##### Table of Contents



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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    April 1, 2007oro

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

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

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




---



##### 



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

FINANCIAL STATEMENTSCondensed
    Consolidated Balance Sheets as of April 1, 2007 (Unaudited)
    and December 31, 2006


3Condensed
    Consolidated Statements of Earnings (Loss) and Comprehensive
    Earnings (Loss) (Unaudited) for the three months ended
    April 1, 2007 and April 2, 2006


4Condensed
    Consolidated Statements of Cash Flows (Unaudited) for the three
    months ended April 1, 2007 and April 2, 2006


5Notes to Condensed
    Consolidated Financial Statements (Unaudited)


6ITEM 2.

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


16ITEM 3.

QUANTITATIVE AND
    QUALITATIVE DISCLOSURES ABOUT MARKET RISK


43ITEM 4.

CONTROLS AND
    PROCEDURES


44PART II.
    OTHER INFORMATIONITEM 1.

LEGAL
    PROCEEDINGS


45ITEM 1A.

RISK
    FACTORS


45ITEM 6.

EXHIBITS


46Certification of CEOCertification of CFOSection 1350 Certifications   2




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Condensed
    Consolidated Balance Sheets
 April 1,
    2007 and December 31, 2006
  April 1,2007


December 31,(Unaudited)


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

$
8,925


$
9,759(balance includes $7.4 million
    and $8.4 million of WPT Enterprises, Inc. cash)Restricted cash






12,738Short-term investments


52,732



59,863(balance includes
    $29.7 million and $31.3 million of WPT Enterprises,
    Inc. short-term investments)Accounts receivable


2,387



2,963Other current assets


3,489



2,706Total current assets


67,533



88,029Property and equipment, net


17,871



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


68,643



164,308Land held for development


15,113



16,790Intangible assets


56,842



54,279Other


7,091



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


147,689



243,827Other assets:Restricted cash


456



453Investments


2,923



2,923Deferred tax asset


6,360



6,248Debt issuance costs






1,972Other long-term assets


202



264Total other assets


9,941



11,860Total Assets

$
243,034


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

$
3,840


$
5,345Income taxes payable


16,066



14,593Accrued payroll and related costs


1,284



2,480Deferred revenue


5,142



4,740Accrued interest






312Other accrued expenses


1,718



1,879Total current liabilities


28,050



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






104,471Total Liabilities


28,050



133,820Commitments and contingenciesMinority interest in subsidiary


16,117



16,764Shareholders Equity:Series A preferred stock,
    $.01 par value; authorized 7,500 shares; 4,458 issued
    and outstanding at April 1, 2007 and December 31, 2006


45



45Common stock, $.01 par value;
    authorized 200,000 shares; 23,007 and 22,949 issued and
    outstanding at April 1, 2007, and December 31, 2006,
    respectively


230



229Additional paid-in capital


177,792



176,419Retained earnings


20,826



34,357Accumulated other comprehensive loss


(26
)


(458
)Total shareholders
    equity


198,867



210,592Total Liabilities and
    Shareholders Equity

$
243,034


$
361,176    3




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Condensed
    Consolidated Statements of Earnings (Loss) and Comprehensive
    Earnings (Loss)
  Three Months EndedApril 1,


April 2,2007


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

$
3,768


$
4,677Host fees, sponsorship, online
    gaming and other


755



1,789Management, consulting and
    development fees


449



165Total Revenues


4,972



6,631Costs and Expenses:Selling, general and administrative


9,741



9,176Production costs


2,152



2,420Net impairment losses


331



Depreciation and amortization


195



133Total Costs and Expenses


12,419



11,729Net realized and unrealized
    gains on notes receivable


165



15,476Earnings (Loss) From
    Operations


(7,282
)


10,378Other Income
    (Expense):Interest income


1,138



433Interest expense, related party






(137
)Interest expense, other


(2,588
)


(531
)Amortization of debt issuance costs


(95
)


(136
)Loss on extinguishment of debt


(3,830
)


Gain on sale of investment






5,675Other


5



78Total other income (expense), net


(5,370
)


5,382Earnings (loss) before income
    tax and minority interest in net (earnings) loss of
    subsidiary


(12,652
)


15,760Income tax


322



2,710Earnings (loss) before minority
    interest in net (earnings) loss of subsidiary


(12,974
)


13,050Minority interest in net
    (earnings) loss of subsidiary


881



(1,367
)Net earnings (loss)

$
(12,093
)

$
11,683Other comprehensive
    earnings:Unrealized gains on marketable
    securities, net of tax


