##### 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 1934For the quarterly period ended
    June 29, 2008oro

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

41-1913991(State or other jurisdiction
    of incorporation or organization)

(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
  Large accelerated
    filer o

Accelerated
    filer þNon-accelerated
    filer o  (Do
    not check if a smaller reporting company)

Smaller reporting
    company 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
    June 29, 2008 (unaudited) and December 30, 2007


3Unaudited Condensed Consolidated Statements of
    Earnings (Loss) and Comprehensive Earnings (Loss) for the three
    months and six months ended June 29, 2008 and
    July 1, 2007


4Unaudited Condensed Consolidated Statements of
    Cash Flows for the six months ended June 29, 2008 and
    July 1, 2007


5Notes to Unaudited Condensed Consolidated
    Financial Statements


6ITEM 2.

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


23ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK


51ITEM 4.

CONTROLS AND PROCEDURES


52PART II. OTHER INFORMATIONITEM 1.

LEGAL PROCEEDINGS


53ITEM 1A.

RISK FACTORS


53ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY
    HOLDERS


54ITEM 6.

EXHIBITS


54Certification of CEOCertification of CFOSection 1350 Certifications   2




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Condensed
    Consolidated Balance Sheets
  June 29,2008


December 30,(Unaudited)


2007(In thousands)ASSETSCurrent assets:Cash and cash equivalents(balances include $5.4 million and $3.9 million of WPT
    Enterprises, Inc.)

$
9,926


$
9,248Investments in marketable securities(balances include $6.4 million and $23.0 million of
    WPT Enterprises, Inc.)


6,394



53,546Accounts receivable


3,942



3,570Other current assets


1,923



3,028Total current assets


22,185



69,392Property and equipment, net


16,667



16,633Long-term assets related to Indian casino projects:Notes receivable from Indian tribes


79,611



78,795Land held for development


7,663



7,631Intangible assets, net of accumulated amortization of
    $6.2 million and $2.8 million


63,865



65,910Other


5,051



5,176Total long-term assets related to Indian casino projects


156,190



157,512Other assets:Investments in marketable securities(balances include $12.4 million and $4.2 million of
    WPT Enterprises, Inc.)


37,489



4,200Investment in unconsolidated investee


2,923



2,923Deferred tax asset


4,006



4,878Other long-term assets


664



563Total other assets


45,082



12,564Total assets

$
240,124


$
256,101LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable

$
2,061


$
1,559Income taxes payable


15,667



16,272Accrued payroll and related costs


1,677



2,788Deferred revenue


1,125



2,870Short-term debt


2,760



Current portion of contract acquisition costs payable, net of
    $1.2 million discount


2,333



1,903Other accrued expenses


1,907



2,074Total current liabilities


27,530



27,466Long-term Liabilities:Contract acquisition costs payable, net of current portion and
    $1.9 million and $2.5 million discount


6,110



7,342Total liabilities


33,640



34,808Commitments and contingenciesMinority interest in subsidiary


11,204



13,995Shareholders equity:Series A convertible, nonvoting preferred stock,
    $.01 par value, with no dividend rights and no liquidation
    preference; authorized 7,500 shares; 4,458 issued and
    outstanding at December 30, 2007






45Common stock, $.01 par value; authorized
    200,000 shares; 24,952 and 24,516 issued and outstanding at
    June 29, 2008, and December 30, 2007, respectively


250



245Additional paid-in capital


193,117



190,228Retained earnings


4,675



16,766Accumulated other comprehensive earnings (loss)


(2,762
)


14Total shareholders equity


195,280



207,298Total liabilities and shareholders equity

$
240,124


$
256,101    3




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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 endedJune 29,


July 1,


June 29,


July 1,2008


2007


2008


2007(In thousands, except per share data)(Unaudited)Revenues:License fees

$
3,395


$
6,072


$
6,971


$
9,839Host fees, sponsorship, online gaming and other


1,697



1,671



3,102



2,425Management, consulting and development fees


5,867



386



10,447



835Total revenues


10,959



8,129



20,520



13,099Costs and expenses:Selling, general and administrative


13,943



9,966



24,835



19,721Production costs


2,784



3,087



5,454



5,239Loss on abandonment of online gaming assets






2,270







2,270Net impairment losses














331Amortization of intangible assets related to Indian casino
    projects


1,680







3,361



Depreciation and amortization


211



191



399



386Total costs and expenses


18,618



15,514



34,049



27,947Net realized and unrealized gains (losses) on notes
    receivable


1,125



8,939



(858
)


9,104Earnings (loss) from operations


(6,534
)


1,554



(14,387
)


(5,744
)Other income (expense):Interest income


488



5,495



1,323



6,633Interest expense


(347
)






(714
)


(316
)Amortization of debt issuance costs














(95
)Loss on extinguishment of debt














(3,830
)Other


120



22



182



28Total other income (expense), net


261



5,517



791



2,420Earnings (loss) before income taxes and minority interest in
    net loss of subsidiary


(6,273
)


7,071



(13,596
)


(3,324
)Income taxes


431



348



1,119



656Earnings (loss) before minority interest in net loss of
    subsidiary


(6,704
)


6,723



(14,715
)


(3,980
)Minority interest in net loss of subsidiary


1,518



1,295



2,624



2,176Net earnings (loss)


(5,186
)


8,018



(12,091
)


(1,804
)Stock warrant inducement discount






1,444







1,444Net earnings (loss) applicable to common shareholders


(5,186
)


6,574



(12,091
)


(3,248
)Other comprehensive earnings (loss):Unrealized loss on marketable securities, net of tax


(379
)


(23
)


(2,776
)


Change in estimated fair value of derivative














409Comprehensive earnings (loss )

$
(5,565
)

$
6,551


$
(14,867
)

$
(2,839
)Earnings (loss) applicable to common shareholders per
    share  basic

($
0.21
)

$
0.28


($
0.49
)

($
0.14
)Earnings (loss) applicable to common shareholders per
    share  diluted

($
0.21
)

$
0.25


($
0.49
)

