##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-Q


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | For the quarterly period ended April 3, 2005                                                
|          
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             

Commission File No. 0-24993


LAKES ENTERTAINMENT, INC.


(Exact name of registrant as specified in its charter)


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

(952) 449-9092


(Registrants telephone number, including area code)


o þ


þ o


o þ












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##### 



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


INDEX







|                                                   |  |                                                                                                                                                 |  |           |    | 
|-------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | -- | 
|                                                   |  |                                                                                                                                                 |  | Page of   |   
|                                                   |  |                                                                                                                                                 |  | Form 10-Q |   
|                                                   |  |                                                                                                                                                 |  |           |   
|PART I. FINANCIAL INFORMATION                      |  |                                                                                                                                                 |  |          
|ITEM 1.                                            |  | FINANCIAL STATEMENTS                                                                                                                            |  |           |    | 
|                                                   |  | Condensed Consolidated Balance Sheets as of
    April 3, 2005 (unaudited) and January 2, 2005                                                   |  |           | 3  | 
|                                                   |  | Unaudited Condensed Consolidated Statements
    of Loss for the three months ended April 3, 2005 and
    April 4, 2004 (restated)               |  |           | 4  | 
|                                                   |  | Unaudited Condensed Consolidated Statements
    of Comprehensive Loss for the three months ended April 3,
    2005 and April 3, 2004 (restated) |  |           | 5  | 
|                                                   |  | Unaudited Condensed Consolidated Statements
    of Cash Flows for the three months ended April 3, 2005 and
    April 4, 2004 (restated)         |  |           | 6  | 
|                                                   |  | Notes to Unaudited Condensed Consolidated
    Financial Statements                                                                              |  |           | 7  | 
|ITEM 2.                                            |  | MANAGEMENTS DISCUSSION AND ANALYSIS
    OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                                       |  |           | 18 | 
|ITEM 3.                                            |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES
    ABOUT MARKET RISK                                                                                  |  |           | 52 | 
|ITEM 4.                                            |  | CONTROLS AND PROCEDURES                                                                                                                         |  |           | 52 | 
|PART II. OTHER INFORMATION                         |  |                                                                                                                                                 |  |          
|ITEM 1.                                            |  | LEGAL PROCEEDINGS                                                                                                                               |  |           | 53 | 
|ITEM 6.                                            |  | EXHIBITS                                                                                                                                        |  |           | 56 | 
|Certification of CEO Pursuant to Section 302      
|Certification of CFO Pursuant to Section 302      
|Certification of CEO & CFO Pursuant to Section 906



2



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Condensed Consolidated Balance Sheets


April 3, 2005 and January 2, 2005


|                                                         |                                                                                                                                                                           |                                                                                                |         |         |                 |   |         |         |   | 
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ------- | ------- | --------------- | - | ------- | ------- | - | 
|                                                         |                                                                                                                                                                           | April 3, 2005                                                                                  |         |         | January 2, 2005 |  
|                                                         |                                                                                                                                                                           |                                                                                                |         |         |                 |  
|                                                         |                                                                                                                                                                           | (Unaudited)                                                                                    |         |         |                
|                                                         |                                                                                                                                                                           | (In thousands)                                                                                 |        
|ASSETS                                                  
|Current assets:                                          |                                                                                                                                                                           |                                                                                                |         |         |                 |   |         |        
|                                                         | Cash and cash equivalents                                                                                                                                                 |                                                                                                | $       | 36,949  |                 |   | $       | 28,717  |  
|                                                         |                                                                                                                                                                           | (balance includes $12.2 million and $4.5 of WPT
    Enterprises, Inc. cash)                    |         |         |                 |   |         |         |   | 
|                                                         | Short-term investments                                                                                                                                                    |                                                                                                |         | 19,447  |                 |   |         | 28,930  |  
|                                                         |                                                                                                                                                                           | (balance includes $19.5 million and $27.8 of WPT
    Enterprises, Inc. short-term investments) |         |         |                 |   |         |         |   | 
|                                                         | Accounts receivable                                                                                                                                                       |                                                                                                |         | 1,223   |                 |   |         | 2,038   |  
|                                                         | Deferred tax asset                                                                                                                                                        |                                                                                                |         | 166     |                 |   |         | 137     |  
|                                                         | Prepaids                                                                                                                                                                  |                                                                                                |         | 1,008   |                 |   |         | 1,233   |  
|                                                         | Other current assets                                                                                                                                                      |                                                                                                |         | 1,873   |                 |   |         | 1,159   |  
|                                                         |                                                                                                                                                                           |                                                                                                |         |         |                 |  
|Total current assets                                     |                                                                                                                                                                           |                                                                                                | 60,666  |         |                 |   | 62,214  |        
|                                                         |                                                                                                                                                                           |                                                                                                |         |         |                 |  
|Property and equipment, net of accumulated depreciation  |                                                                                                                                                                           |                                                                                                | 7,310   |         |                 |   | 6,795   |        
|                                                         |                                                                                                                                                                           |                                                                                                |         |         |                 |  
|Long-term assets related to Indian casino projects       |                                                                                                                                                                           |                                                                                                |         |         |                 |   |         |        
|                                                         | Notes receivable, Indian Tribes                                                                                                                                           |                                                                                                |         | 71,609  |                 |   |         | 67,066  |  
|                                                         | Land held for development                                                                                                                                                 |                                                                                                |         | 15,516  |                 |   |         | 15,433  |  
|                                                         | Intangible asset related to acquisition of management contracts                                                                                                           |                                                                                                |         | 42,045  |                 |   |         | 41,096  |  
|                                                         | Other                                                                                                                                                                     |                                                                                                |         | 2,417   |                 |   |         | 2,024   |  
|                                                         |                                                                                                                                                                           |                                                                                                |         |         |                 |  
|Total long-term assets related to Indian casino projects |                                                                                                                                                                           |                                                                                                | 131,587 |         |                 |   | 125,619 |        
|                                                         |                                                                                                                                                                           |                                                                                                |         |         |                 |  
|                                                         | Investments                                                                                                                                                               |                                                                                                |         | 5,266   |                 |   |         | 6,093   |  
|                                                         | Deferred tax asset                                                                                                                                                        |                                                                                                |         | 4,278   |                 |   |         | 4,278   |  
|                                                         | Other                                                                                                                                                                     |                                                                                                |         | 4,092   |                 |   |         | 4,090   |  
|                                                         |                                                                                                                                                                           |                                                                                                |         |         |                 |  
|Total assets                                             |                                                                                                                                                                           | $                                                                                              | 213,199 |         |                 | $ | 209,089 |        
|                                                         |                                                                                                                                                                           |                                                                                                |         |         |                 |  
|                                                        
|LIABILITIES AND SHAREHOLDERS EQUITY                    
|Current liabilities:                                     |                                                                                                                                                                           |                                                                                                |         |         |                 |   |         |        
|                                                         | Accounts payable                                                                                                                                                          |                                                                                                | $       | 1,490   |                 |   | $       | 780     |  
|                                                         | Income taxes payable                                                                                                                                                      |                                                                                                |         | 10,026  |                 |   |         | 5,457   |  
|                                                         | Accrued payroll and related costs                                                                                                                                         |                                                                                                |         | 490     |                 |   |         | 891     |  
|                                                         | Deferred revenue                                                                                                                                                          |                                                                                                |         | 3,601   |                 |   |         | 3,280   |  
|                                                         | Other accrued expenses                                                                                                                                                    |                                                                                                |         | 4,518   |                 |   |         | 3,449   |  
|                                                         |                                                                                                                                                                           |                                                                                                |         |         |                 |  
|Total liabilities                                        |                                                                                                                                                                           |                                                                                                | 20,125  |         |                 |   | 13,857  |        
|                                                         |                                                                                                                                                                           |                                                                                                |         |         |                 |  
|Commitments and contingencies                            |                                                                                                                                                                           |                                                                                                |         |         |                 |   |         |        
|Common shares issued by subsidiary subject to repurchase |                                                                                                                                                                           |                                                                                                | 629     |         |                 |   | 618     |        
|Minority interest                                        |                                                                                                                                                                           |                                                                                                | 10,991  |         |                 |   | 11,222  |        
|Shareholders equity:                                    |                                                                                                                                                                           |                                                                                                |         |         |                 |   |         |        
|                                                         | Capital stock, $.01 par value; authorized
    200,000 shares; 22,300 and 22,253 common shares issued and
    outstanding at April 3 and January 2, 2005,
    respectively |                                                                                                |         | 223     |                 |   |         | 223     |  
|                                                         | Additional paid-in capital                                                                                                                                                |                                                                                                |         | 158,118 |                 |   |         | 157,895 |  
|                                                         | Retained earnings                                                                                                                                                         |                                                                                                |         | 23,161  |                 |   |         | 25,280  |  
|                                                         | Accumulated other comprehensive loss                                                                                                                                      |                                                                                                |         | (48     | )               |   |         | (6      | )
|                                                         |                                                                                                                                                                           |                                                                                                |         |         |                 |  
|Total shareholders equity                               |                                                                                                                                                                           |                                                                                                | 181,454 |         |                 |   | 183,392 |        
|                                                         |                                                                                                                                                                           |                                                                                                |         |         |                 |  
|Total liabilities and shareholders equity               |                                                                                                                                                                           | $                                                                                              | 213,199 |         |                 | $ | 209,089 |        
|                                                         |                                                                                                                                                                           |                                                                                                |         |         |                 |  



