the
    lease documents on January 13, 2006.                              |  |  | Yes, the Trading Post is currently open.                                                                                                                             | 
|                                                                                                  |  |  |                                                                                                                                                                                                                                                                                                            |  |  |                                                                                                                                                                                                                                                                    |  |  |                                                                                                                                                                      | 
|Usable land placed in trust by Federal government                                                 |  |  | Yes, the Pawnee Nation currently holds land in trust where the
    Chilocco Casino will be built.                                                                                                                                                                                                          |  |  | Yes, the Pawnee Nation is currently leasing land from tribal
    members, which is held in trust for the individual tribal
    members by the United States Government. The BIA approved the
    lease documents on January 13, 2006.                              |  |  | Yes, the Trading Post is currently open.                                                                                                                             | 
|                                                                                                  |  |  |                                                                                                                                                                                                                                                                                                            |  |  |                                                                                                                                                                                                                                                                    |  |  |                                                                                                                                                                      | 
|Usable county agreement, if applicable                                                            |  |  | N/A                                                                                                                                                                                                                                                                                                        |  |  | N/A                                                                                                                                                                                                                                                                |  |  | N/A                                                                                                                                                                  | 
|                                                                                                  |  |  |                                                                                                                                                                                                                                                                                                            |  |  |                                                                                                                                                                                                                                                                    |  |  |                                                                                                                                                                      | 
|Usable state compact that allows for gaming consistent with
    that outlined in our project plan |  |  | Yes                                                                                                                                                                                                                                                                                                        |  |  | Yes                                                                                                                                                                                                                                                                |  |  | Yes                                                                                                                                                                  | 
|                                                                                                  |  |  |                                                                                                                                                                                                                                                                                                            |  |  |                                                                                                                                                                                                                                                                    |  |  |                                                                                                                                                                      | 
|NIGC approval of management contract in current and desired
    form                              |  |  | No, submitted to the NIGC for review on March 22, 2005. The
    NIGC approved publication of the Final EA in December 2005 and
    no comments were received during the required 30-day comment
    period from the public. The NIGC is now able to issue a FONSI
    and approve the management contract. |  |  | No, submitted to the NIGC for review on March 22, 2005. The
    NIGC approved publication of the Final EA in December 2005 and
    no comments were received during the required 30-day comment
    period from the public. The NIGC issued a FONSI in March 2006. |  |  | No, submitted to the NIGC for review on March 22, 2005. The
    NIGC had provided a second set of comments to which the Tribe
    and Lakes have provided a response | 
|                                                                                                  |  |  |                                                                                                                                                                                                                                                                                                            |  |  |                                                                                                                                                                                                                                                                    |  |  |                                                                                                                                                                      | 

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|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                               |  |  |                                                                                                                                                          |  |  |                                        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | -------------------------------------- | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                               |  |  |                                                                                                                                                          |  |  |                                        | 
|Critical Milestone                                                                                                                                                       |  |  | Chilocco Casino Project                                                                                                                                                                                                                       |  |  | Travel Plaza                                                                                                                                             |  |  | Trading Post                           | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                               |  |  |                                                                                                                                                          |  |  |                                        | 
|Resolution of all litigation and legal obstacles                                                                                                                         |  |  | None at this time.                                                                                                                                                                                                                            |  |  | None at this time.                                                                                                                                       |  |  | None at this time.                     | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                               |  |  |                                                                                                                                                          |  |  |                                        | 
|Financing for construction                                                                                                                                               |  |  | No, preliminary discussions with lending institutions has
    occurred and the Pawnee Nation has issued a request for
    proposal. Several responses to the request for proposal have
    been received. A lender has not yet been selected. |  |  | No, The Pawnee Nation has received and approved, subject to
    minor negotiations, a commitment for financing from a lender for
    the desired amount. |  |  | None needed.                           | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                               |  |  |                                                                                                                                                          |  |  |                                        | 
|Any other significant project milestones or contingencies,
    the outcome of which could have a material affect on the
    probability of project completion as planned |  |  | No others known at this time by Lakes.                                                                                                                                                                                                        |  |  | No others known at this time by Lakes.                                                                                                                   |  |  | No others known at this time by Lakes. | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                               |  |  |                                                                                                                                                          |  |  |                                        | 



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





| |           
| | ----------
| | Iowa Tribe



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





Ioway Project.