($
0.14
)Weighted-average common shares outstanding 
    basic


24,928



23,829



24,766



23,427Dilutive effect of common stock equivalents






2,077







Weighted-average common shares outstanding 
    diluted


24,928



25,906



24,766



23,427    4




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Condensed
    Consolidated Statements of Cash Flows
  Six months endedJune 29,


July 1,2008


2007(In thousands)(Unaudited)OPERATING ACTIVITIES:Net loss

$
(12,091
)

$
(1,804
)Adjustments to reconcile net loss to net cash used in operating
    activities:Depreciation and amortization


528



553Amortization of debt issuance costs






95Amortization of debt discount






33Decrease in value of warrant liability






(2,272
)Amortization of intangible assets related to Indian casino
    projects


3,361



Share-based compensation


859



2,443Loss on extinguishment of debt






2,783Loss on abandonment of online gaming assets






2,270Net realized and unrealized gains (losses) on notes receivable


858



(10,165
)Minority interest in net loss of subsidiary


(2,624
)


(2,176
)Deferred income taxes


872



(105
)Net impairment losses






331Changes in operating assets and liabilities:Accounts receivable


(374
)


(405
)Other current assets


1,104



427Income taxes payable


(605
)


270Accounts payable


637



347Deferred revenue


(1,745
)


(2,182
)Accrued expenses


(1,279
)


(1,035
)Contract acquisition costs payable


(801
)


Net cash used in operating activities


(11,300
)


(10,592
)INVESTING ACTIVITIES:Purchase of marketable securities


(13,887
)


(59,997
)Sale / maturity of marketable securities


24,975



63,257Proceeds from sale of land held for development






8,758Collections on notes receivable


1,762



3,690Increases in long-term assets related to Indian casino projects


(3,668
)


(13,495
)Advances on notes receivable


(1,117
)


Purchase of property and equipment


(570
)


(1,867
)Increase in other long-term assets


33



Net cash provided by investing activities


7,528



346FINANCING ACTIVITIES:(Increase) decrease in restricted cash


(137
)


12,844Proceeds from debt


3,000



Repayment of long-term debt


(240
)


(105,000
)Cash proceeds from issuance of common and preferred stock


1,827



9,158Cash proceeds from sale of notes receivable






102,114Net cash provided by financing activities


4,450



19,116Net increase in cash and cash equivalents


678



8,870Cash and cash equivalents  beginning of period


9,248



9,759Cash and cash equivalents  end of period

$
9,926


$
18,629    5




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes
    to Unaudited Condensed Consolidated Financial
    Statements
  1.
    Basis of
    presentation  and/or Form 10-K
      2.
    Fair
    Value Measurement  ,
    Fair Value Measurements
      i.e. etc.
     6




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
    Level 1


Level 3


Total(In thousands)Municipal Bonds(*)

$
803


$



$
803Auction rate securities(*)






36,398



36,398Corporate preferred securities(*)


5,818







5,818Certificates of deposit(*)


864







864Notes receivable from Indian Tribes (**)






79,611



79,611Total assets at estimated fair value (***)

$
7,485


$
116,009


$
123,494     (*)
    
    See Note 3.(**)
    
    See Note 4.(***)
    
    The Company chose not to elect the fair value option as offered
    by Statement of Financial Accounting Standards No. 159,
    The Fair Value Option for Financial Assets and Financial
    Liabilities  including an amendment of FAS 115,for its financial assets and liabilities that had not been
    previously carried at fair value. Therefore, material financial
    assets and liabilities not carried at fair value are still
    reported at carrying values.       7




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##### Table of Contents



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


Indian Tribes


TotalBeginning balance  December 30, 2007

$
38,400


$
78,795


$
117,195Total realized and unrealized gains (losses):Included in other comprehensive loss(*)


(2,778
)






(2,778
)Included in net unrealized losses on notes receivable






(858
)


(858
)Advances, net of allocation to intangible, other






1,674



1,674Purchases, issuances and settlements


776







776Ending balance  June 29, 2008 (unaudited)

$
36,398


$
79,611


$
116,009     (*)
    
    The Company considers the decline in the estimated fair value of
    its ARS to be temporary. Accordingly, the related unrealized
    loss is included in accumulated other comprehensive loss in the
    shareholders equity section of the balance sheet as of
    June 29, 2008.  3.
    Investment
    in marketable securities  Form 10-Q.
    GrossUnrealized


FairJune 29, 2008

Cost


Gains (Losses)


Value(Unaudited)Maturity dates less than one yearCorporate preferred securities

$
5,819


$
(1
)


5,818Certificates of deposit


576







576$
6,395


$
(1
)

$
6,394Final maturity dates greater than one yearMunicipal bonds

$
800


$
3


$
803Auction rate securities


39,176



(2,778
)


36,398Certificates of deposit


288







288$
40,264


$
(2,775
)

$
37,489   8




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##### Table of Contents



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


FairDecember 30, 2007

Cost


Gains (Losses)


ValueMaturity dates less than one yearU.S. treasury and agency securities

$
1,000


$



$
1,000Auction rate securities


38,400







38,400Short-term municipal bonds


1,000



1



1,001Corporate preferred securities


12,464



9



12,473Certificates of deposit


672







672$
53,536


$
10


$
53,546Maturity dates greater than one yearMunicipal bonds

$
1,827


$
(3
)

$
1,824Corporate preferred securities


1,985



7



1,992Certificates of deposit


384







384$
4,196


$
4


$
4,200     4.
    Long-term
    assets related to Indian casino projects  notes
    receivable     9




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##### Table of Contents



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


Springs


JamulBand


Tribe


Tribe


Other


TotalBalance, December 31, 2006

$
100,544


$
40,912


$
20,754


$
2,098


$
164,308Advances






5,321



5,606



2,639



13,566Sale of Pokagon Band notes receivable


(102,114
)














(102,114
)Allocation to intangible assets






(1,536
)


(2,212
)


(641
)


(4,389
)Consulting contracts














195



195Changes in estimated fair value(*)