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Condensed Consolidated Statements of Loss


|                                                                                      |                                         |                            |        |            |               |   |        |       |       | 
|------------------------------------------------------------------------------------- | --------------------------------------- | -------------------------- | ------ | ---------- | ------------- | - | ------ | ----- | ----- | 
|                                                                                      |                                         | Three Months Ended         |       
|                                                                                      |                                         |                            |       
|                                                                                      |                                         | April 3, 2005              |        |            | April 4, 2004 |  
|                                                                                      |                                         |                            |        |            |               |  
|                                                                                      |                                         |                            |        | (Restated) |              
|                                                                                      |                                         | (Unaudited)                |       
|                                                                                      |                                         | (In thousands, except loss |       
|                                                                                      |                                         | per share)                 |       
|Revenues:                                                                             |                                         |                            |        |            |               |   |        |      
|                                                                                      | License fee income                      |                            | $      | 3,463      |               |   | $      | 3,643 |      
|                                                                                      | Host fees, sponsorship and other        |                            |        | 641        |               |   |        | 497   |      
|                                                                                      |                                         |                            |        |            |               |  
|                                                                                      |                                         | Total revenues             |        |            | 4,104         |   |        |       | 4,140 | 
|                                                                                      |                                         |                            |        |            |               |  
|Costs and expenses:                                                                   |                                         |                            |        |            |               |   |        |      
|                                                                                      | Selling, general and administrative     |                            |        | 6,463      |               |   |        | 3,248 |      
|                                                                                      | Production costs                        |                            |        | 3,187      |               |   |        | 2,472 |      
|                                                                                      | Depreciation                            |                            |        | 92         |               |   |        | 143   |      
|                                                                                      |                                         |                            |        |            |               |  
|                                                                                      |                                         | Total costs and expenses   |        |            | 9,742         |   |        |       | 5,863 | 
|                                                                                      | Net unrealized gain on notes receivable |                            |        | 2,836      |               |   |        | 576   |      
|                                                                                      |                                         |                            |        |            |               |  
|Loss from operations                                                                  |                                         |                            | (2,802 | )          |               |   | (1,147 | )    
|                                                                                      |                                         |                            |        |            |               |  
|Other income:                                                                         |                                         |                            |        |            |               |   |        |      
|                                                                                      | Interest income                         |                            |        | 449        |               |   |        | 48    |      
|                                                                                      | Other                                   |                            |        |           |               |   |        | 40    |      
|                                                                                      |                                         |                            |        |            |               |  
|                                                                                      |                                         | Total other income         |        |            | 449           |   |        |       | 88    | 
|                                                                                      |                                         |                            |        |            |               |  
|Loss before income taxes, equity in earnings of investments and
    minority interest |                                         |                            | (2,353 | )          |               |   | (1,059 | )    
|Income tax provision (benefit)                                                        |                                         |                            | 355    |            |               |   | (407   | )    
|                                                                                      |                                         |                            |        |            |               |  
|Loss before equity in earnings of investments and minority
    interest               |                                         |                            | (2,708 | )          |               |   | (652   | )    
|Equity in earnings of investments, net of tax                                         |                                         |                            | 13     |            |               |   | 260    |      
|                                                                                      |                                         |                            |        |            |               |  
|Loss before minority interest                                                         |                                         |                            | (2,695 | )          |               |   | (392   | )    
|Minority interest in net loss of subsidiary                                           |                                         |                            | 576    |            |               |   |       |      
|                                                                                      |                                         |                            |        |            |               |  
|Net loss                                                                              |                                         | $                          | (2,119 | )          |               | $ | (392   | )    
|                                                                                      |                                         |                            |        |            |               |  
|Loss per share, basic and diluted                                                     |                                         | $                          | (0.10  | )          |               | $ | (0.02  | )    
|                                                                                      |                                         |                            |        |            |               |  
|Weighted average common shares outstanding                                            |                                         |                            | 22,267 |            |               |   | 21,770 |      
|                                                                                      |                                         |                            |        |            |               |  



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Condensed Consolidated Statements of Comprehensive Loss


|                                      |                               |                    |        |            |               |   |      |   | 
|------------------------------------- | ----------------------------- | ------------------ | ------ | ---------- | ------------- | - | ---- | - | 
|                                      |                               | Three Months Ended |       
|                                      |                               |                    |       
|                                      |                               | April 3, 2005      |        |            | April 4, 2004 |  
|                                      |                               |                    |        |            |               |  
|                                      |                               |                    |        | (Restated) |              
|                                      |                               | (Unaudited)        |       
|                                      |                               | (In thousands)     |       
|Net loss                              |                               | $                  | (2,119 | )          |               | $ | (392 | )
|Other comprehensive loss, net of tax: |                               |                    |        |            |               |   |      |  
|                                      | Unrealized loss on securities |                    |        | (42        | )             |   |      |  | 
|                                      |                               |                    |        |            |               |  
|Comprehensive loss                    |                               | $                  | (2,161 | )          |               | $ | (392 | )
|                                      |                               |                    |        |            |               |  



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Condensed Consolidated Statements of Cash Flows