23



429Change in estimated fair value of
    derivatives


409



Comprehensive earnings
    (loss)

$
(11,661
)

$
12,112Earnings (loss) per
    share  basic

$
(0.53
)

$
0.52Earnings (loss) per
    share  diluted

$
(0.53
)

$
0.48Weighted-average common shares
    outstanding  basic


22,970



22,406Dilutive effect of common stock
    equivalents






1,709Weighted-average common shares
    outstanding  diluted


22,970



24,115    4




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Condensed
    Consolidated Statements of Cash Flows
  Three Months EndedApril 1,


April 2,2007


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

$
(12,093
)

$
11,683Adjustments to reconcile net
    earnings (loss) to net cash used in operating activities:Depreciation and amortization


278



269Amortization of debt issuance costs


95



165Amortization of debt discount


33



Share-based compensation


1,232



2,381Loss on extinguishment of debt


2,783



Net realized and unrealized gains
    on notes receivable


(1,227
)


(15,476
)Gain on sale of investment






(5,675
)Minority interest in net earnings
    (loss) of subsidiary


(881
)


1,367Deferred income taxes


(112
)


2,264Net impairment losses


331



Increases in operating (assets)
    liabilities:Accounts receivable


566



440Other current assets


(783
)


(853
)Income taxes payable


34



420Accounts payable


(41
)


(1,122
)Deferred revenue


403



4,250Accrued expenses


(1,669
)


(167
)Net cash used in operating
    activities


(11,051
)


(54
)INVESTING ACTIVITIES:Purchase of short-term investments


(26,630
)


(14,593
)Sale/maturity of short-term
    investments


33,785



5,410Collections on notes receivable


49



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


(6,598
)


(4,340
)Proceeds from sale of investment






5,686Purchase of property and equipment


(614
)


(804
)Increase in other long-term assets






(77
)Net cash used in investing
    activities


(8
)


(8,718
)FINANCING ACTIVITIES:Decrease in restricted cash


12,735



Unrestricted cash proceeds from
    long-term debt






22,227Repayment of long-term debt


(105,000
)


Repayment of long-term debt,
    related party






(10,000
)Cash proceeds from issuance of
    common and preferred stock


376



3,157Shareholder trading settlement






2,805Cash proceeds from sale of
    participation notes


102,114



Net cash provided by financing
    activities


10,225



18,189Net Increase (Decrease) in Cash
    and Cash Equivalents


(834
)


9,417Cash and Cash
    Equivalents  Beginning of Period


9,759



9,912Cash and Cash
    Equivalents  End of Period

$
8,925


$
19,329    5




---



##### Table of Contents



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


Springs


JamulBand


Tribe


Tribe


Other


TotalNotes receivable, at estimated
    fair value

$



$
42,934


$
22,751


$
2,958


$
68,643Intangible assets related to
    Indian casino projects


23,573



21,750



10,623



896



56,842Land held for development






6,992



6,751



1,370



15,113Other


60



1,516



966



4,549



7,091$
23,633


$
73,192


$
41,091


$
9,773


$
147,689   December 31, 2006ShinglePokagon


Springs


JamulBand


Tribe


Tribe


Other


TotalNotes receivable, at estimated
    fair value

$
100,544


$
40,912


$
20,754


$
2,098


$
164,308Intangible assets related to
    Indian casino projects


23,573



20,387



9,760



559



54,279Land held for development






8,739



6,710



1,341



16,790Other


60



2,041



2,207



4,142



8,450$
124,177


$
72,079


$
39,431


$
8,140


$
243,827  6




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
  Pokagon
    Band.
    Accounting for Transfers and Servicing of
    Financial Assets and Extinguishment of Liabilities
    Shingle
    Springs Tribe.
    As of April 1, 2007

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

$62,391

$55,942($46,627 principal and $15,764
    interest)

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

25 months

28 monthsProjected interest rate until
    casino opens

9.97%

9.98%Projected interest rate during the
    loan repayment term

9.92%

9.76%Discount rate

15%

15%Repayment terms of note*

84 months

Projected repayment terms of note**



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

85%

85%  7




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
    *
    
    Note is payable in even monthly installments over the course of
    the management agreement subsequent to the casino opening.**
    
    Note was previously payable in varying monthly installments
    based on contract terms subsequent to the casino opening.    Jamul
    Tribe.
    As of April 1, 2007

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

$36,154

$32,952($26,826 principal and $9,328
    interest)