1,570



8,895



(2,742
)


(494
)


7,229Balance, December 30, 2007






53,592



21,406



3,797



78,795Advances, net






656



1,085



161



1,902Allocation to intangible assets






(146
)


(565
)


(47
)


(758
)Consulting contracts














(57
)


(57
)Changes in estimated fair value(*)






(962
)


(975
)


(46
)


(1,983
)Balance, March 30, 2008






53,140



20,951



3,808



77,899Advances, net






175



944



45



1,164Allocation to intangible assets






(38
)


(507
)


(13
)


(558
)Consulting contracts














(19
)


(19
)Changes in estimated fair value(*)






1,273



(172
)


24



1,125Balance, June 29, 2008

$



$
54,550


$
21,216


$
3,845


$
79,611     (*)
    
    The changes in estimated fair value of notes receivable related
    to Indian casino projects are recorded as unrealized gains
    (losses) within the unaudited condensed consolidated statements
    of earnings (loss) and comprehensive earnings (loss).  Pokagon Band.
  Shingle Springs Tribe.
 10




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
    As of June 29, 2008

As of December 30, 2007(Unaudited)Face value of note (principal and interest)

$71,089

$67,585($48,462 principal and $22,627 interest)

($47,632 principal and $19,953 interest)Estimated months until casino opens

6 months

12 monthsProjected interest rate until
    casino opens

7.12%

9.12%Projected interest rate during the loan repayment term

8.58%

10.16%Discount rate

15%

15%Repayment terms of note(*)

84 months

84 monthsProbability rate of casino opening

95%

95%     (*)
    
    Note is payable in even monthly installments over the seven-year
    term of the management agreement subsequent to the casino
    opening.   11




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
  Jamul
    Tribe.
    As of June 29, 2008

As of December 30, 2007(Unaudited)Face value of note (principal and interest)

$46,173

$42,426($32,144 principal and $14,029 interest)

($30,114 principal and $12,312 interest)Estimated months until casino opens (weighted-average of three
    scenarios)

29 months

29 monthsProjected interest rate until casino opens

7.51%

9.12%Projected interest rate during the loan repayment term

9.40%

10.46%Discount rate

20.00%

20.00%Projected repayment terms of note

120 months

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

85%

85%    12




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
  5.
    Other
    long-term assets related to Indian casino projects  Intangible assets.
  ShinglePokagon


Springs


JamulBand


Tribe


Tribe


Other


TotalBalance, December 31, 2006

$
23,573


$
20,387


$
9,760


$
559


$
54,279Allocation of advances






1,536



2,212



641



4,389Acquisition of contract rights


10,000











78



10,078Amortization(*)


(2,798
)










(7
)


(2,805
)Impairment loss














(31
)


(31
)Balance, December 30, 2007


30,775



21,923



11,972



1,240



65,910Allocation of advances






146



565



47



758Amortization(*)


(1,679
)










(2
)


(1,681
)Balance, March 30, 2008 (unaudited)


29,096



22,069



12,537



1,285



64,987Allocation of advances






38



507



13



558Amortization(*)


(1,679
)










(1
)


(1,680
)Balance, June 29, 2008 (unaudited)

$
27,417


$
22,107


$
13,044


$
1,297


$
63,865     (*)
    
    Amortization expense primarily relates to the Four Winds Casino
    Resort, which commenced upon its opening in August of 2007.  Land held for development.
  Other.
  6.
    Contract
    acquisition costs payable   13




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
      7.
    Margin
    account agreement  and/or 30-day
  8.
    Share-based
    compensation    Three Months Ended

Six Months EndedJune 29,

July 1,

June 29,

July 1,2008

2007

2008

2007(In thousands)Total cost of share-based payment plans

$
399


$
1,203


$
859


$
2,435      14




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
    Lakes
    stock option plans:
  Three Months Ended


Six Months EndedJune 29,


July 1,


June 29,


July 1,Key valuation assumptions:

2008


2007


2008


2007Expected dividend yield














Risk-free interest rate


3.68
%


4.89
%


3.67
%


4.89
%Expected term (in years)


8.18 years



8.20 years



8.18 years



8.20 yearsExpected volatility


52.70
%


54.95
%


49.75
%


54.95
%Forfeiture rate














     
    Expected dividend yield  As the Company does not pay
    dividends, the dividend rate variable in the Black-Scholes model
    is zero.
    Risk free interest rate  The risk free interest rate
    assumption is based on the U.S. Treasury yield curve in effect
    at the time of grant and with maturities consistent with the
    expected term of options.
    Expected term (in years)  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 June 29,
    2008. Management believes historical data is reasonably
    representative of future exercise behavior.
    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 Statement of
    Financial Accounting Standards (SFAS) No. 123R,
    Share-Based Payment-Revised 2004(SFAS 123R) will be reduced for estimated
    forfeitures. SFAS 123R requires forfeitures to be estimated
    at the time of grant and revised, if necessary, in subsequent
    periods if actual forfeitures differ from those estimates. The
    Company has reviewed the historical forfeitures which are
    minimal, and as such will amortize the grants to the end of the
    vesting period and will adjust for forfeitures at the end of the
    term. 15




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##### Table of Contents



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





Available


exerciseoutstanding


Exercisable


for grant


price2008Balance at December 30, 2007


4,345,650



3,842,200



584,750


$
6.08Authorized














Granted


196,000







(196,000
)


5.73Forfeited/cancelled/expired














Exercised


(400,000
)










4.10Balance at March 30, 2008


4,141,650



3,798,200



388,750



6.25Authorized














Granted


75,000







(75,000
)


4.74Forfeited/cancelled/expired














Exercised


(40,000
)










5.41Balance at June 29, 2008


4,176,650



3,767,075



313,750


$
6.242007Balance at December 31, 2006


4,716,400



3,712,350



35,500


$
6.15Authorized














Granted














Forfeited/cancelled/expired














Exercised


(112,500
)










5.82Balance at April 1, 2007


4,603,900



4,025,750



35,500



6.15Authorized










500,000



Granted


2,500







(2,500
)