|                                                     |                                                                                               |                                                                                    |                      |            |               |       |        |        |       |        |  
|---------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | -------------------- | ---------- | ------------- | ----- | ------ | ------ | ----- | ------ | -
|                                                     |                                                                                               | Three Months Ended                                                                 |                     
|                                                     |                                                                                               |                                                                                    |                     
|                                                     |                                                                                               | April 3, 2005                                                                      |                      |            | April 4, 2004 |      
|                                                     |                                                                                               |                                                                                    |                      |            |               |      
|                                                     |                                                                                               |                                                                                    |                      | (Restated) |              
|                                                     |                                                                                               | (Unaudited)                                                                        |                     
|                                                     |                                                                                               | (In thousands)                                                                     |                     
|OPERATING ACTIVITIES:                                |                                                                                               |                                                                                    |                      |            |               |       |        |       
|                                                     | Net loss                                                                                      |                                                                                    | $                    | (2,119     | )             |       | $      | (392   | )    
|                                                     | Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities: |                                                                                    |                      |            |               |       |        |        |      
|                                                     |                                                                                               | Depreciation                                                                       |                      |            | 92            |       |        |        | 143   |       
|                                                     |                                                                                               | Stock-based compensation expense                                                   |                      |            | 425           |       |        |        | 94    |       
|                                                     |                                                                                               | Equity in earnings of investments                                                  |                      |            | (13           | )     |        |        | (419  | )     
|                                                     |                                                                                               | Deferred income taxes                                                              |                      |            | (29           | )     |        |        | (608  | )     
|                                                     |                                                                                               | Unrealized gains on notes receivable                                               |                      |            | (2,836        | )     |        |        | (576  | )     
|                                                     |                                                                                               | Minority interest                                                                  |                      |            | (576          | )     |        |        |      |       
|                                                     |                                                                                               | Changes in operating assets and liabilities:                                       |                      |            |               |       |        |        |       |       
|                                                     |                                                                                               |                                                                                    | Accounts receivable  |            |               | 815   |        |        |       | 667    |  
|                                                     |                                                                                               |                                                                                    | Prepaid expenses     |            |               | 225   |        |        |       | (384   | )
|                                                     |                                                                                               |                                                                                    | Other current assets |            |               | (714  | )      |        |       | (607   | )
|                                                     |                                                                                               |                                                                                    | Income taxes         |            |               | 4,569 |        |        |       | 249    |  
|                                                     |                                                                                               |                                                                                    | Accounts payable     |            |               | (348  | )      |        |       | (1,815 | )
|                                                     |                                                                                               |                                                                                    | Deferred revenue     |            |               | 321   |        |        |       | 1,646  |  
|                                                     |                                                                                               |                                                                                    | Accrued expenses     |            |               | 668   |        |        |       | 324    |  
|                                                     |                                                                                               |                                                                                    |                      |            |               |      
|Net cash provided by (used in) operating activities  |                                                                                               |                                                                                    | 480                  |            |               |       | (1,678 | )     
|                                                     |                                                                                               |                                                                                    |                      |            |               |      
|INVESTING ACTIVITIES:                                |                                                                                               |                                                                                    |                      |            |               |       |        |       
|                                                     | Short-term investment securities                                                              |                                                                                    |                      | 9,441      |               |       |        |       |      
|                                                     | Payments for land held under contract for sale                                                |                                                                                    |                      |           |               |       |        | (183   | )    
|                                                     | Advances on long-term assets related to Indian casino projects                                |                                                                                    |                      | (2,074     | )             |       |        | (3,629 | )    
|                                                     | Payments to unconsolidated affiliates                                                         |                                                                                    |                      | (10        | )             |       |        | (26    | )    
|                                                     | Proceeds from unconsolidated affiliates                                                       |                                                                                    |                      | 850        |               |       |        | 1,683  |      
|                                                     | Payments for other long-term assets                                                           |                                                                                    |                      | (199       | )             |       |        | (123   | )    
|                                                     | Decrease in other long-term assets                                                            |                                                                                    |                      | 197        |               |       |        |       |      
|                                                     | Purchase of property and equipment                                                            |                                                                                    |                      | (607       | )             |       |        | (86    | )    
|                                                     |                                                                                               |                                                                                    |                      |            |               |      
|Net cash provided by (used in) investing activities  |                                                                                               |                                                                                    | 7,598                |            |               |       | (2,364 | )     
|                                                     |                                                                                               |                                                                                    |                      |            |               |      
|FINANCING ACTIVITIES:                                |                                                                                               |                                                                                    |                      |            |               |       |        |       
|                                                     | Proceeds from sale of common stock                                                            |                                                                                    |                      | 154        |               |       |        | 3,653  |      
|                                                     |                                                                                               |                                                                                    |                      |            |               |      
|Net cash provided by financing activities            |                                                                                               |                                                                                    | 154                  |            |               |       | 3,653  |       
|                                                     |                                                                                               |                                                                                    |                      |            |               |      
|Net increase (decrease) in cash and cash equivalents |                                                                                               |                                                                                    | 8,232                |            |               |       | (389   | )     
|Cash and cash equivalents  beginning of period      |                                                                                               |                                                                                    | 28,717               |            |               |       | 25,340 |       
|                                                     |                                                                                               |                                                                                    |                      |            |               |      
|Cash and cash equivalents  end of period            |                                                                                               | $                                                                                  | 36,949               |            |               | $     | 24,951 |       
|                                                     |                                                                                               |                                                                                    |                      |            |               |      
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:   |                                                                                               |                                                                                    |                      |            |               |       |        |       
|                                                     | Cash paid during the period for:                                                              |                                                                                    |                      |            |               |       |        |        |      
|                                                     |                                                                                               | Income taxes                                                                       |                      | $          | 45            |       |        | $      | 12    |       
|                                                     | Noncash operating activities:                                                                 |                                                                                    |                      |            |               |       |        |        |      
|                                                     |                                                                                               | Capitalized television costs related to unit options issued to
    consultants     |                      | $          | (3            | )     |        | $      | 213   |       
|                                                     |                                                                                               | Acquisition of long-term assets and advances related to Indian
    casino projects |                      | $          | 1,058         |       |        | $      | 2,022 |       



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Notes to Unaudited Condensed Consolidated Financial
Statements




|   |                                          
|-- | -----------------------------------------
|1. | BUSINESS OVERVIEW AND ACCOUNTING POLICIES



| |                  
| | -----------------
| | Business Overview







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lakes has contracts to develop and manage The Foothill Oaks
    Casino, to be built on the Rancheria of the Shingle Springs Band
    of Miwok Indians (Shingle Springs Tribe) in El
    Dorado County, California, adjacent to U.S. Highway 50,
    approximately 30 miles east of Sacramento, California (the
    Shingle Springs Casino).                                                                       
|
| |  | Lakes has contracts to develop and manage the Four Winds Casino
    resort to be built on land to be placed into trust for the
    Pokagon Band of Potawatomi Indians (Pokagon Band) in
    New Buffalo Township, Michigan near Interstate 94. The casino
    location will be near the first Interstate 94 exit in
    southwestern Michigan and approximately 75 miles east of
    Chicago (the Pokagon Casino).
|
| |  | Lakes has contracts to develop and manage a casino to be built
    on the Rancheria of the Jamul Indian Village (Jamul
    Tribe) located on State Highway 94, approximately
    20 miles east of San Diego, California (the
    Jamul Casino).                                                                                                                                                                   
|
| |  | Lakes has consulting agreements and management contracts with
    three wholly-owned subsidiaries of the Pawnee Tribal Development
    Corporation (Pawnee TDC referred to collectively as
    the Pawnee Nation) in connection with assisting the
    Pawnee Nation in developing, equipping and managing three
    separate casino destinations.                                                                
|
| |  | Lakes has consulting agreements and management contracts with
    the Iowa Tribe of Oklahoma (the Iowa Tribe) in
    connection with developing, equipping and managing a new casino
    and the Tribes existing Cimarron casino.                                                                                                                                                                                  





| |                      
| | ---------------------
| | Basis of Presentation



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)










|   |                             
|-- | ----------------------------
|2. | MANAGEMENTS FINANCIAL PLANS





|   |            
|-- | -----------
|3. | RESTATEMENT



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




|                                                                             |  |               |        |   |          |   |        |  
|---------------------------------------------------------------------------- |  | ------------- | ------ | - | -------- | - | ------ | -
|                                                                             |  | As Previously |        |   | As       |  
|Consolidated Statement of Loss for the Quarterly Period Ended April 4, 2004, |  | Reported      |        |   | Restated |  
|                                                                             |  |               |        |   |          |  
|Total costs and expenses                                                     |  | $             | 5,875  |   |          | $ | 5,863  |  
|Net unrealized gains and losses on notes receivable                          |  |               |       |   |          |   | 576    |  
|Loss from operations                                                         |  |               | (1,735 | ) |          |   | (1,147 | )
|Income tax benefit                                                           |  |               | (466   | ) |          |   | (407   | )
|Net loss                                                                     |  | $             | (760   | ) |          | $ | (392   | )
|Basic loss per share                                                         |  | $             | (0.03  | ) |          | $ | (0.02  | )
|Diluted loss per share                                                       |  | $             | (0.03  | ) |          | $ | (0.02  | )



|                                          |  |               |        | 
|----------------------------------------- |  | ------------- | ------ | 
|                                          |  | April 4, 2004 |       
|                                          |  |               |       
|Retained earnings, as previously reported |  | $             | 24,158 | 
|Restatement adjustment                    |  |               | 4,771  | 
|                                          |  |               |       
|Retained earnings, as restated            |  | $             | 28,929 | 
|                                          |  |               |       