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

29 months

29 monthsProjected interest rate until
    casino opens

9.97%

9.98%Projected interest rate during the
    loan repayment term

10.06%

9.76%Discount rate

15.75%

15.75%Projected repayment terms of note

120 months

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

85%

85%     3.
    Long-Term
    Debt   8




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
   4.
    Share-based
    Compensation    Three Months EndedApril 1,


April 2,2007


2006(In thousands)Total cost of share-based payment
    plans

$
1,232


$
1,602Amounts capitalized in deferred
    television costs


6



34Amounts charged against income,
    before income tax benefit

$
1,226


$
1,568       Lakes
    stock option plans:
  Three Months EndedApril 1,


April 2,Key valuation assumptions:

2007


2006Expected volatility


*



66.20
%Expected dividend yield


*



Risk-free interest rate


*



4.50
%Expected term (in years)


*



8.2 years     *
    
    There were no options granted during the three months ended
    April 1, 2007.  
    Expected volatility  The volatility assumption is
    based on the historical weekly price data of Lakes stock
    over a two-year period. Management evaluated whether there were
    factors during that period which were unusual and which would
    distort the volatility figure if used to estimate future
    volatility and concluded that there were no such factors.
    Forfeiture rate  As share-based compensation expense
    recognized is based on awards ultimately expected to vest,
    expense for grants beginning upon adoption of SFAS 123(R)
    will be reduced for estimated forfeitures. SFAS 123(R)
    requires forfeitures to be estimated at the time of grant and
    revised, if necessary, in subsequent periods if actual
    forfeitures differ from those estimates. The Company used
    historical data to estimate employee departure behavior in
    estimating future forfeitures. 9




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
   
    Expected term  The expected term of employee stock
    options represents the weighted-average period that the stock
    options are expected to remain outstanding. It is based upon an
    analysis of the historical behavior of option holders during the
    period from September 1995 to April 2, 2006. Management
    believes historical data is reasonably representative of future
    exercise behavior.
    Risk free interest rate  The risk free interest rate
    assumption is based on the U.S. Treasury yield curve in
    effect at the time of grant and with maturities consistent with
    the expected term of options.  The following table summarizes Lakes stock option
    activity during the three months ended April 1, 2007 and
    April 2, 2006:
  Number of Common SharesWeighted-Avg.Options





Available


ExerciseOutstanding


Exercisable


for Grant


Price2007Balance at December 31,
    2006


4,716,400



3,712,350



35,500


$
6.15Authorized














Granted














Forfeited/cancelled/expired














Exercised


(112,500
)










5.82Balance at April 1,
    2007


4,603,900



4,025,750



35,500


$
6.152006Balance at January 1,
    2006


5,307,626



4,153,476



94,500


$
6.03Authorized














Granted


30,000







(30,000
)


9.77Forfeited/cancelled/expired














Exercised


(550,000
)










5.65Balance at April 2,
    2006


4,787,626



3,711,626



64,500


$
6.10   The following table summarizes significant ranges of
    Lakes outstanding and exercisable options as of
    April 1, 2007:
  Options Outstanding at April 1, 2007


Options Exercisable at April 1, 2007Weighted-Average





Aggregate








AggregateNumber


Remaining


Weighted-Average


Intrinsic


Number


Weighted-


IntrinsicRange of Exercise Prices

Outstanding


Contractual Life


Exercise Price


Value


Exercisable


Average Price


Value$ (3.25  3.63)


286,200



4.2 years


$
3.45


$
2,201,730



286,200


$
3.45


$
2,201,730(3.64  5.45)


2,424,200



2.0 years



4.23



16,780,356



2,424,200



4.23



16,780,356(5.46  7.26)


60,000



6.7 years



7.18



238,500



45,000



7.18



178,875(7.27  9.08)


1,478,000



6.3 years



8.13



4,467,670



1,124,000



8.13



3,397,290(9.09  10.90)


102,000



5.0 years



10.43



73,300



27,050



10.48



18,083(10.91  12.71)


88,500



7.8 years



11.46



240



38,800



11.38



(12.72  14.53)


95,000



7.9 years



14.00







43,500



14.04



(14.54  16.34)


5,000



7.8 years



16.11







2,000



16.11



(16.35  18.16)


65,000



7.0 years



17.91







35,000



17.97



4,603,900



4.0 years


$
6.15


$
23,761,796



4,025,750


$
5.64


$
22,576,334  10




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
    WPTE
    stock option plan:
  Three Months EndedApril 1,


April 2,2007


2006Expected volatility


73.84
%


84.22
%Expected dividend yield






Risk-free interest rate


4.47
%


4.31
%Expected term (in years)