11.84Forfeited/cancelled/expired


(44,500
)






44,500



9.79Exercised


(74,500
)










5.83Balance at July 1, 2007


4,487,400



3,954,500



577,500


$
6.13  16




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
   Options outstanding at June 29, 2008





Options exercisable at June 29, 2008Weighted-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)


280,200



2.9 years


$
3.46


$
859,806



280,200


$
3.46


$
859,806(3.64  5.45)


2,045,700



1.6 years



4.25



4,654,522



1,868,700



4.21



4,326,472(5.46  7.26)


179,000



8.1 years



6.92



5,750



60,000



7.18



(7.27  9.08)


1,382,000



5.3 years



8.12







1,357,000



8.13



(9.09  10.90)


52,500



8.0 years



10.26







19,950



10.22



(10.91  12.71)


72,250



2.8 years



11.51







63,475



11.44



(12.72  14.53)


95,000



6.6 years



14.00







67,250



14.03



(14.54  16.34)


5,000



6.5 years



16.11







3,000



16.11



(16.35  18.16)


65,000



5.8 years



17.91







47,500



17.95



4,176,650



3.5 years


$
6.24


$
5,520,078



3,767,075


$
6.13


$
5,186,278     WPTE
    stock option plan:
  Three months ended


Six months endedJune 29,


July 1,


June 29,


July 1,Key valuation assumptions:

2008


2007


2008


2007Expected dividend yield














Risk-free interest rate


3.38
%


4.84
%


3.38
%


4.65
%Expected term (in years)


6 years



6 years



6 years



6 yearsExpected volatility


69.95
%


72.22
%


69.95
%


73.03
%Forfeiture rate


14.14
%


12.99
%


14.14
%


12.99
%     
    Expected dividend yield  As WPTE does not pay
    dividends, the dividend rate variable in the Black-Scholes model
    is zero.
    Risk free interest rate  The risk free interest rate
    assumption is based on the U.S. Treasury yield curve in effect
    at the time of grant and with maturities consistent with the
    expected term of options.
    Expected term (in years)  Due to WPTEs limited
    operating history including stock option exercises and
    forfeitures, WPTE calculated expected term for each grant using
    the Simplified Method in accordance with Staff
    Accounting Bulletins 107 and 110. 17




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
   
    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 123R
    will be reduced for estimated forfeitures. SFAS 123R
    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.    Number of common sharesWeighted-avg.Options





Available


exerciseoutstanding


Exercisable


for grant


price2008Balance at December 30, 2007


2,920,857



1,322,206



267,150


$
5.66Authorized














Granted














Forfeited/cancelled/expired


(83,600
)






83,600



4.33Exercised














Balance at March 30, 2008


2,837,257



1,412,373



350,750



5.70Authorized














Granted


52,000







(52,000
)


1.26Forfeited/cancelled/expired


(33,950
)






33,950



4.66Exercised














Balance at June 29, 2008


2,855,307



1,466,040



332,700


$
5.632007Balance at December 31, 2006


2,318,166



1,050,200



983,501


$
6.76Authorized














Granted


287,000







(287,000
)


4.80Forfeited/cancelled/expired


(90,466
)






90,466



8.49Exercised














Balance at April 1, 2007


2,514,700



1,010,533



786,967



6.47Authorized














Granted


182,000







(182,000
)


4.53Forfeited/cancelled/expired


(85,667
)






85,667



5.25Exercised


(113,660
)










0.0049Balance at July 1, 2007


2,497,373



912,139



690,634


$
6.67  18




---



##### Table of Contents



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


Options exercisableWeighted-avg.


Weighted-


Aggregate








AggregateRange of

Number


remaining


avg. exercise


intrinsic


Number


Weighted-


intrinsicexercise prices

outstanding


contractual life


price


value


exercisable


avg. price


value$ 0.0049


111,340



3.66


$
0.0049


$
119,702



111,340


$
0.0049


$
119,702$ 1.26  4.80


1,290,100



9.05



3.33







160,200



4.50



$ 5.18  9.92


1,293,866



6.47



7.57







1,120,166



7.82



$11.95  14.51


154,000



7.12



12.18







70,000



12.47



$15.05  19.50


6,001



7.06



15.79







4,334



16.08



2,855,307



7.56


$
5.63


$
119,702



1,466,040


$
7.11


$
119,702       9.
    Earnings
    (Loss) per share    10.
    Income
    Taxes     19




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
      11.
    Legal
    Proceedings  Louisiana Department of Revenue litigation tax
    matter.
  WPTE litigation. ®
  Miscellaneous legal matters.
 20




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
  12.
    Segment
    Information  ®
  Industry SegmentsIndiancasino


WPTE


Corporate &projects


Domestic


International


eliminations


ConsolidatedTotal assets as of June 29, 2008

$
158.7


$
32.2


$



$
49.2


$
240.1Total assets as of December 30, 2007

$
158.2


$
41.7


$



$
56.2


$
256.1For the three months ended June 29, 2008Revenue

$
5.9


$
3.6


$
1.5


$



$
11.0Earnings (loss) from operations


5.0



(4.1
)






(7.4
)


(6.5
)Depreciation and amortization






0.1







0.1



0.2Amortization of intangible assets related to Indian casino
    projects


1.7















1.7For the three months ended July 1, 2007Revenue

$
0.4


$
6.5


$
1.2


$



$
8.1Earnings (loss) from operations


9.1



(3.6
)






(3.9
)


1.6Depreciation and amortization






0.1







0.1



0.2Loss on abandonment of online gaming assets






2.3











2.3For the six months ended June 29, 2008Revenue

$
10.5


$
6.8


$
3.2


$



$
20.5Earnings (loss) from operations


5.6



(7.3
)






(12.7
)


(14.4
)Depreciation and amortization






0.2







0.2



0.4Amortization of intangible assets related to Indian casino
    projects


3.4















3.4For the six months ended July 1, 2007Revenue

$
0.8


$
10.0


$
2.2


$
0.1


$
13.1Net impairment charges


0.3















0.3Earnings (loss) from operations


10.0



(6.5
)