63



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Cimarron Casino.


Arrangement with Consultant.


64



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| |                                               
| | ----------------------------------------------
| | Our Evaluation of the two Iowa Tribe Projects:



|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                  |  |  |                                                                                                                                                                        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                  |  |  |                                                                                                                                                                        | 
|                                                                                                                                                                         |  |  | Ioway Project                                                                                                                                                                                                                                                                                                    |  |  | Cimarron Casino                                                                                                                                                        | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                  |  |  |                                                                                                                                                                        | 
|Federal recognition of the tribe                                                                                                                                         |  |  | Yes                                                                                                                                                                                                                                                                                                              |  |  | Yes                                                                                                                                                                    | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                  |  |  |                                                                                                                                                                        | 
|Possession of usable land corresponding with needs based on
    our project plan                                                                                         |  |  | Yes, the Iowa Tribe is currently leasing and acquiring land from
    tribal members, which is held in trust for the individual tribal
    members by the United States Government. These transactions will
    need to be approved by the BIA.                                                                   |  |  | Yes, currently an open casino.                                                                                                                                         | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                  |  |  |                                                                                                                                                                        | 
|Usable land placed in trust by Federal government                                                                                                                        |  |  | Yes, the Iowa Tribe is currently leasing and acquiring land from
    tribal members, which is held in trust for the individual tribal
    members by the United States Government. These transactions will
    need to be approved by the BIA.                                                                   |  |  | Yes, currently an open casino.                                                                                                                                         | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                  |  |  |                                                                                                                                                                        | 
|Usable county agreement, if applicable                                                                                                                                   |  |  | N/A                                                                                                                                                                                                                                                                                                              |  |  | N/A                                                                                                                                                                    | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                  |  |  |                                                                                                                                                                        | 
|Usable state compact that allows for gaming consistent with
    that outlined in our project plan                                                                        |  |  | Yes                                                                                                                                                                                                                                                                                                              |  |  | Yes                                                                                                                                                                    | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                  |  |  |                                                                                                                                                                        | 
|NIGC approval of management contract in current and desired
    form                                                                                                     |  |  | No, submitted to the NIGC for review on April 22, 2005. An
    EA will be prepared in order for the management contract to be
    approved, which is expected to be completed in late 2006. There
    have been no comments on the consulting agreement from the NIGC
    and is therefore considered operative. |  |  | Yes, the NIGC approved the management contract in
    April 2006.                                                                                                      | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                  |  |  |                                                                                                                                                                        | 
|Resolution of all litigation and legal obstacles                                                                                                                         |  |  | None at this time, the acquisition of other tribal land needs to
    be approved by the BIA.                                                                                                                                                                                                                     |  |  | None at this time. The first part of the refurbished casino
    opened in May 2006.                                                                                    | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                  |  |  |                                                                                                                                                                        | 
|Financing for construction                                                                                                                                               |  |  | No, preliminary discussions with lending institutions has
    occurred.                                                                                                                                                                                                                                          |  |  | Permanent financing was obtained from a lending institution in
    December 2005 and Lakes was repaid all amounts outstanding
    under the business improvement loan. | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                  |  |  |                                                                                                                                                                        | 
|Any other significant project milestones or contingencies,
    the outcome of which could have a material affect on the
    probability of project completion as planned |  |  | No others known at this time by Lakes.                                                                                                                                                                                                                                                                           |  |  | No others known at this time by Lakes.                                                                                                                                 | 
|                                                                                                                                                                         |  |  |                                                                                                                                                                                                                                                                                                                  |  |  |                                                                                                                                                                        | 

65



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





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



Litigation defense costs:


Income taxes:






67



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Other Recent Accounting Pronouncements


Accounting for Uncertainty in Income Taxes Accounting for Income
Taxes.


Accounting for Certain Hybrid Instruments Accounting for Derivative
Instruments and Hedging Activities Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities.


Seasonality




Regulation and taxes






Off-balance sheet arrangements




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Private Securities Litigation Reform Act


10-Q




10-K







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







69



---



##### Table of Contents





3-month







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

13a-15(e)




70



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Part II.