6 years



6.5 years   
    Expected volatility  As WPTE has a relatively short
    operating history and no definitive peer or peer groups,
    expected volatility was based on historical volatility of
    WPTEs stock price since it began trading in August 2004.
    Forfeiture rate  As share-based compensation expense
    recognized is based on awards ultimately expected to vest,
    expense for grants beginning upon adoption of SFAS 123(R)
    will be reduced for estimated forfeitures. SFAS 123(R)
    requires forfeitures to be estimated at the time of grant and
    revised, if necessary, in subsequent periods if actual
    forfeitures differ from those estimates. WPTE used historical
    data to estimate employee departure behavior in estimating
    future forfeitures.
    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  The risk free interest rate
    assumption is based on the U.S. Treasury yield curve in
    effect at the time of grant and with maturities consistent with
    the expected term of options. 11




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
   The following table summarizes WPTE stock option activity
    during the three months ended April 1, 2007 and
    April 2, 2006:
  Number of Common SharesWeighted-Avg.Options





Available


Exerciseoutstanding


Exercisable


for Grant


Price2007Balance at December 31,
    2006


2,318,166



1,050,200



983,501


$
6.76Authorized


Granted


287,000







(287,000
)


4.80Forfeited/cancelled/expired


(90,466
)






90,466



8.49Exercised














Balance at April 1,
    2007


2,514,700



1,010,533



786,967


$
6.472006Balance at January 1,
    2006


2,158,000



620,333



283,667


$
7.14Authorized














Granted


219,000







(219,000
)


6.20Forfeited/cancelled/expired


(159,333
)






159,333



8.13Exercised


(115,000
)










0.0049Balance at April 2,
    2006


2,102,667



785,500



224,000


$
7.36   The following table summarizes significant ranges of WPTE
    outstanding and exercisable options as of April 1,
    2007:
  Options Outstanding


Options ExercisableWeighted-Avg.


Weighted-


Aggregate








AggregateRange of

Number


Remaining


Avg. Exercise


Intrinsic


Number


Weighted-


IntrinsicExercise Prices

Outstanding


Contractual Life


Price


Value


Exercisable


Avg. Price


Value$ 0.0049


225,000



4.91


$
0.0049


$
1,155,398



225,000


$
0.0049


$
1,155,398$ 3.93 - 4.80


713,000



9.71



4.43



503,600











$ 5.18 - 9.92


1,333,366



7.73



7.56







720,533



7.95



$11.95 - 14.51


224,000



8.36



12.22







56,000



12.70



$15.05 - 19.50


19,334



8.36



15.28







9,000



15.38



2,514,700



8.10


$
6.47


$
1,658,998



1,010,533


$
6.51


$
1,155,398     5.
    Earnings
    (Loss) Per Share   12




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
    6.
    Income
    Taxes      Accounting for Uncertainty in Income Taxes
        7.
    Other
    Contingencies:  WPTE litigation.
 13




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
    Miscellaneous legal matters.
  8.
    Segment
    Information  ®
  Industry SegmentsIndianCasino


WPT


Corporate and


TotalProjects


Enterprises, Inc.


Eliminations


ConsolidatedTotal assets as of April 1,
    2007

$
144.4


$
48.9


$
49.7


$
243.0Total assets as of
    December 31, 2006

$
242.8


$
51.3


$
67.1


$
361.2For the three months ended
    April 1, 2007Revenue

$
0.5


$
4.5


$



$
5.0Earnings (loss) from operations


1.0



(2.9
)


(5.4
)


(7.3
)Depreciation and amortization
    expense






0.1



0.1



0.2For the three months ended
    April 2, 2006Revenue

$
0.1


$
6.5


$



$
6.6Earnings (loss) from operations


15.4



(1.1
)


(3.9
)


10.4Depreciation and amortization
    expense






0.1







0.1   9.
    Derivative
    Financial Instruments      10.
    Subsequent
    Events  WPTE change in broadcast
    partner.
 14




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
    WPTE online gaming software and support
    agreement.
        Lakes stock warrant.
   15




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Overview
    ®
  WPT Studios.
     16




---



##### Table of Contents



Date of TRV

Number ofAgreement or

EpisodesWorld Poker

Option for

(including


Production Period and DeliveryTour Season

Season

specials)


of Episodes to TRV

Initial Telecast of Episodes in SeasonSeason One

January 2003


15


February 2002   June 2003

March 2003   June
    2003Season Two

August 2003


25


July 2003   June 2004

December 2003 
    September 2004Season Three

May 2004


21


May 2004   April 2005

October 2004   August
    2005Season Four

March 2005


21


May 2005   April 2006

October 2005   June 2006Season Five

March 2006


22


May 2006   April 2007

August 2006   August
    2007
    (expected)         WPT Global Marketing.
    WPT Online. tm ® tm .
   17