(9.2
)


(5.7
)Depreciation and amortization






0.2







0.2



0.4Loss on abandonment of online gaming assets






2.3











2.3  21




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Condensed Consolidated Financial
    Statements  (Continued)
  13.
    Subsequent
    Events  Shingle Springs Tribe compact
    amendment.
  WPTE partnership with Fox Sports Network
    (FSN). one-hour
  one-hour
 22




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Overview
    
    We developed and have a five-year contract to manage the Four
    Winds Casino Resort for the Pokagon Band of Potawatomi Indians
    (the Pokagon Band) in New Buffalo Township, Michigan
    near Interstate 94. Lakes began managing the Four Winds Casino
    Resort when it opened to the public on August 2, 2007. The
    Four Winds Casino Resort is located near the first Interstate 94
    exit in southwestern Michigan and approximately 75 miles
    east of Chicago. The facility features approximately 3,000 slot
    machines and approximately 85 table games as well as
    multiple restaurants and bars, a parking garage, a hotel and
    other facilities.
    We are currently managing the Cimarron Casino for the Iowa Tribe
    of Oklahoma, a federally recognized Indian Tribe, and the Iowa
    Tribe of Oklahoma, a federally-chartered corporation
    (collectively, the Iowa Tribe) in Perkins, Oklahoma,
    under a seven-year management contract, which commenced in 2006.
    We have contracts to develop and subsequently manage for seven
    years the Red Hawk Casino, which is being built on the Rancheria
    of the Shingle Springs Band of Miwok Indians (the Shingle
    Springs Tribe) in El Dorado County, California,
    adjacent to U.S. Highway 50, approximately 30 miles
    east of Sacramento, California. The Red Hawk Casino is planned
    to open in late 2008.
    We have contracts to develop and finance a casino to be built on
    the reservation of the Jamul Indian Village (the Jamul
    Tribe) located on Interstate 94, approximately
    20 miles east of San Diego, California (the
    Jamul Casino). The Jamul Casino project has been
    delayed due to issues with road access to the proposed Jamul
    Casino site. The Jamul Tribe has continued construction on their
    reservation of the driveway road leading to the Jamul Casino
    site. CalTrans recently issued a letter to the Jamul Tribe
    indicating that it will not currently allow the driveway road to
    be used to access a casino operation. The Jamul Tribes
    outside counsel reviewed the letter and is of the opinion that
    the letter lacked legal merit and, as such, the likelihood of
    completion of this project will not be impacted as a result of
    CalTans position. In addition to its work with CalTrans,
    the Jamul Tribe has submitted an application to the Bureau of
    Indian Affairs (the BIA) for recognition of an
    access drive across its land to create a second means of access
    to the site over an Indian reservation road. We and the leaders
    of the Jamul Tribe are currently evaluating plans for the Jamul
    Casino facility to determine when construction of the facility
    will start and when casino operations will begin. We continue to
    believe that adequate financing will be obtained and the project
    will be successfully completed.
    We have a consulting agreement and management contract with the
    Iowa Tribe in connection with developing, equipping and managing
    the Ioway Casino Resort which is planned to be built near Route
    66 and approximately 25 miles northeast of Oklahoma City,
    Oklahoma. 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 need to be approved by the BIA. Lakes submitted its
    management contract with the Iowa Tribe for the Ioway Casino
    Resort to the National Indian Gaming Commission (the
    NIGC) for review in 2005. The NIGC has stated that
    it is waiting for the BIA to approve all land leases before it
    will issue an opinion on the management contract.   23




---



##### Table of Contents



®
    WPT Studios (tm)
      one-hour
   24




---



##### Table of Contents



case-by-case
      WPT Global Marketing
      WPT Online
       25




---



##### Table of Contents



customer-by-customer
  one-hour
    WPT China.
 26




---



##### Table of Contents



22-25,
  Results
    of Operations
  Form 10-Q
  Three
    months ended June 29, 2008 compared to the three months
    ended July 1, 2007
  Revenues.
  Selling, general and administrative
    expenses.
  Production costs.
  Gross margins.
  Amortization of intangible assets related to Indian casino
    projects.
 27




---



##### Table of Contents



Net unrealized gains on notes receivable.
  Other income.
  Income Taxes. Form 10-Q).
  Minority interest.
  Six
    months ended June 29, 2008 compared to the six months ended
    July 1, 2007
  Revenues.
  Selling, general and administrative
    expenses.
  Production costs.
 28




---



##### Table of Contents



Gross margins.
  Amortization of intangible assets related to Indian casino
    projects.
  Net realized and unrealized gains (losses) on notes
    receivable.
  Other income. Form 10-Q).
    Income Taxes. Form 10-Q).
  Minority interest.
  Outlook.
 29




---



##### Table of Contents




    To deliver the remaining three episodes of Season Six of the WPT
    television series in the third quarter of 2008.
    Lower gross margins for domestic television in 2008 versus 2007
    as a result of the terms of the agreement with GSN.
    To recognize host fee and sponsorship revenues as remaining WPT
    Season Six domestic episodes are premiered during the third
    quarter of 2008.
    Increased subscribers to ClubWPT.com as a result of creating a
    new poker program, which is expected to begin airing on FSN in
    September 2008, to drive awareness and traffic to the website.
    To recognize international sponsorship revenues as episodes are
    aired during the third and fourth quarters of 2008.
    To not obtain license fees relating to Season Seven of the WPT,
    which is expected to begin airing in December 2008.
    To seek sponsorship revenues relating to Season Seven of the WPT.
    To launch Season Two of the Traktor Poker Tour and begin to
    recognize revenue from China-related activities by the fourth
    quarter of 2008.    
    To incur production costs relating to Season Seven of the WPT
    while seeking sponsorship revenues.
    Lower selling, general and administrative costs in online gaming.
    Higher sales and marketing costs associated with producing the
    new ClubWPT.com poker program.
    Increased costs associated with launching Season Two of the
    Traktor Poker Tour and to have a fully integrated online and
    mobile platform by the end of the third quarter of 2008.    Liquidity
    and Capital Resources
  Form 10-Q). Form 10-Q.
   30




