##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q/A
 Amendment No. 1
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended April 1, 2007
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission File No. 0-24993
 LAKES ENTERTAINMENT, INC.
 (Exact name of registrant as specified in its charter)
 Minnesota(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
  o þ o
 o þ




---



##### 



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
INDEX
 Page ofForm 10-QExplanatory Note
    
    
    3PART I. FINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTSCondensed Consolidated Balance Sheets as of April 1, 2007 (Unaudited) and December 31, 2006
    
    
    5Condensed Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss)
(Unaudited) for the three months ended April 1, 2007 and April 2, 2006
    
    
    6Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended April 1,
2007 and April 2, 2006
    
    
    7Notes to Condensed
Consolidated Financial Statements (Unaudited)
    
    
    8ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
    
    
    17ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    39ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    40PART II. OTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    41ITEM 1A.
    
    RISK FACTORS
    
    
    41ITEM 6.
    
    EXHIBITS
    
    
    41302 Certification of CEO302 Certification of CFO906 Certification of Chief Executive Officer and Chief Financial Officer
  2




---



##### Table of Contents



Explanatory Note for Amendment No. 1 on Form 10-Q/A
  Background
 Emerging Issues Task Force
00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Companys Own Stock
  Amendment to Form 10-Q
  Effects of Restatement
  3




---



##### Table of Contents



As of and forthe three months
endedApril
1, 2007Aspreviously(in thousands, except per share data):
    

reported
    

RestatedAdditional paid-in capital
    
    $
    177,792
    
    
    $
    176,627Retained earnings
    
    
    20,826
    
    
    
    21,991Interest expense, other (*)
    
    
    (2,588
    )
    
    
    (316
    )Net loss
    
    
    (12,093
    )
    
    
    (9,821
    )Loss per share  basic and diluted
    
    
    (0.53
    )
    
    
    (0.43
    )
 As ofDecember
31, 2006Aspreviously(in
thousands, except per share data):
    

reported
    

RestatedWarrant liability
    
    $
    
    
    
    $
    5,816Additional paid-in capital
    
    
    176,419
    
    
    
    171,710Retained earnings
    
    
    34,357
    
    
    
    33,250
 For thethree months endedApril
2, 2006Aspreviously(in
thousands, except per share data):
    

reported
    

RestatedInterest expense, other (*)
    
    $
    (531
    )
    
    $
    (2,182
    )Net earnings
    
    
    11,683
    
    
    
    10,032Earnings per share  basic
    
    
    0.52
    
    
    
    0.45Earnings per share 
diluted
    
    
    0.48
    
    
    
    0.42
 
 *
    
    Restated amount includes the quarterly fair value adjustment to the long-term liability
associated with the warrant as of February 28, 2007, the date on which the shares underlying the
warrant were registered for resale. 4




---



##### 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)(restated)
    
    
    (restated)ASSETSCurrent Assets:Cash and cash equivalents 
(balance includes $7.4 million and $8.4 million of WPT Enterprises, Inc. cash)
    
    $
    8,925
    
    
    $
    9,759Restricted cash
    
    
    
    
    
    
    12,738Short-term investments 
(balance includes $29.7 million and $31.3 million of WPT Enterprises, Inc. short-term investments)
    
    
    52,732
    
    
    
    59,863Accounts 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
    
    
    
    
    
    
    104,471Warrant liability
    
    
    
    
    
    
    5,816Total long-term liabilities
    
    
    
    
    
    
    110,287Total Liabilities
    
    
    28,050
    
    
    
    139,636Commitments 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
    
    
    176,627
    
    
    
    171,710Retained earnings
    
    
    21,991
    
    
    
    33,250Accumulated other comprehensive loss
    
    
    (26
    )
    
    
    (458
    )Total shareholders equity
    
    
    198,867
    
    
    
    204,776Total Liabilities and Shareholders Equity
    
    $
    243,034
    
    
    $
    361,176
  5




---



##### 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)(restated)
    
    
    (restated)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
    
    
    (316
    )
    
    
    (2,182
    )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
    
    
    (3,098
    )
    