---



##### Table of Contents



Results
    of Operations
  Form 10-Q
  Three
    months ended April 1, 2007 compared to the three months
    ended April 2, 2006
  Revenues.
 18




---



##### Table of Contents



Hands-on-Mobile.
    Selling, general and administrative
    expenses.
  Production costs.
  Impairment losses.
  Net realized and unrealized gains on notes
    receivable.
        Other income (expense).
 19




---



##### Table of Contents



Taxes.
  Minority interest.
  Liquidity
    and Capital Resources
      Accounting for Transfers and Servicing of
    Financial Assets and Extinguishment of Liabilities
     20




---



##### Table of Contents



Payment Due by PeriodLess than








More thanContractual Obligations

Total


1 year


1-3 years


3-5 years


5 yearsRemaining Casino Development
    Commitment(1)Jamul Tribe(2)

$



$



$



$



$
Shingle Springs Tribe(3)


















Pokagon Band(4)


















Iowa Tribe of Oklahoma (Iowa
    Tribe)  Ioway Project(5)


















Lakes operating leases(6)


0.9



0.8



0.1







WPTE operating leases(7)


3.8



0.9



1.8



1.1



WPTE purchase obligations(8)


3.1



1.0



1.8



0.3



$
7.8


$
2.7


$
3.7


$
1.4


$
     (1)
    
    We may be required to provide a guarantee of tribal debt
    financing or otherwise provide support for the tribal
    obligations related to any of the projects (see (2),
    (3) and (5) below). Any guarantees by us or similar
    off-balance sheet liabilities will increase our potential
    exposure in the event of a default by any of these tribes. No
    such guarantees or similar off-balance sheet liabilities existed
    at April 1, 2007.(2)
    
    Effective March 30, 2006, we entered into a development
    financing and services agreement with the Jamul Tribe. As part
    of the agreement, we will use our best efforts to obtain
    financing from which advances will be made to the Jamul Tribe of
    up to $350 million to pay for the design and construction
    of a casino project. It has been determined that the proposed
    gaming facility will be reduced in size and scope. The current
    plan is for the gaming facility to decrease in size and become a
    solely class II electronic gaming device facility which
    will not require a compact. The agreement between Lakes and the
    Jamul Tribe will be modified to reflect the new economics of the
    revised casino plan but will not be subject to approval by the
    State of California or the NIGC. 21




---



##### Table of Contents



(3)
    
    The development agreement, as amended, increases the amount of
    the pre-construction advances Lakes may make to the Shingle
    Springs Tribe in the form of a transition loan and land loan up
    to a maximum combined amount of $75.0 million, but it does
    not contractually require us to make such advances.(4)
    
    We 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 and the casino is open and
    operational. The payment is part of a settlement and release
    agreement associated with our obtaining the management contract
    with the Pokagon Band. 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 different
    third party on behalf of the Pokagon Band in accordance with the
    management contract which is payable once the casino opens over
    24 months.(5)
    
    We have agreed to make advances to the Iowa Tribe subject to a
    project budget to be agreed upon by us and the Iowa Tribe and
    certain other conditions. The development loan will be for
    preliminary development costs under the Ioway project budget. We
    have also agreed to use reasonable efforts to assist the Iowa
    Tribe in obtaining permanent financing for any projects
    developed under the Iowa consulting agreement.(6)
    
    We lease an airplane under a non-cancelable operating lease that
    expires on May 1, 2008.(7)
    
    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 lease obligations presented
    include rent payments for WPTEs Israel office facilities
    in Nahariya and Jerusalem. The amounts set forth in the table
    above include monthly lease payments through June 2011.(8)
    
    WPTE purchase obligations include the operational expenses
    associated with the development of WorldPokerTour.com. These
    expenses relate to the gaming (includes commitments for the
    internally created software platform and the CryptoLogic
    network) and non-gaming aspects of the website. Additionally,
    included in purchase obligations are open purchase orders of
    approximately $0.3 million as of April 1, 2007. These
    liabilities are included in other accrued expenses within the
    unaudited condensed consolidated financial statements.         22




---



##### Table of Contents



Critical
    Accounting Policies and Estimates
      Revenue recognition:
  No. 00-2, Accounting by Producers or Distributors of Films (SOP 00-2):
  