---



##### Table of Contents



and/or
        and/or
   31




---



##### Table of Contents



Payment due by periodLess than








More thanContractual obligations

Total


1 year


1-3 years


3-5 years


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

$



$



$



$



$
Shingle Springs Tribe(3)


















Pokagon Band(4)


8.4



2.3



3.3



2.8



Iowa Tribe  Ioway Project(5)


















Lakes operating lease(6)


3.9



0.4



0.8



0.8



1.9WPTE operating leases(7)


2.7



0.9



1.8







WPTE purchase obligations(8)


3.9



2.7



1.2







$
18.9


$
6.3


$
7.1


$
3.6


$
1.9     (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 also (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 June 29, 2008.(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 of up to $350 million from which advances will be
    made to the Jamul Tribe to pay for the design and construction
    of a casino project. The current plan is for a smaller scale
    gaming facility that will become a solely class II
    electronic gaming device facility which will not require a
    compact with the State of California. The agreement between
    Lakes and the Jamul Tribe is being modified to reflect the new
    economics of the revised casino plan but will not be subject to
    approval by the State of California or the NIGC.(3)
    
    The development agreement between Lakes and the Shingle Springs
    Tribe, as amended, provided for Lakes to make certain
    pre-construction advances 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. On June 28, 2007, an
    affiliate of the Shingle Springs Tribe closed on a
    $450 million senior note financing to fund the Red Hawk
    Casino project. The transition loan remains outstanding as of
    June 29, 2008. The land loan was repaid to Lakes, including
    accrued interest, on June 28, 2007 in connection with the
    close of the $450 million senior note financing.(4)
    
    Upon opening of the Four Winds Casino Resort, we became
    obligated to pay approximately $11 million to an unrelated
    third party as part of an agreement associated with our
    obtaining the management contract with the Pokagon Band, payable
    in quarterly installments over five years. We are also obligated
    to pay approximately $3 million over 24 months to a
    separate, unrelated third party on behalf of the Pokagon Band in
    accordance with the management contract, which also became
    payable upon the opening of the casino. (See Note 6 to the
    unaudited condensed consolidated financial statements in
    Part I, Item 1 of this Quarterly Report on
    Form 10-Q).(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)
    
    Lakes leases an airplane under a non-cancelable operating lease
    that expires on March 1, 2018. 32




---



##### Table of Contents



(7)
    
    WPTE operating lease obligations include rent payments for WPTE
    corporate offices pursuant to two lease agreements. For the
    first lease, monthly lease payments are approximately $40,000
    and escalate to approximately $45,000 over the remaining lease
    term. For the second lease, monthly lease payments are
    approximately $31,000 and escalate up to approximately
    $33,000 over the remaining lease term. The lease obligations
    presented also include rent payments for WPTEs office
    facility in London. 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
    obligations relate to the gaming and non-gaming aspects of the
    website. Also included are operational expenses related to WPT
    China. Additionally, included in purchase obligations are open
    purchase orders of approximately $0.4 million as of
    June 29, 2008; a three year base retainer with Antonio
    Esfandiari, who serves as WPTEs spokesperson for both
    online gaming and ClubWPT.com; and minimum guaranteed revenue to
    CryptoLogic associated with the Initial Casino of
    $0.5 million per year or $0.1 million per quarter.
    Upon launch of the Full Casino, projected to be delivered by
    October 2008, CryptoLogic will be entitled to a minimum revenue
    guarantee of $0.8 million per year or $0.2 million per
    quarter.    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. 33




---



##### Table of Contents



99-19, Reporting Revenue Gross as a Principal versus Net as an
    Agent (EITF 99-19).
  EITF 99-19.
  EITF 99-19,
    Deferred television costs. SOP 00-2.
  Share-based compensation expense.
  Income taxes. Accounting for Income Taxes
    (SFAS No. 109).
 34




---



##### Table of Contents



Accounting for Uncertainty in Income Taxes
  Investments in marketable
    securities. Accounting for Certain Investments in
    Debt and Equity Securities Form 10-Q.
    and/or
  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 35




---



##### Table of Contents




    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).
    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.
 36




---



##### Table of Contents



June 29, 2008ShinglePokagon


Springs


JamulBand


Tribe


Tribe


Other


Total(Unaudited)Notes receivable, at estimated fair value

$



$
54,550


$
21,216


$
3,845


$
79,611Intangible assets related to Indian casino projects


27,417



22,107



13,044



1,297



63,865Land held for development










6,815



848



7,663Other


60



767



879



3,345



5,051$
27,477


$
77,424


$
41,954


$
9,335


$
156,190   December 30, 2007ShinglePokagon


Springs


JamulBand


Tribe


Tribe


Other


TotalNotes receivable, at estimated fair value

$



$
53,592


$
21,406


$
3,797


$
78,795Intangible assets related to Indian casino projects


30,775



21,923



11,972



1,240



65,910Land held for development










6,783



848



7,631Other


60



767



1,061



3,288



5,176$
30,835


$
76,282


$
41,222


$
9,173


$
157,512    37




---



##### Table of Contents



Shingle
    Springs Tribe:
  As of June 29, 2008

As of December 30, 2007(Unaudited)Face value of note (principal and interest)

$71,089

$67,585($48,462 principal and $22,627 interest)

($47,632 principal and $19,953 interest)Estimated months until casino opens

6 months

12 monthsProjected interest rate until casino opens

7.12%

9.12%Projected interest rate during the loan repayment term

8.58%

10.16%Discount rate

15%

15%Repayment terms of note(*)

84 months

84 monthsProbability rate of casino opening

95%

95%     (*)
    
    Note is payable in even monthly installments over the course of
    the management agreement subsequent to the casino opening.    Jamul
    Tribe:
  As of June 29, 2008

As of December 30, 2007(Unaudited)Face value of note (principal and interest)