    
    3,731Earnings (loss) before income tax and minority interest in net (earnings) loss of subsidiary
    
    
    (10,380
    )
    
    
    14,109Income tax
    
    
    322
    
    
    
    2,710Earnings (loss) before minority interest in net (earnings) loss of subsidiary
    
    
    (10,702
    )
    
    
    11,399Minority interest in net (earnings) loss of subsidiary
    
    
    881
    
    
    
    (1,367
    )Net earnings (loss)
    
    $
    (9,821
    )
    
    $
    10,032Other comprehensive earnings:Unrealized gains on marketable securities, net of tax
    
    
    23
    
    
    
    429Change in estimated fair value of derivatives
    
    
    409
    
    
    
    Comprehensive earnings (loss)
    
    $
    (9,389
    )
    
    $
    10,461Earnings (loss) per share  basic
    
    $
    (0.43
    )
    
    $
    0.45Earnings (loss) per share  diluted
    
    $
    (0.43
    )
    
    $
    0.42Weighted-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
  6




---



##### 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)(restated)
    
    
    (restated)OPERATING ACTIVITIES:Net earnings (loss)
    
    $
    (9,821
    )
    
    $
    10,032Adjustments 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
    
    
    
    Increase (decrease) in value of warrant liability
    
    
    (2,272
    )
    
    
    1,651Share-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
  7




---



##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
 
 Notes to Unaudited Condensed Consolidated Financial Statements
 1. Basis of Presentation
    2. Restatement
 Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Companys Own Stock
  8




---



##### Table of Contents



As of and forthe three months
endedApril
1, 2007AsPreviously(in thousands, except per share
data):
    

reported
    

RestatedAdditional paid-in capital
    
    $
    177,792
    
    
    $
    176,627Retained earnings
    
    
    20,826
    
    
    
    21,991Interest expense, other (*)
    
    
    (2,588
    )
    
    
    (316
    )Net loss
    
    
    (12,093
    )
    
    
    (9,821
    )Loss per share  basic and diluted
    
    
    (0.53
    )
    
    
    (0.43
    )
 As ofDecember
31, 2006As previously(in thousands, except per share
data):
    

reported
    

RestatedWarrant liability
    
    $
    
    
    
    $
    5,816Additional paid-in capital
    
    
    176,419
    
    
    
    171,710Retained earnings
    
    
    34,357
    
    
    
    33,250
 For thethree months endedApril
2, 2006As previously(in thousands, except per share
data):
    

reported
    

RestatedInterest expense, other (*)
    
    $
    (531
    )
    
    $
    (2,182
    )Net earnings
    
    
    11,683
    
    
    
    10,032Earnings per share  basic
    
    
    0.52
    
    
    
    0.45Earnings per
share 
diluted
    
    
    0.48
    
    
    
    0.42
 
 *
    
    Restated amount includes the quarterly fair value adjustment to the long-term liability
associated with the warrant as of February 28, 2007, the date on which the shares underlying the
warrant were registered for resale. 3. 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
 9




---



##### Table of Contents



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
 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%
 
 *
    
    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.  10




---



##### Table of Contents



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%
  4. Long-Term Debt
  5. 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. 11




---



##### Table of Contents




    
    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.
    
    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, 2007Weighted-
    
    
    
    
    
    
    
    
    
    
    Options Exercisable at April 1, 2007Average
    
    
    
    
    
    
    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
  12




---



##### Table of Contents



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.
 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
  13




---



##### Table of Contents



6. Earnings (Loss) Per Share
  7. Income Taxes
  14




---



##### Table of Contents



Accounting for Uncertainty in Income Taxes
    8. Other Contingencies:
 WPTE litigation.
 Miscellaneous legal matters.
 9. Segment Information
 ®
 15




---



##### Table of Contents



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
 10. Derivative Financial Instruments
   11. Subsequent Events
 WPTE change in broadcast partner.
 WPTE online gaming software and support agreement.
    Lakes stock warrant.
 16




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
  ®
 WPT Studios.
   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)
 17