    Persuasive evidence of an arrangement exists;
    The show/episode is complete, and in accordance with the terms
    of the arrangement, has been delivered or is available for
    immediate and unconditional delivery;
    The license period has begun and the customer can begin its
    exploitation, exhibition or sale;
    The sellers price to the buyer is fixed and
    determinable; and
    Collectibility is reasonably assured.  99-19, Reporting Revenue Gross as a Principal versus Net as an Agent (EITF 99-19).
  EITF 99-19.
  EITF 99-19,
 23




---



##### Table of Contents



Deferred television costs: SOP 00-2.
  Share-Based Compensation Expense: ®
  Accounting
    for Stock-Based Compensation Accounting for Stock Issued to Employees
    Income taxes: Accounting for Income Taxes,
   24




---



##### Table of Contents



Form 10-Q Accounting for Uncertainty in
    Income Taxes
  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.  No. 96-12, Recognition of Interest Income and Balance Sheet
    Classification of Structured Notes No. 96-12).
 25




---



##### Table of Contents



Accounting by Creditors for Impairment of a
    Loan.
  Intangible assets related to Indian casino
    projects. Goodwill and Other Intangible Assets
  Land held for development.
  Other.
   26




---



##### Table of Contents



April 1, 2007ShinglePokagon


Springs


JamulBand


Tribe


Tribe


Other


TotalNotes receivable, at estimated
    fair value

$



$
42,934


$
22,751


$
2,958


$
68,643Intangible assets related to
    Indian casino projects


23,573



21,750



10,623



896



56,842Land held for development






6,992



6,751



1,370



15,113Other


60



1,516



966



4,549



7,091$
23,633


$
73,192


$
41,091


$
9,773


$
147,689   December 31, 2006ShinglePokagon


Springs


JamulBand


Tribe


Tribe


Other


TotalNotes receivable, at estimated
    fair value

$
100,544


$
40,912


$
20,754


$
2,098


$
164,308Intangible assets related to
    Indian casino projects


23,573



20,387



9,760



559



54,279Land held for development






8,739



6,710



1,341



16,790Other


60



2,041



2,207



4,142



8,450$
124,177


$
72,079


$
39,431


$
8,140


$
243,827    27




---



##### Table of Contents



Shingle
    Springs Tribe:
  As of April 1, 2007

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

$62,391

$55,942($46,627 principal and $15,764
    interest)

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

25 months

28 monthsProjected interest rate until
    casino opens

9.97%

9.98%Projected interest rate during the
    loan repayment term

9.92%

9.76%Discount rate

15%

15%Repayment terms of note*

84 months

Projected repayment terms of note**



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

85%

85%     *
    
    Note is payable in even monthly installments over the course of
    the management agreement subsequent to the casino opening.**
    
    Note was previously payable in varying monthly installments
    based on contract terms subsequent to the casino opening.    Jamul
    Tribe:
  As of April 1, 2007

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

$36,154

$32,952($26,826 principal and $9,328
    interest)

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

29 months

29 monthsProjected interest rate until
    casino opens

9.97%

9.98%Projected interest rate during the
    loan repayment term

10.06%

9.76%Discount rate

15.75%

15.75%Projected repayment terms of note

120 months

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

85%

85%      28




---



##### Table of Contents



April 1, 2007Estimated Fair


Sensitivity AnalysisValue Notes


5% Less


One Year





5% Increased


One YearReceivable


Probable


Delay


Both


Probability


Sooner


Both(In thousands)Shingle Springs

$
42,934


$
40,423


$
41,241


$
38,829


$
45,445


$
44,697


$
47,312Jamul

$
22,751


$
21,416


$
21,710


$
20,436


$
24,086


$
23,842


$
25,242$
65,685


$
61,839


$
62,951


$
59,265


$
69,531


$
68,539


$
72,554   December 31, 2006Estimated Fair


Sensitivity AnalysisValue Notes


5% Less


One Year





5% Increased


One YearReceivable


Probable


Delay


Both


Probability


Sooner


Both(In thousands)Shingle Springs

$
40,912


$
38,469


$
39,269


$
36,923


$
43,355


$
42,623


$
45,166Jamul

$
20,754


$
19,548


$
19,815


$
18,664


$
21,960


$
21,738


$
23,002$
61,666


$
58,017


$
59,084


$
55,587


$
65,315


$
64,361


$
68,168       Balance at April 1, 2007ShingleAdvances Principal Balance

Springs


Jamul


Other


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

$
46,176


$
25,876


$
2,794


$
74,846Note receivable, land(b),(c)