Other Information





ITEM 1.LEGAL
PROCEEDINGS




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





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





70



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





| |                
| | ---------------
| | WPTE litigation



72



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






ITEM 1A. RISK FACTORS


10-K




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We are no longer subject to the risk that our common stock may
    not be re-listed on the Nasdaq Global Market, formerly the
    Nasdaq National Market. As previously announced, our common
    stock resumed trading on the Nasdaq Global Market on
    March 23, 2006 under the symbol LACO.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | On June 22, 2006, Lakes borrowed $105 million under a
    financing facility with BofA and the Lenders pursuant to the
    terms and conditions of a Credit Agreement among Lakes, Lakes
    Gaming and Resorts, LLC, BofA and the Lenders. Approximately
    $25.2 million of the initial draw was used to repay in full
    the aforementioned loan payable to PLKS. (Note 6) While the
    funds provided by the $105 million credit agreement with
    BofA allow us to move forward with our various casino
    development projects, we anticipate that we will incur
    additional pre-construction costs which will require us to
    obtain additional sources of financing during fiscal 2007 to
    meet our operational and development needs. Therefore, we will
    explore additional financing alternatives as needed. The
    financing is discussed in greater detail in Item 2
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations of this Quarterly
    Report on
    Form 10-Q.
|
| |  | We are no longer subject to the risk of financing all phases of
    the Pokagon Casino project as the Pokagon Band closed on a
    $305 million senior note financing in addition to a
    $75 million commitment for furniture, fixtures and
    equipment to fund the remainder of the Four Winds Casino
    project. The financing is discussed in greater detail in
    Item 2 Managements Discussion and Analysis of
    Financial Condition and Results of Operations of this
    Quarterly Report on
    Form 10-Q.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Warrants to purchase 3.21 million shares of common stock
    previously issued to PLKS have lapsed and are no longer
    exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            






|        |                                                    
|------- | ---------------------------------------------------
|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS







| |     |                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------
| | (1) | All nominees for directors as listed in the proxy statement were
    elected with the following vote:

|                   |  |                   |            |  |                    |  |           | 
|------------------ |  | ----------------- | ---------- |  | ------------------ |  | --------- | 
|                   |  | Affirmative Votes |            |  | Authority Withheld | 
|                   |  |                   |            |  |                    | 
|Lyle Berman        |  |                   | 20,278,168 |  |                    |  | 1,333,814 | 
|Timothy J. Cope    |  |                   | 20,172,740 |  |                    |  | 1,439,242 | 
|Morris Goldfarb    |  |                   | 21,564,993 |  |                    |  | 46,989    | 
|Neil I. Sell       |  |                   | 20,277,790 |  |                    |  | 1,334,192 | 
|Ray Moberg         |  |                   | 21,565,945 |  |                    |  | 46,037    | 
|Larry C. Barenbaum |  |                   | 21,565,421 |  |                    |  | 46,561    | 

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| |     |                                                                                                                                                                                                                           
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | The appointment of Piercy, Bowler, Taylor & Kern,
    Certified Public Accountants and Business Advisors, a
    Professional Corporation, as independent auditors of the Company
    was ratified with the following vote:

|                                 |  |                           |  |                       
|-------------------------------- |  | ------------------------- |  | ----------------------
|Affirmative Votes
    21,572,303 |  | Negative Votes
    16,446 |  | Abstentions
    23,233




ITEM 6.EXHIBITS


Exhibits


| |    |    |  |                                                                                                                                                                                      
| | -- | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 31 | .1 |  | Certification of CEO pursuant to Securities Exchange Act
    Rules 13a-15(e) and 15d-15(e) as adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                  
| | 31 | .2 |  | Certification of CFO pursuant to Securities Exchange Act
    Rules 13a-15(e) and 15d-15(e) as adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                  
| | 32 | .1 |  | Certification of Chief Executive Officer and Chief Financial
    Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES


10-Q




| |                          
| | -------------------------
| | LAKES ENTERTAINMENT, INC.
| | Registrant               
|
| | /s/ LYLE BERMAN          
| |                          



| |                              
| | -----------------------------
| | Lyle Berman                  
| | Chairman of the Board and    
| | Chief Executive Officer      
| | (Principal Executive Officer)
|
| | /s/ TIMOTHY J. COPE          
| |                              



| |                                             
| | --------------------------------------------
| | Timothy J. Cope                             
| | President and Chief Financial Officer       
| | (Principal Financial and Accounting Officer)



75