$46,173

$42,426($32,144 principal and $14,029 interest)

($30,114 principal and $12,312 interest)Estimated months until casino opens (weighted-average of three
    scenarios)

29 months

29 monthsProjected interest rate until casino opens

7.51%

9.12%Projected interest rate during the loan repayment term

9.40%

10.46%Discount rate

20.00%

20.00%Projected repayment terms of note

120 months

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

85%

85%    38




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##### Table of Contents



June 29,
    2008
  Estimated fair


Sensitivity analysisvalue notes


5% less


One year





5% increased


One yearreceivable


probable


delay


Both


probability


sooner


Both(In thousands)Shingle Springs

$
54,550


$
51,645


$
50,882


$
48,171


$
57,455


$
58,479


$
61,590Jamul


21,216



19,958



19,038



17,909



22,474



23,641



25,041$
75,766


$
71,603


$
69,920


$
66,080


$
79,929


$
82,120


$
86,631   December 30,
    2007
  Estimated fair


Sensitivity analysisvalue notes


5% less


One year





5% increased


One yearreceivable


probable


delay


Both


probability


sooner


Both(In thousands)Shingle Springs

$
53,592


$
50,732


$
50,998


$
48,275


$
56,452


$
56,316


$
59,319Jamul

$
21,406


$
20,151


$
19,540


$
18,395


$
22,661


$
23,450


$
24,826$
74,998


$
70,883


$
70,538


$
66,670


$
79,113


$
79,766


$
84,145       As of June 29, 2008ShingleAdvances Principal Balance

Springs


Jamul


Other(c)


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

$
48,462


$
31,194


$
3,696


$
83,352Note receivable, land(b)






950



986



1,936$
48,462


$
32,144


$
4,682


$
85,288   As of December 30, 2007ShingleAdvances Principal Balance

Springs


Jamul


Other(c)


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

$
47,632


$
29,164


$
3,490


$
80,286Note receivable, land(b)






950



986



1,936$
47,632


$
30,114


$
4,476


$
82,222     (a)
    
    We fund certain costs to develop the casino projects. These
    costs relate to construction costs, legal fees in connection
    with various regulatory approvals and litigation, environmental
    costs and design consulting, and 39




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##### Table of Contents



we, in order to obtain the development agreement and management
    contract, agree to advance a monthly amount used by the tribes
    for a variety of tribal expenses.(b)
    
    We purchased land to be used and transferred to the tribe in
    connection with the casino projects.(c)
    
    Amounts listed in the other column represents amounts advanced
    under the agreements with the Iowa Tribe.    June 29,


December 30,Shingle Springs Tribe

2008


2007(Unaudited)Monthly stipend

$
10,690


$
9,640Construction


1,922



2,141Legal


14,193



14,193Environmental


1,739



1,739Design


11,224



11,225Gaming license


3,726



3,726Lobbyist


4,968



4,968$
48,462


$
47,632   June 29,


December 30,Jamul Tribe

2008


2007(Unaudited)Monthly stipend

$
5,378


$
5,069Construction


1,819



1,210Legal


4,441



4,342Environmental


2,292



2,288Design


13,719



12,782Gaming license


848



779Lobbyist


2,697



2,694$
31,194


$
29,164   Evaluation
    of impairment related to our long-term assets related to Indian
    casino projects, excluding the notes receivable, which are
    valued at fair value:
     40




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##### Table of Contents



Jamul
    Tribe
    June 29,


December 30,2008


2007(Unaudited)No. of Class II electronic gaming devices


1,000



1,000No. of Table games


20



20No. of Poker tables


5



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

$
172


$
172Win/Table game/day  1st year

$
471


$
471Win/Poker table/day  1st year

$
312


$
312     Shingle
    Springs Tribe
 June 29,

December 30,2008

2007(Unaudited)No. of Class III slot machines

349

349No. of Class II electronic gaming devices

1,651

1,751No. of Table games

75

75Win/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  17.6%

Year 2  17.6%Year 3  10.5%

Year 3  10.5%Year 4  7.9%

Year 4  7.9%Year 5  8.8%

Year 5  8.8%Year 6  (4.0)%

Year 6  (4.0)%(management fees were

(management fees werereduced in year six)

reduced in year six)Year 7  5.0%

Year 7  5.0%    41




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##### Table of Contents



Description
    of each Indian casino project and evaluation of critical
    milestones:
  Pokagon
    Band
  Business arrangement.
  Shingle
    Springs Tribe
  Business arrangement.
         42




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##### Table of Contents



Our evaluation of the critical milestones.
  Critical milestone


June 29, 2008


December 30, 2007


December 31, 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


YesUsable state compact that allows for gaming consistent with
    that outlined in Lakes project plan


Yes


Yes


YesNIGC approval of management contract in current and desired
    form


Yes


Yes


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


No  However, such obstacles have not interfered with
    construction of the highway interchange or the casino project to
    date. See below.


No  However, such obstacles have not interfered with
    construction of the highway interchange or the casino project to
    date. See below.


No  See below.Financing for construction


Yes. On June 28, 2007 an affiliate of the Shingle Springs Tribe
    closed on a $450 million senior note financing to fund the Red
    Hawk Casino project in Shingle Springs, California. The Shingle
    Springs Tribe currently intends to close on commitments to fund
    up to $85 million under secured furniture, furnishings and
    equipment financing to finance costs associated with equipping
    and furnishing the Red Hawk Casino.


Yes. On June 28, 2007 an affiliate of the Shingle Springs Tribe
    closed on a $450 million senior note financing to fund the Red
    Hawk Casino project in Shingle Springs, California. The Shingle
    Springs Tribe intends to seek commitments to fund approximately
    $65 million under secured furniture, furnishings and equipment
    financing to finance costs associated with equipping and
    furnishing the Red Hawk Casino.