---



##### Table of Contents



WPT Global Marketing.
  WPT Online. tm ® tm.
    18




---



##### Table of Contents



Results of Operations
  Three months ended April 1, 2007 compared to the three months ended April 2, 2006
 Revenues.
  Selling, general and administrative expenses.
 Production costs.
 19




---



##### Table of Contents



Impairment losses.
 Net realized and unrealized gains on notes receivable.
    Other income (expense).
   Taxes.
 Minority interest.
 Liquidity and Capital Resources
  20




---



##### Table of Contents



Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities
       21




---



##### 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.(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:
 Accounting by Producers or
Distributors of Films
 
    
    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.
 23




---



##### Table of Contents



Reporting Revenue Gross as a
Principal versus Net as an Agent
    Deferred television costs:
 Share-Based Compensation Expense: ®
 Accounting for
Stock-Based Compensation Accounting for Stock Issued to Employees
  24




---



##### Table of Contents



Income taxes: Accounting for Income Taxes,
   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
 25




---



##### Table of Contents




    
    The nature of the business opportunity to us, including whether the project would be a
financing, development and/or management opportunity.
 Recognition of Interest Income and Balance Sheet Classification of
Structured Notes
  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
   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.  27




---



##### Table of Contents



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%
   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
 28




---



##### Table of Contents



(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.(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:
   29




---



##### 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
  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 were 
reduced in year six)
    
    (management fees were 
reduced in year six)Year 7  11.5%
    
    Year 7  11.7%
 30




---



##### Table of Contents



Description of each Indian casino project and evaluation of critical milestones:
 Shingle Springs Tribe
 Business arrangement.
    Our evaluation of the critical milestones.
 31




---



##### Table of Contents



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.Resolution of all litigation
and legal obstacles
    
    No  See below.
    
    No  See below.
    
    No, Federal and state litigation
regarding approval of highway
interchange, environmental issues
and other issues.  See below.Financing for construction
    
    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:
   32




---



##### Table of Contents



Jamul Tribe
 Business arrangement.
      33




---



##### 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.Usable county agreement, if 
applicable
    
    N/A
    
    N/A
    
    N/AUsable state compact that 
allows for gaming consistent 
with that outlined in Lakes
project plan
    
    Yes
    
    Yes
    
    YesNIGC approval of management
contract in current and desired
form
    
    N/A as the Jamul Tribe and
Lakes entered into a
development financing and
services agreement in
March 2006, which does not
need to be approved by the
NIGC.
    
    N/A as the Jamul
Tribe and Lakes
entered into a
development
financing and
services agreement
in March 2006,
which does not need
to be approved by
the NIGC.
    
    No, submitted for
approval by the
NIGC in 2000. We
are in
communication with
the NIGC and have
responded to
initial comments.
Approval is not
expected until the
process to place
land in trust by
the BIA is
complete.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.
 34




---



##### 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.
     35




---



##### Table of Contents



Iowa Tribe
 Business arrangement.
  Ioway Casino.
   Cimarron Casino.
 Arrangement with Consultant.
 36




---



##### Table of Contents



Lakes Evaluation of the Ioway casino project.
 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, 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
    
    YesNIGC 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.
 37




---



##### Table of Contents



Pawnee Nation of Oklahoma
 Business arrangement.
    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
   38




---



##### Table of Contents



Off-balance sheet arrangements
  Private Securities Litigation Reform Act
    
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    39




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
     40




---



##### Table of Contents



Part II.
Other Information
 
 ITEM 1. LEGAL PROCEEDINGS
 El Dorado County, California litigation.
    WPTE litigation.
  Other litigation.
  
 ITEM 1A. RISK FACTORS
  
 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 2002.31.2
    
    Certification of CFO pursuant to Securities Exchange Act Rules
13a-15(e) and 15d-15(e) as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
 41




---



##### Table of Contents



SIGNATURES
  LAKES ENTERTAINMENT, INC.Registrant/s/ LYLE BERMANLyle BermanChairman of the Board and
Chief Executive Officer
(Principal Executive Officer) /s/ TIMOTHY J. COPETimothy J. CopePresident and Chief Financial Officer
(Principal Financial and Accounting Officer)  42