|   |                         
|-- | ------------------------
|4. | STOCK BASED COMPENSATION

Accounting for Stock
Issued to Employees


Accounting for Stock-Based Compensation
(SFAS No. 123)


|                                                                                                                    |             |                    |        |          |               |   |      |       |  
|------------------------------------------------------------------------------------------------------------------- | ----------- | ------------------ | ------ | -------- | ------------- | - | ---- | ----- | -
|                                                                                                                    |             | Three Months Ended |       
|                                                                                                                    |             |                    |       
|                                                                                                                    |             | April 3, 2005      |        |          | April 4, 2004 |  
|                                                                                                                    |             |                    |        |          |               |  
|                                                                                                                    |             |                    |        | Restated |              
|Net loss:                                                                                                           |             |                    |        |          |               |   |      |      
|As reported                                                                                                         |             | $                  | (2,119 | )        |               | $ | (392 | )    
|Less: total stock-based compensation expense determined under
    the fair value method, net of related tax effects |             |                    | (1,007 | )        |               |   | (357 | )    
|Pro forma                                                                                                           |             | $                  | (3,126 | )        |               | $ | (749 | )    
|Net loss per share, basic and diluted:                                                                              |             |                    |        |          |               |   |      |      
|                                                                                                                    | As reported |                    | $      | (0.10    | )             |   | $    | (0.02 | )
|                                                                                                                    | Pro forma   |                    | $      | (0.14    | )             |   | $    | (0.03 | )



|   |               
|-- | --------------
|5. | LOSS PER SHARE



9



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




|   |             
|-- | ------------
|6. | INCOME TAXES





7.     COMMITMENTS AND
CONTINGENCIES:




| |                   
| | ------------------
| | Tribal Commitments



|                      |  |                                                 |        |  |               |   |       |            |  |   |        | 
|--------------------- |  | ----------------------------------------------- | ------ |  | ------------- | - | ----- | ---------- |  | - | ------ | 
|                      |  | Tribal Casino Development Advances/ Commitments |       
|                      |  |                                                 |       
|                      |  | As of April 3, 2005                             |       
|                      |  |                                                 |       
|                      |  | Pre-Construction                                |        |  | Land Held for |   |       | Remaining  | 
|                      |  | Advances                                        |        |  | Development   |   |       | Commitment | 
|                      |  |                                                 |        |  |               |   |       |            | 
|                      |  | (In thousands)                                  |       
|Jamul Tribe           |  | $                                               | 14,792 |  |               | $ | 6,695 |            |  | $ | 8,513  | 
|Shingle Springs Tribe |  |                                                 | 34,492 |  |               |   | 8,816 |            |  |   | 6,692  | 
|Pokagon Band          |  |                                                 | 44,940 |  |               |   |      |            |  |   | 28,060 | 
|Kickapoo Tribe*       |  |                                                 | 90     |  |               |   |      |            |  |   | 1,910  | 
|Pawnee Nation         |  |                                                 | 20     |  |               |   |      |            |  |   |       | 
|Iowa Tribe            |  |                                                 | 23     |  |               |   |      |            |  |   | 977    | 






|  |                                                                                  
|- | ---------------------------------------------------------------------------------
|* | Refer to Note 9 for further information regarding the
    Kickapoo Tribe project.



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



Pokagon
Band




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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)










| |                                    
| | -----------------------------------
| | Common Shares Subject to Repurchase





| |              
| | -------------
| | IRS Tax Audit





| |       
| | ------
| | Leases





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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)






| |                  
| | -----------------
| | Legal Proceedings



| |                        
| | -----------------------
| | Slot Machine Litigation







| |                                
| | -------------------------------
| | Willard Eugene Smith Litigation



12



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




| |                                        
| | ---------------------------------------
| | El Dorado County, California Litigation









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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




| |                               
| | ------------------------------
| | Grand Casinos, Inc. Litigation





| |                                                      
| | -----------------------------------------------------
| | Louisiana Department of Revenue Litigation Tax Matter

th




| |                 
| | ----------------
| | Other Litigation





|   |                    
|-- | -------------------
|8. | SEGMENT INFORMATION



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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




|                                                   |  |                   |       |  |                   |   |      |              |  |   |              |   |  |   |       |  
|-------------------------------------------------- |  | ----------------- | ----- |  | ----------------- | - | ---- | ------------ |  | - | ------------ | - |  | - | ----- | -
|                                                   |  | Industry Segments |      
|                                                   |  |                   |      
|                                                   |  | Indian Casino     |       |  | WPT               |   |      | Corporate &  |  |   | Total        |  
|                                                   |  | Projects          |       |  | Enterprises, Inc. |   |      | Eliminations |  |   | Consolidated |  
|                                                   |  |                   |       |  |                   |   |      |              |  |   |              |  
|Total assets as of April 3, 2005                   |  | $                 | 133.9 |  |                   | $ | 36.9 |              |  | $ | 42.4         |   |  | $ | 213.2 |  
|Total assets as of January 2, 2005                 |  | $                 | 127.1 |  |                   | $ | 37.1 |              |  | $ | 44.9         |   |  | $ | 209.1 |  
|For the Three Months Ended April 3, 2005           |  |                   |       |  |                   |   |      |              |  |   |              |   |  |   |       |  
|Revenue                                            |  | $                 |      |  |                   | $ | 4.1  |              |  | $ |             |   |  | $ | 4.1   |  
|Net earnings (loss)                                |  |                   | 2.5   |  |                   |   | (1.6 | )            |  |   | (3.0         | ) |  |   | (2.1  | )
|Depreciation expense                               |  |                   |      |  |                   |   |     |              |  |   | 0.1          |   |  |   | 0.1   |  
|For the Three Months Ended April 4, 2004, restated |  |                   |       |  |                   |   |      |              |  |   |              |   |  |   |       |  
|Revenue                                            |  | $                 |      |  |                   | $ | 4.1  |              |  | $ |             |   |  | $ | 4.1   |  
|Net earnings (loss)                                |  |                   | 0.5   |  |                   |   | 0.8  |              |  |   | (1.7         | ) |  |   | (0.4  | )
|Depreciation expense                               |  |                   |      |  |                   |   |     |              |  |   | 0.1          |   |  |   | 0.1   |  



|   |                  
|-- | -----------------
|9. | SUBSEQUENT EVENTS



| |                                           
| | ------------------------------------------
| | Membership Interest in Metroflag Polo, LLC





| |                 
| | ----------------
| | Kickapoo Project





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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




| |                   
| | ------------------
| | Financing Facility









| |                            
| | ---------------------------
| | WPTE Investment in PokerTek

Accounting for
Certain Investments in Debt and Equity Securities i.e.


16



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial
Statements  (Continued)




| |                                     
| | ------------------------------------
| | WPTE Lawsuit With the Travel Channel



17



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##### Table of Contents








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



Overview




Financial Overview




Results of Operations




| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Three Months Ended April 3, 2005 Compared to the
    Three Months Ended April 4, 2004



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





18



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##### Table of Contents





| |                   
| | ------------------
| | Costs and Expenses







| |                                        
| | ---------------------------------------
| | Net unrealized gain on notes receivable

Usable land placed in trust by
Federal government.