451



950



811



2,212$
46,627


$
26,826


$
3,605


$
77,058   Balance at December 31, 2006ShingleAdvances Principal Balance

Springs


Jamul


Other


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

$
42,310


$
23,559


$
1,386


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






950



756



1,706$
42,310


$
24,509


$
2,142


$
68,961     (a)
    
    We fund certain costs incurred to develop the casino project.
    These costs relate to construction costs, legal fees in
    connection with various regulatory approvals and litigation,
    environmental costs and design consulting, and 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. 29




---



##### Table of Contents



(c)
    
    Amounts listed under the other column represents amounts
    advanced under the agreements with the Iowa Tribe.    April 1,


December 31,Shingle Springs Tribe

2007


2006Monthly stipend

$
8,215


$
7,690Construction


1,673



1,657Legal


14,161



13,790Environmental


1,717



1,680Design


11,814



9,554Gaming license


3,676



3,626Lobbyist


4,920



4,313$
46,176


$
42,310   April 1,


December 31,Jamul Tribe

2007


2006Monthly stipend

$
4,606


$
4,451Construction


714



649Legal


3,832



3,675Environmental


2,246



1,985Design


11,164



9,578Gaming license


676



641Lobbyist


2,638



2,580$
25,876


$
23,559   Evaluation
    of impairment related to our long-term assets related to Indian
    casino projects, excluding the notes receivable, which are
    valued at fair value:
     30




---



##### Table of Contents



Pokagon
    Band
  April 1, 2007

December 31, 2006No. of Class III slot machines

3,000

3,000No. of Table games

90

90No. of Poker tables

20

20Win/Class III slot
    machine/day  1st year

$282

$282Win/Table game/day 
    1st year

$1,481

$1,481Win/Poker game/day 
    1st year

$1,025

$1,025Expected increase in management
    fee cash flows

Year 2  26.5%

Year 2  26.5%Year 3  4.3%

Year 3  4.3%Year 4  3.8%

Year 4  3.8%Year 5  4.1%

Year 5  4.1%     Jamul
    Tribe
    April 1,


December 31,2007


2006No. of Class II electronic
    gaming devices


1,000



1,000No. of Table games


20



20No. of Poker tables


5



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

$
250


$
250Win/Table game/day 
    1st year

$
900


$
900Win/Poker table/day 
    1st year

$
650


$
650    31




---



##### Table of Contents



Shingle
    Springs Tribe
  April 1, 2007

December 31, 2006No. of Class III slot machines

349

349No. of Class II electronic
    gaming devices

1,651

1,651No. of Table games

100

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

$350

$350Win/Table game/day 
    1st year

$1,275

$1,275Expected increase (decrease) in
    management fee cash flows

Year 2  20.5%

Year 2  8.0%Year 3  11.6%

Year 3  7.5%Year 4  8.5%

Year 4  7.1%Year 5  9.3%

Year 5  6.4%Year 6  1.4%

Year 6  (12.3)%(management fees

(management feeswere reduced in

were reduced inyear six)

year six)Year 7  11.5%

Year 7  11.7%       Description
    of each Indian casino project and evaluation of critical
    milestones:
  Shingle
    Springs Tribe
  Business arrangement.
   32




---



##### Table of Contents



Our evaluation of the critical milestones.
  Critical Milestone


April 1, 2007


December 31, 2006


January 1, 2006Federal recognition of the
    tribe


Yes


Yes


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


Yes


Yes


YesUsable land placed in trust by
    Federal government


Not necessary, as land is
    reservation land.


Not necessary, as land is
    reservation land.


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


Yes


Yes


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


Yes


Yes


YesNIGC approval of management
    contract in current and desired form


Yes  approval received
    in 2004.


Yes  approval received
    in 2004.


Yes  approval received
    in 2004. 33




---



##### Table of Contents



Critical Milestone


April 1, 2007


December 31, 2006


January 1, 2006Resolution of all litigation
    and legal obstacles


No  See below.


No  See below.


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


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:
       34




---



##### Table of Contents



Form 10-K
    Jamul
    Tribe
  Business arrangement. six-acre
         35




---



##### Table of Contents



Lakes Evaluation of the Critical
    Milestones.
  Critical Milestone


April 1, 2007


December 31, 2006


January 1, 2006Federal recognition of the
    tribe


Yes


Yes


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


Yes


Yes


YesUsable land placed in trust by
    Federal government


Not necessary, as land is
    reservation land.


Not necessary, as land is
    reservation land.