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:
 43




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##### Table of Contents



Jamul
    Tribe
  Business arrangement. six-acre
 44




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##### Table of Contents



Our evaluation of the critical milestones.
 45




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##### Table of Contents



Critical milestone


June 29, 2008


December 30, 2007


December 31, 2006Federal recognition of the tribe


Yes


Yes


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


Yes


Yes


YesUsable land placed in trust by Federal government


Not necessary, as the land 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/AUsable state compact that allows for gaming consistent with
    that outlined in Lakes project plan


N/A  the Jamul Tribes current plan is to
    operate a solely class II electronic gaming device
    facility, which does not require a compact with the State.


N/A  the Jamul Tribes current plan is to
    operate a solely class II electronic gaming device
    facility, which does not require a compact with the State.


YesNIGC approval of management contract in current and desired
    form


N/A as the Jamul Tribes current plan is to operate a
    solely class II electronic gaming device facility, which
    does not need to be approved by the NIGC.


N/A as the Jamul Tribes current plan is to operate a
    solely class II electronic gaming device facility, 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.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.Financing for construction


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


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


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


Yes. The current plan is for the gaming facility to be a solely
    class II electronic gaming device facility. The agreement
    between Lakes and the Jamul Tribe will also 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. See below for a discussion relating to road access to the
    proposed Jamul Casino site.


Yes. The current plan is for the gaming facility to be a solely
    class II electronic gaming device facility. The agreement
    between Lakes and the Jamul Tribe will also 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.


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.   Our evaluation and conclusion regarding the above critical
    milestones and progress. land-in-trust
   46




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##### Table of Contents



Iowa
    Tribe
  Business arrangement.
    Ioway Casino Resort.
    Cimarron Casino.
 47




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##### Table of Contents



Arrangement with Consultant.
  Our evaluation of the Ioway Casino Resort.
  Critical milestone


June 29, 2008


December 30, 2007


December 31, 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 obtained the
    rights to purchase and/or lease the majority of this parcel from
    the allottees. It is likely that approximately 14 acres of
    the 74-acre
    allotment will not be obtained, but the casino can be
    constructed on the remaining 60 acres held in majority by
    the Tribe.  An additional 100 acres of fee land has been
    optioned to provide the necessary site area for the beginning of
    the project before the casino resort development can begin.


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 substantially all of 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 before the casino resort development
    can begin.


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.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 48




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##### Table of Contents



Critical milestone


June 29, 2008


December 30, 2007


December 31, 2006NIGC approval of management contract in current and desired
    form


No, submitted to the NIGC for review on April 22, 2005. An EA
    was prepared and on September 12, 2007, the NIGC issued their
    notice of approval of a Finding Of No Significant Impact
    (FONSI) for the EA. The 30 day public comment
    period for the FONSI ended on November 2, 2007 without any
    comment from the public. The expiration of the comment period
    now allows the NIGC to approve the management contract. The NIGC
    has stated that it is waiting for the BIA to approve all land
    leases before it will issue an opinion on the management
    contract. 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
    was prepared and on September 12, 2007, the NIGC issued their
    notice of approval of a FONSI for the EA. The 30 day
    public comment period for the FONSI ended on November 2, 2007
    without any comment from the public. The expiration of the
    comment period now allows the NIGC to approve the management
    contract. The NIGC has stated that it is waiting for the BIA to
    approve all land leases before it will issue an opinion on the
    management contract. 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.Resolution of all litigation and legal obstacles


None at this time.


None at this time.


None at this time.Financing for construction


No, however, preliminary discussions with lending institutions
    have occurred.


No, however, preliminary discussions with lending institutions
    has occurred.


No, however, 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.   Our evaluation and conclusion regarding the above critical
    milestones and progress.
    Recently
    issued accounting pronouncements
  Fair Value Measurements The Fair Value Option for Financial
    Assets and Financial Liabilities  including an
    amendment of FAS 115 (SFAS No. 159).
  Noncontrolling Interests in Consolidated Financial
    Statements-an amendment of ARB No. 51
    (SFAS No. 160),
 49




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##### Table of Contents



Seasonality
    Regulation
    and taxes
      Off-balance
    sheet arrangements
    Private
    Securities Litigation Reform Act
  Form 10-Q
     50




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##### Table of Contents



Form 10-K, Form 10-Q.
  ITEM 3.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    Form 10-Q.
     51




---



##### Table of Contents



ITEM 4.
    CONTROLS
    AND PROCEDURES  Rules 13a-15(e)
   52




---



##### Table of Contents



Part II.
    Other Information  ITEM 1.
    LEGAL
    PROCEEDINGS  WPTE
    litigation.
    Miscellaneous
    legal matters.
    ITEM 1A.
    RISK
    FACTORS  Form 10-K,
  If we
    are unable to liquidate our investments in ARS to provide
    liquidity when and as needed, and we are unable to obtain
    additional financing in order to satisfy our cash requirements,
    we may be forced to delay, scale back or eliminate some of our
    expansion and development goals, or cease our operations
    entirely.
  and/or
        If the
    referendum to amend the Ohio constitution to permit casino
    gaming fails to get put on the November 4, 2008 Ohio
    statewide election ballot, or if the referendum is put on the
    ballot but it is not passed by the Ohio voters, or if the
    referendum passes but it is subsequently challenged or other
    events prevent the Ohio project, it is unlikely we will be
    repaid amounts loaned to the joint venture.
   53




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##### Table of Contents



We may
    be adversely impacted by economic factors beyond our control and
    may incur additional impairment charges to our investment
    portfolio.
  Form 10-Q.
  and/or
  ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS        Affirmative Votes


Authority WithheldLyle Berman


22,583,472



691,851Timothy J. Cope


21,244,477



2,030,846Morris Goldfarb


22,610,471



664,852Neil I. Sell


19,748,812



3,526,511Ray Moberg


22,612,217



663,106Larry C. Barenbaum


22,611,673



663,650Richard White


22,612,565



662,758     Affirmative Votes
    23,008,230

Negative Votes
    239,964

Abstentions
    27,129

Broker Non-Vote
       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  54




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##### Table of Contents



SIGNATURES
  Form 10-Q
  LAKES ENTERTAINMENT, INC. Registrant
  
       
       55