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

Accounting for Income Taxes (SFAS No. 109)


19



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##### Table of Contents







| |                                       
| | --------------------------------------
| | Losses per common share and net losses



Liquidity and Capital Resources












20



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##### Table of Contents







|                                              |                                           |                       |      |           |        |   |      |           |           |   |           |      |  |         |     |   |  |   |     |   | 
|--------------------------------------------- | ----------------------------------------- | --------------------- | ---- | --------- | ------ | - | ---- | --------- | --------- | - | --------- | ---- |  | ------- | --- | - |  | - | --- | - | 
|                                              |                                           | Payment Due by Period |     
|                                              |                                           |                       |     
|                                              |                                           |                       |      | Less Than |        |   |      |           | More Than |  
|Contractual Obligations                       |                                           | Total                 |      |           | 1 Year |   |      | 1-3 Years |           |   | 3-5 Years |      |  | 5 Years |    
|                                              |                                           |                       |      |           |        |   |      |           |           |   |           |      |  |         |    
|Remaining casino development commitment(1)(3) |                                           |                       |      |           |        |   |      |           |           |   |           |      |  |         |     |   |  |   |     |  
|                                              | Jamul                                     |                       | $    | 8.5       |        |   | $    | 2.6       |           |   | $         | 5.9  |  |         | $   |  |  |   | $   |  | 
|                                              | Shingle Springs                           |                       |      | 6.7       |        |   |      | 3.6       |           |   |           | 3.1  |  |         |     |  |  |   |     |  | 
|                                              | Pokagon(2)                                |                       |      | 28.1      |        |   |      | 2.3       |           |   |           | 25.8 |  |         |     |  |  |   |     |  | 
|                                              | Kickapoo Traditional Tribe of Texas(1)(8) |                       |      | 1.9       |        |   |      | 1.9       |           |   |           |     |  |         |     |  |  |   |     |  | 
|                                              | Iowa Tribe of Oklahoma(1)                 |                       |      | 1.0       |        |   |      | 1.0       |           |   |           |     |  |         |     |  |  |   |     |  | 
|Operating Leases(4)                           |                                           |                       | 3.5  |           |        |   | 1.9  |           |           |   | 1.3       |      |  |         | 0.3 |   |  |   |    |  
|WPTE operating leases(5)                      |                                           |                       | 3.0  |           |        |   | 0.4  |           |           |   | 0.9       |      |  |         | 1.0 |   |  |   | 0.7 |  
|WPTE purchase obligations(6)                  |                                           |                       | 0.9  |           |        |   | 0.2  |           |           |   | 0.3       |      |  |         | 0.3 |   |  |   | 0.1 |  
|WPTE employee obligations(7)                  |                                           |                       | 1.4  |           |        |   | 1.0  |           |           |   | 0.4       |      |  |         |    |   |  |   |    |  
|                                              |                                           |                       |      |           |        |   |      |           |           |   |           |      |  |         |    
|                                              |                                           | $                     | 55.0 |           |        | $ | 14.9 |           |           | $ | 37.7      |      |  | $       | 1.6 |   |  | $ | 0.8 |  
|                                              |                                           |                       |      |           |        |   |      |           |           |   |           |      |  |         |    






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Lakes anticipates that it will require additional capital
    through public or private financings or the sale of some or all
    of Lakes shares of WPTE to meet the remaining casino
    development commitments. See table below detailing tribal casino
    development commitments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(2) | For the Pokagon Casino project, the Company has agreed to
    provide additional financing from its own funds if financing at
    an interest rate not to exceed 13% is not available from third
    parties. If this occurs and Lakes is required to provide all
    financing, this would be an additional commitment of up to
    approximately $54 million. Currently, it appears that third
    party financing will be available for this project. However,
    there can be no assurance that third party financing will be
    available and that Lakes will not be required to provide this
    additional financing. The Company will be obligated to pay an
    amount to an unrelated third party once the Pokagon Casino is
    open and Lakes is the manager of the casino. The amount is
    payable quarterly for five years and is only payable if Lakes is
    the manager of the casino. The payment is part of a settlement
    and release agreement associated with Lakes obtaining the
    management contract with the Pokagon Band. The maximum liability
    over the five-year period is approximately $11 million.
|   
|(3) | Lakes may be required to provide a guarantee of tribal debt
    financing or otherwise provide support for the tribal
    obligations related to any of the projects. Any guarantees by
    Lakes or similar off-balance sheet liabilities will increase
    Lakes potential exposure in the event of a default by any
    of these tribes. No such guarantees or similar off-balance sheet
    liabilities existed at April 3, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(4) | The Company leases an airplane, under a non-cancelable operating
    lease expiring April 30, 2005. The lease was amended on
    May 1, 2005. The new term is for a period of up to three
    years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(5) | Through April 2005, WPTE had a month-to-month lease for office
    space. The monthly lease payment fluctuated from month-to-month
    based on the amount of space it utilized. The average amount
    paid per month under the lease was approximately $21,000. WPTE
    signed a new lease and moved into the new office space in April
    2005 where the monthly lease payments started at approximately
    $38,000 and will                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

21



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##### Table of Contents



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | escalate up to approximately $45,000. The amount set forth in
    the table above assumes monthly lease payments through May 2011.                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(6) | Purchase obligations include the following: Contractual
    obligations related to the establishment of WPTEs Internet
    gaming site of $875,000 and a monthly retainer of $7,500 for
    investor relations services through July 2005.                                                                                                                                                                                                                                                                                                          
|   
|(7) | Employee obligations include the base salaries payable to Steven
    Lipscomb, Audrey Kania and Robyn Moder under their
    respective employment agreements.                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(8) | Lakes entered into consulting agreements and management
    contracts with the Kickapoo Tribe effective January 2005 to
    improve the performance of the gaming operations conducted at
    the Kickapoo Tribes existing Lucky Eagle Casino in Eagle
    Pass, Texas, located approximately 140 miles southwest of
    San Antonio. During the third quarter of fiscal 2005 the
    Companys relationship with the Kickapoo Tribe deteriorated
    and in November 2005, Lakes and the Kickapoo Tribe terminated
    their business relationship.

|                         |  |                                         |      |                |               |   |           |        |  |                 |            |  |            |            |       |  |             |   |      |             |  |   |      |  |  |   |      | 
|------------------------ |  | --------------------------------------- | ---- | -------------- | ------------- | - | --------- | ------ |  | --------------- | ---------- |  | ---------- | ---------- | ----- |  | ----------- | - | ---- | ----------- |  | - | ---- |  |  | - | ---- | 
|                         |  | Casino Development Advances/Commitments |     
|                         |  | As of April 3, 2005                     |     
|                         |  |                                         |     
|                         |  |                                         |      | Commitments    |              
|                         |  |                                         |      | in Excess of   |              
|                         |  |                                         |      | Available Cash |              
|                         |  |                                         |      | Total          |               |   | Remaining |        |  | Lakes Cash and |            |  | and Short- |           
|                         |  | Pre-Construction                        |      |                | Land Held for |   |           | Total  |  |                 | Funding    |  |            | Funding    |       |  | Short-Term  |   |      | Term        | 
|                         |  | Advances                                |      |                | Development   |   |           | Funded |  |                 | Commitment |  |            | Commitment |       |  | Investments |   |      | Investments | 
|                         |  |                                         |      |                |               |   |           |        |  |                 |            |  |            |            |       |  |             |   |      |             | 
|                         |  | (In millions)                           |     
|Jamul Tribe(a)           |  | $                                       | 14.8 |                |               | $ | 6.7       |        |  | $               | 21.5       |  |            | $          | 30.0  |  |             | $ | 8.5  |             |  |   |      |  |  |   |      | 
|Shingle Springs Tribe(b) |  |                                         | 34.5 |                |               |   | 8.8       |        |  |                 | 43.3       |  |            |            | 50.0  |  |             |   | 6.7  |             |  |   |      |  |  |   |      | 
|Pokagon Band(c)          |  |                                         | 44.9 |                |               |   |          |        |  |                 | 44.9       |  |            |            | 73.0  |  |             |   | 28.1 |             |  |   |      |  |  |   |      | 
|Kickapoo Tribe(d)        |  |                                         | 0.1  |                |               |   |          |        |  |                 | 0.1        |  |            |            | 2.0   |  |             |   | 1.9  |             |  |   |      |  |  |   |      | 
|                         |  |                                         |      |                |               |   |           |        |  |                 |            |  |            |            |       |  |             |   |      |             | 
|Iowa Tribe(e)            |  |                                         |      |                |               |   |           |        |  |                 |            |  |            |            | 1.0   |  |             |   | 1.0  |             |  |   |      |  |  |   |      | 
|                         |  |                                         |      |                |               |   |           |        |  |                 |            |  |            |            |       |  |             |   |      |             | 
|                         |  | $                                       | 94.3 |                |               | $ | 15.5      |        |  | $               | 109.8      |  |            | $          | 156.0 |  |             | $ | 46.2 |             |  | $ | 24.7 |  |  | $ | 21.5 | 
|                         |  |                                         |      |                |               |   |           |        |  |                 |            |  |            |            |       |  |             |   |      |             | 