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. 36




---



##### Table of Contents



Critical Milestone


April 1, 2007


December 31, 2006


January 1, 2006Usable county agreement, if
    applicable


N/A


N/A


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


Yes


Yes


YesNIGC approval of management
    contract in current and desired form


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


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


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


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


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


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. 37




---



##### Table of Contents



Critical Milestone


April 1, 2007


December 31, 2006


January 1, 2006Any other significant project
    milestones or contingencies, the outcome of which could have a
    material affect on the probability of project completion as
    planned


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


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


No others known at this time by
    Lakes.   Lakes evaluation and conclusion regarding the above
    critical milestones and progress.
       38




---



##### Table of Contents



Iowa
    Tribe
  Business arrangement.
    Ioway Casino.
      Cimarron Casino.
  Arrangement with Consultant.
 39




---



##### Table of Contents



Lakes Evaluation of the Ioway casino
    project.
  April 1, 2007


December 31, 2006


January 1, 2006Federal recognition of the
    tribe


Yes


Yes


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


Yes, the Iowa Tribe has members
    that own a
    74-acre
    allotment on US Route 66 midway between the access points to
    Warwick and Chandler, Oklahoma from I44. The Iowa Tribe has
    acquired a majority interest in 59 acres of this parcel and is
    in the process of obtaining a majority interest in the remaining
    15 acres. An additional 100 acres of fee land has been acquired
    to provide the necessary site area for the beginning of the
    project.


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


Yes, the Iowa Tribe is currently
    leasing and acquiring land from tribal members,  which is held
    in trust for the individual tribal members by the United  States
    Government. These transactions will need to be approved by the
    BIA.Usable land placed in trust by
    Federal government


Yes, the Iowa Tribe is currently
    leasing and acquiring land from tribal members, which is held in
    trust for the individual tribal members by the
    United States Government. These transactions  will need to
    be approved by the BIA.


Yes, the Iowa Tribe is currently
    leasing and acquiring land from tribal members, which is held in
    trust for the individual tribal members by the
    United States Government. These transactions  will need to
    be approved by the BIA.


Yes, the Iowa Tribe is currently
    leasing and acquiring land from tribal members,  which is held
    in trust for the individual tribal members by the
    United States Government. These transactions will need to
    be approved by the BIA.Usable county agreement, if
    applicable


N/A


N/A


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


Yes


Yes


Yes 40




---



##### Table of Contents



April 1, 2007


December 31, 2006


January 1, 2006NIGC approval of management
    contract in current and desired form


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


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


No, submitted to the NIGC for
    review on  April 22, 2005. An EA will be prepared in order
    for the management contract to be approved.Resolution of all litigation
    and legal obstacles


None at this time.


None at this time.


None at this time.Financing for
    construction


No, preliminary discussions with
    lending institutions has occurred.


No, preliminary discussions with
    lending institutions has occurred.


No, preliminary discussions with
    lending institutions has occurred.Any other significant project
    milestones or contingencies, the outcome of which could have a
    material affect on the probability of project completion as
    planned


No others known at this time by
    Lakes.


No others known at this time by
    Lakes.


No others known at this time by
    Lakes.   Lakes evaluation and conclusion regarding the above
    critical milestones and progress.
  Pawnee
    Nation of Oklahoma
  Business arrangement.
   41




---



##### Table of Contents



Recently
    issued accounting pronouncements
  Fair Value Measurements The Fair Value Option for Financial
    Assets and Financial Liabilities  Including an
    amendment of FASB Statement No. 115
  Seasonality
    Regulation
    and taxes
      Off-balance
    sheet arrangements
   42




---



##### Table of Contents



Private
    Securities Litigation Reform Act
  Form 10-K
    Form 10-K
  ITEM 3.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK       43




---



##### Table of Contents



ITEM 4.
    CONTROLS
    AND PROCEDURES  Rules 13a-15(e)
   44




---



##### Table of Contents



Part II.
    Other Information  ITEM 1.
    LEGAL
    PROCEEDINGS  El
    Dorado County, California litigation.
  Form 10-K
      WPTE
    litigation.
    Other
    litigation.
    ITEM 1A.
    RISK
    FACTORS  Form 10-K
 45




---



##### Table of Contents



ITEM 6.
    EXHIBITS  Exhibits

Description31
.1

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

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

Certification of Chief Executive
    Officer and Chief Financial Officer pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002  46




---



##### Table of Contents



SIGNATURES
  Form 10-Q
  LAKES ENTERTAINMENT, INC.
 Registrant
  /s/  LYLE
    BERMAN       TIMOTHY
    J. COPE
       47