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Lakes plans to continue making advances on the remaining
    commitment to the Jamul Tribe on a monthly basis until the
    casino opens. Lakes plans to make advances of $1.5 million
    and $7.0 million during the second, third and fourth
    quarters of fiscal 2005 and fiscal 2006, respectively, to
    fulfill its remaining commitment to the Jamul Tribe.                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(b) |  | Lakes plans to continue making advances on the remaining
    commitment to the Shingle Springs Tribe on a monthly basis until
    the casino opens. Lakes plans to make advances of
    $2.5 million and $4.2 million during the second, third
    and fourth quarters of fiscal 2005 and fiscal 2006,
    respectively, to fulfill its remaining commitment to the Shingle
    Springs Tribe. As of April 3, 2005, $43.3 million had
    been advanced related to the Shingle Springs Casino
    project. The Company, in April 2005 amended the Shingle Springs
    project notes increasing the Companys total commitment to
    $50 million. It is anticipated this increase will be
    adequate to cover pre-construction and land commitments over the
    next two years.
|   
|(c) |  | Lakes plans to continue making advances on the remaining
    commitment to the Pokagon Band on a monthly basis until the
    casino opens. Lakes plans to make advances of $1.3 million,
    $16.0 million and $10.8 million during the second,
    third and fourth quarters of fiscal 2005, fiscal 2006 and fiscal
    2007, respectively, to fulfill its remaining commitment to the
    Pokagon Band.                                                                                                                                                                                                                                                                                                                                                                          
|   
|(d) |  | Lakes entered into consulting agreements and management
    contracts with the Kickapoo Tribe effective January 2005 to
    improve the performance of the gaming operations conducted at
    the Kickapoo Tribes existing Lucky Eagle Casino in Eagle
    Pass, Texas, located approximately 140 miles southwest of
    San Antonio. In November 2005, Lakes and the Kickapoo Tribe
    terminated their business relationship. As of April 3,
    2005, the Company recorded unrealized losses of
    $0.5 million related to the Kickapoo project. During the
    third quarter of fiscal 2005, the Company recognized an
    impairment charge of $0.1 million related to the intangible
    asset related to the acquisition of the management contract. In                  

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|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | addition the Company recognized unrealized losses related to
    advances made for project costs and project costs incurred that
    Lakes may be required to pay as a result of the terminated
    relationship in the amounts of $0.9 million and
    $5.0 million, respectively during the nine months ended
    October 2, 2005. Lakes owns approximately 18 acres of
    land near the Kickapoo site with a cost basis of approximately
    $0.7 million. As a result of the terminated business
    relationship with the Kickapoo Tribe, Lakes intends to negotiate
    with the Kickapoo Tribe to reach an agreement to resolve all of
    the financial terms of the contracts including repayment of the
    advances, payment of unpaid project costs incurred, possible
    sale of the land owned by Lakes to the Kickapoo Tribe, and to
    formally terminate the gaming operations consulting agreement,
    management contract, and related ancillary agreements relating
    to the project.
|   
|(e) |  | Lakes plans to advance the $1.0 million it has committed to
    the Iowa Tribe during fiscal 2005. In December 2005 the Iowa
    Tribe closed on third party financing related to the Cimarron
    Casino and repaid Lakes all amounts advanced related to that
    project. Additional amounts will be advanced to the Iowa Tribe
    for the new casino project based upon an approved budget yet to
    be finalized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       









23



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##### 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.                                                                                                                                  

Reporting Revenue Gross as a
Principal versus Net as an Agent.






24



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##### Table of Contents







Deferred television costs:




| |                                                                       
| | ----------------------------------------------------------------------
| | 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 Company 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;                                    

25



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##### Table of Contents





| |   |                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An evaluation of the proposed projects ability to be
    built as contemplated and the likelihood that financing will be
    available; and           
|
| |  | The nature of the business opportunity to Lakes, 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.


26



---



##### Table of Contents





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

Goodwill and
Other Intangible Assets




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





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







|                                                                 |  |               |        |         |         |   |        |       |  |   |        |  |  |       |     |  |  |   |         | 
|---------------------------------------------------------------- |  | ------------- | ------ | ------- | ------- | - | ------ | ----- |  | - | ------ |  |  | ----- | --- |  |  | - | ------- | 
|                                                                 |  | April 3, 2005 |       
|                                                                 |  |               |       
|                                                                 |  |               |        | Shingle |         |   |       
|                                                                 |  | Pokagon       |        |         | Springs |   |        | Jamul |  |   |       
|                                                                 |  | Band          |        |         | Tribe   |   |        | Tribe |  |   | Other  |  |  | Total |    
|                                                                 |  |               |        |         |         |   |        |       |  |   |        |  |  |       |    
|                                                                 |  | (Unaudited)   |       
|Notes receivable, at fair value                                  |  | $             | 38,998 |         |         | $ | 22,769 |       |  | $ | 9,810  |  |  | $     | 32  |  |  | $ | 71,609  | 
|Intangible assets related to acquisition of management contracts |  |               | 17,776 |         |         |   | 17,302 |       |  |   | 6,940  |  |  |       | 27  |  |  |   | 42,045  | 
|Land held for development                                        |  |               |       |         |         |   | 8,816  |       |  |   | 6,695  |  |  |       | 5   |  |  |   | 15,516  | 
|Other                                                            |  |               | 64     |         |         |   | 1,275  |       |  |   | 686    |  |  |       | 392 |  |  |   | 2,417   | 
|                                                                 |  |               |        |         |         |   |        |       |  |   |        |  |  |       |    
|Total long-term assets related to the Indian casino project      |  | $             | 56,838 |         |         | $ | 50,162 |       |  | $ | 24,131 |  |  | $     | 456 |  |  | $ | 131,587 | 
|                                                                 |  |               |        |         |         |   |        |       |  |   |        |  |  |       |    

27



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##### Table of Contents



|                                                                 |  |                 |        |         |         |   |        |       |  |   |        |  |  |       |    |  |  |   |         | 
|---------------------------------------------------------------- |  | --------------- | ------ | ------- | ------- | - | ------ | ----- |  | - | ------ |  |  | ----- | -- |  |  | - | ------- | 
|                                                                 |  | January 2, 2005 |       
|                                                                 |  |                 |       
|                                                                 |  |                 |        | Shingle |         |   |       
|                                                                 |  | Pokagon         |        |         | Springs |   |        | Jamul |  |   |       
|                                                                 |  | Band            |        |         | Tribe   |   |        | Tribe |  |   | Other  |  |  | Total |   
|                                                                 |  |                 |        |         |         |   |        |       |  |   |        |  |  |       |   
|Notes receivable, at fair value                                  |  | $               | 35,931 |         |         | $ | 21,775 |       |  | $ | 9,345  |  |  | $     | 15 |  |  | $ | 67,066  | 
|Intangible assets related to acquisition of management contracts |  |                 | 17,604 |         |         |   | 16,698 |       |  |   | 6,789  |  |  |       | 5  |  |  |   | 41,096  | 
|Land held for development                                        |  |                 |       |         |         |   | 8,772  |       |  |   | 6,661  |  |  |       |   |  |  |   | 15,433  | 
|Other                                                            |  |                 | 71     |         |         |   | 1,315  |       |  |   | 638    |  |  |       |   |  |  |   | 2,024   | 
|                                                                 |  |                 |        |         |         |   |        |       |  |   |        |  |  |       |   
|                                                                 |  | $               | 53,606 |         |         | $ | 48,560 |       |  | $ | 23,433 |  |  | $     | 20 |  |  | $ | 125,619 | 
|                                                                 |  |                 |        |         |         |   |        |       |  |   |        |  |  |       |   







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

|                                                                              |  |                                                  |  |                                                 
|----------------------------------------------------------------------------- |  | ------------------------------------------------ |  | ------------------------------------------------
|                                                                              |  | As of April 3, 2005                              |  | As of January 2, 2005                           
|                                                                              |  |                                                  |  |                                                 
|Face value of note (principal and interest)                                   |  | $57,057 ($44,940 principal and $12,117 interest) |  | $55,747 ($44,550 principal and $11,197 interest)
|Estimated months until casino opens (weighted average of three
    scenarios) |  | 32 months                                        |  | 33 months                                       
|Projected interest rate until casino opens                                    |  | 7.4%                                             |  | 6.8%                                            
|Projected interest rate during the loan repayment term                        |  | 8.0%                                             |  | 8.2%                                            
|Discount rate                                                                 |  | 15%                                              |  | 15%                                             
|Repayment terms of note                                                       |  | 60 months                                        |  | 60 months                                       
|Probability rate of casino opening (weighting of four scenarios)              |  | 85%*                                             |  | 75%                                             





28



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##### Table of Contents







Description
of each Indian casino project and evaluation of critical
milestones  Pokagon




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

|                                                                              |  |                                                 |  |                                                
|----------------------------------------------------------------------------- |  | ----------------------------------------------- |  | -----------------------------------------------
|                                                                              |  | As of April 3, 2005                             |  | As of January 2, 2005                          
|                                                                              |  |                                                 |  |                                                
|Face value of note (principal and interest)                                   |  | $40,304 ($34,492 principal and $5,812 interest) |  | $38,156 ($33,076 principal and $5,080 interest)
|Estimated months until casino opens (weighted average of three
    scenarios) |  | 36 months                                       |  | 36 months                                      
|Projected interest rate until casino opens                                    |  | 8.4%                                            |  | 7.9%                                           
|Projected interest rate during the loan repayment term                        |  | 9.9%                                            |  | 8.7%                                           
|Discount rate                                                                 |  | 15%                                             |  | 15%                                            
|Projected repayment terms of note*                                            |  | 24 months                                       |  | 24 months                                      
|Probability rate of casino opening (weighting of four scenarios)              |  | 70%                                             |  | 70%                                            






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





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

|                                                                              |  |                                                 |  |                                                
|----------------------------------------------------------------------------- |  | ----------------------------------------------- |  | -----------------------------------------------
|                                                                              |  | As of April 3, 2005                             |  | As of January 2, 2005                          
|                                                                              |  |                                                 |  |                                                
|Face value of note (principal and interest)                                   |  | $17,959 ($14,792 principal and $3,167 interest) |  | $17,306 ($14,467 principal and $2,839 interest)
|Estimated months until casino opens (weighted average of three
    scenarios) |  | 36 months                                       |  | 36 months                                      
|Projected interest rate until casino opens                                    |  | 8.4%                                            |  | 7.9%                                           
|Projected interest rate during the loan repayment term                        |  | 9.2%                                            |  | 8.7%                                           
|Discount rate                                                                 |  | 15%                                             |  | 15%                                            
|Repayment terms of note                                                       |  | 84 months                                       |  | 84 months                                      
|Probability rate of casino opening (weighting of four scenarios)              |  | 75%                                             |  | 75%                                            

29



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|                |  |                  |            |                      |          |   |            |          |  |   |            |  |              |             |            |          |        |   |            |      |  |   |            |  |  |   |            | 
|--------------- |  | ---------------- | ---------- | -------------------- | -------- | - | ---------- | -------- |  | - | ---------- |  | ------------ | ----------- | ---------- | -------- | ------ | - | ---------- | ---- |  | - | ---------- |  |  | - | ---------- | 
|                |  |                  |            | Sensitivity Analysis |         
|                |  | April 3, 2005    |            |                      |          |  
|                |  | Fair Value       |            |                      | 5% Less  |   |            | One Year |  |   |            |  | 5% Increased |             |            | One Year |        |   |           
|                |  | Notes Receivable |            |                      | Probable |   |            | Delay    |  |   | Both       |  |              | Probability |            |          | Sooner |   |            | Both | 
|                |  |                  |            |                      |          |   |            |          |  |   |            |  |              |             |            |          |        |   |            |      | 
|Pokagon         |  | $                | 38,997,778 |                      |          | $ | 36,941,907 |          |  | $ | 36,681,974 |  |              | $           | 34,762,327 |          |        | $ | 41,053,648 |      |  | $ | 41,477,917 |  |  | $ | 43,679,678 | 
|Shingle Springs |  | $                | 22,769,381 |                      |          | $ | 21,127,782 |          |  | $ | 21,452,391 |  |              | $           | 19,904,863 |          |        | $ | 24,410,980 |      |  | $ | 24,166,428 |  |  | $ | 25,907,816 | 
|Jamul           |  | $                | 9,809,623  |                      |          | $ | 9,169,348  |          |  | $ | 9,259,265  |  |              | $           | 8,655,681  |          |        | $ | 10,449,898 |      |  | $ | 10,393,436 |  |  | $ | 11,072,632 | 
|                |  |                  |            |                      |          |   |            |          |  |   |            |  |              |             |            |          |        |   |            |      | 
|                |  | $                | 71,576,781 |                      |          | $ | 67,239,038 |          |  | $ | 67,393,629 |  |              | $           | 63,322,871 |          |        | $ | 75,914,525 |      |  | $ | 76,037,782 |  |  | $ | 80,660,126 | 
|                |  |                  |            |                      |          |   |            |          |  |   |            |  |              |             |            |          |        |   |            |      | 

|                |  |                  |            |                      |          |   |            |          |  |   |            |  |              |             |            |          |        |   |            |      |  |   |            |  |  |   |            | 
|--------------- |  | ---------------- | ---------- | -------------------- | -------- | - | ---------- | -------- |  | - | ---------- |  | ------------ | ----------- | ---------- | -------- | ------ | - | ---------- | ---- |  | - | ---------- |  |  | - | ---------- | 
|                |  |                  |            | Sensitivity Analysis |         
|                |  | January 2, 2005  |            |                      |          |  
|                |  | Fair Value       |            |                      | 5% Less  |   |            | One Year |  |   |            |  | 5% Increased |             |            | One Year |        |   |           
|                |  | Notes Receivable |            |                      | Probable |   |            | Delay    |  |   | Both       |  |              | Probability |            |          | Sooner |   |            | Both | 
|                |  |                  |            |                      |          |   |            |          |  |   |            |  |              |             |            |          |        |   |            |      | 
|Pokagon         |  | $                | 35,931,000 |                      |          | $ | 33,957,913 |          |  | $ | 33,825,802 |  |              | $           | 29,583,071 |          |        | $ | 37,904,088 |      |  | $ | 38,197,409 |  |  | $ | 40,321,591 | 
|Shingle Springs |  | $                | 21,775,000 |                      |          | $ | 20,252,095 |          |  | $ | 20,453,118 |  |              | $           | 19,024,633 |          |        | $ | 23,297,905 |      |  | $ | 23,184,255 |  |  | $ | 24,807,821 | 
|Jamul           |  | $                | 9,345,000  |                      |          | $ | 8,734,015  |          |  | $ | 8,776,784  |  |              | $           | 8,203,679  |          |        | $ | 9,955,986  |      |  | $ | 9,950,775  |  |  | $ | 10,602,146 | 
|                |  |                  |            |                      |          |   |            |          |  |   |            |  |              |             |            |          |        |   |            |      | 
|                |  | $                | 67,051,001 |                      |          | $ | 62,944,022 |          |  | $ | 63,055,704 |  |              | $           | 56,811,384 |          |        | $ | 71,157,979 |      |  | $ | 71,332,440 |  |  | $ | 75,731,558 | 
|                |  |                  |            |                      |          |   |            |          |  |   |            |  |              |             |            |          |        |   |            |      | 





|                                      |  |                          |        |         |         |   |        |       |  |   |        |  |  |       |    |  |  |   |        | 
|------------------------------------- |  | ------------------------ | ------ | ------- | ------- | - | ------ | ----- |  | - | ------ |  |  | ----- | -- |  |  | - | ------ | 
|                                      |  | Balance at April 3, 2005 |       
|                                      |  |                          |       
|                                      |  |                          |        | Shingle |         |   |       
|Advances Principal Balance            |  | Pokagon                  |        |         | Springs |   |        | Jamul |  |   | Other  |  |  | Total |   
|                                      |  |                          |        |         |         |   |        |       |  |   |        |  |  |       |   
|Note receivable, pre-construction(a)  |  | $                        | 20,840 |         |         | $ | 34,492 |       |  | $ | 13,842 |  |  | $     |   |  |  | $ | 69,174 | 
|Note receivable, non  gaming land(b) |  |                          | 13,176 |         |         |   |       |       |  |   |       |  |  |       |   |  |  |   | 13,176 | 
|Note receivable, land(b)              |  |                          | 10,924 |         |         |   |       |       |  |   | 950    |  |  |       |   |  |  |   | 11,874 | 
|Note receivable, other                |  |                          |       |         |         |   |       |       |  |   |       |  |  |       | 43 |  |  |   | 43     | 
|                                      |  |                          |        |         |         |   |        |       |  |   |        |  |  |       |   
|                                      |  | $                        | 44,940 |         |         | $ | 34,492 |       |  | $ | 14,792 |  |  | $     | 43 |  |  | $ | 94,267 | 
|                                      |  |                          |        |         |         |   |        |       |  |   |        |  |  |       |   

30



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|                                      |  |                            |        |         |         |   |        |       |  |   |        |  |  |       |    |  |  |   |        | 
|------------------------------------- |  | -------------------------- | ------ | ------- | ------- | - | ------ | ----- |  | - | ------ |  |  | ----- | -- |  |  | - | ------ | 
|                                      |  | Balance at January 2, 2005 |       
|                                      |  |                            |       
|                                      |  |                            |        | Shingle |         |   |       
|Advances Principal Balance            |  | Pokagon                    |        |         | Springs |   |        | Jamul |  |   | Other  |  |  | Total |   
|                                      |  |                            |        |         |         |   |        |       |  |   |        |  |  |       |   
|Note receivable, pre-construction(a)  |  | $                          | 20,449 |         |         | $ | 33,076 |       |  | $ | 13,517 |  |  | $     |   |  |  | $ | 67,042 | 
|Note receivable, non  gaming land(b) |  |                            | 13,176 |         |         |   |       |       |  |   |       |  |  |       |   |  |  |   | 13,176 | 
|Note receivable, land(b)              |  |                            | 10,925 |         |         |   |       |       |  |   | 950    |  |  |       |   |  |  |   | 11,875 | 
|Note receivable, other                |  |                            |       |         |         |   |       |       |  |   |       |  |  |       | 20 |  |  |   | 20     | 
|                                      |  |                            |        |         |         |   |        |       |  |   |        |  |  |       |   
|                                      |  | $                          | 44,550 |         |         | $ | 33,076 |       |  | $ | 14,467 |  |  | $     | 20 |  |  | $ | 92,113 | 
|                                      |  |                            |        |         |         |   |        |       |  |   |        |  |  |       |   






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Lakes advances funds to the tribes, which are related to 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 Lakes, in order to obtain the development
    agreement and management contract, agrees to advance a monthly
    amount used by the tribe for a variety of tribal expenses.
|   
|(b) |  | Lakes purchased land to be used and transferred to the tribe in
    connection with the casino project. At Pokagon, a portion of the
    land will be used by the tribe separate from the casino project
    land.                                                                                                                                                                                                                                                            



|                |                                                     |               |       |        |                 |   |       |        | 
|--------------- | --------------------------------------------------- | ------------- | ----- | ------ | --------------- | - | ----- | ------ | 
|Pokagon         |                                                     | April 3, 2005 |       |        | January 2, 2005 |  
|                |                                                     |               |       |        |                 |  
|Monthly stipend |                                                     | $             | 8,500 |        |                 | $ | 8,125 |       
|Construction    |                                                     |               | 2,581 |        |                 |   | 2,580 |       
|Legal           |                                                     |               | 1,382 |        |                 |   | 1,379 |       
|Environmental   |                                                     |               | 649   |        |                 |   | 645   |       
|Design          |                                                     |               | 7,728 |        |                 |   | 7,720 |       
|                |                                                     |               |       |        |                 |  
|                | Total principal amount of pre-construction advances |               | $     | 20,840 |                 |   | $     | 20,449 | 
|                |                                                     |               |       |        |                 |  

|                |                                                     |               |        |        |                 |   |        |        | 
|--------------- | --------------------------------------------------- | ------------- | ------ | ------ | --------------- | - | ------ | ------ | 
|Shingle Springs |                                                     | April 3, 2005 |        |        | January 2, 2005 |  
|                |                                                     |               |        |        |                 |  
|Monthly stipend |                                                     | $             | 5,220  |        |                 | $ | 4,980  |       
|Construction    |                                                     |               | 1,620  |        |                 |   | 1,605  |       
|Legal           |                                                     |               | 10,968 |        |                 |   | 10,290 |       
|Environmental   |                                                     |               | 1,581  |        |                 |   | 1,577  |       
|Design          |                                                     |               | 9,213  |        |                 |   | 9,120  |       
|Gaming license  |                                                     |               | 3,326  |        |                 |   | 3,226  |       
|Lobbyist        |                                                     |               | 2,564  |        |                 |   | 2,278  |       
|                |                                                     |               |        |        |                 |  
|                | Total principal amount of pre-construction advances |               | $      | 34,492 |                 |   | $      | 33,076 | 
|                |                                                     |               |        |        |                 |  

|                |                                                     |               |       |        |                 |   |       |        | 
|--------------- | --------------------------------------------------- | ------------- | ----- | ------ | --------------- | - | ----- | ------ | 
|Jamul           |                                                     | April 3, 2005 |       |        | January 2, 2005 |  
|                |                                                     |               |       |        |                 |  
|Monthly stipend |                                                     | $             | 3,461 |        |                 | $ | 3,319 |       
|Construction    |                                                     |               | 159   |        |                 |   | 159   |       
|Legal           |                                                     |               | 2,706 |        |                 |   | 2,606 |       
|Environmental   |                                                     |               | 1,637 |        |                 |   | 1,628 |       
|Design          |                                                     |               | 3,648 |        |                 |   | 3,640 |       
|Gaming license  |                                                     |               | 451   |        |                 |   | 429   |       
|Lobbyist        |                                                     |               | 1,780 |        |                 |   | 1,736 |       
|                |                                                     |               |       |        |                 |  
|                | Total principal amount of pre-construction advances |               | $     | 13,842 |                 |   | $     | 13,517 | 
|                |                                                     |               |       |        |                 |  

31



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| |                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Lakes evaluation of impairment related to long-term
    assets related to Indian casino projects, excluding the notes
    receivable, which are valued at estimated fair value:







Pokagon Band


|                                                          |  |                                                            |  |                                                           
|--------------------------------------------------------- |  | ---------------------------------------------------------- |  | ----------------------------------------------------------
|                                                          |  | April 3, 2005                                              |  | January 2, 2005                                           
|                                                          |  |                                                            |  |                                                           
|No. of class III slot machines                            |  | 3,000                                                      |  | 3,000                                                     
|No. of table games                                        |  | 100                                                        |  | 100                                                       
|No. of poker tables                                       |  | 20                                                         |  | 20                                                        
|Win/class III slot machine/day 
    1styear              |  | $275                                                       |  | $275                                                      
|Win/table game/day 
    1styear                          |  | $1,300                                                     |  | $1,300                                                    
|Win/poker game/day 
    1styear                          |  | $1,000                                                     |  | $1,000                                                    
|Expected increase (decrease) in management fee cash flows |  | Year 2 - (6.4%) (Decrease due to repayment of senior debt) |  | Year 2 - (6.4%) (Decrease due to repayment of senior debt)
|                                                          |  | Year 3 - 1.9%                                              |  | Year 3 - 1.9%                                             
|                                                          |  | Year 4 - 3.6%                                              |  | Year 4 - 3.6%                                             
|                                                          |  | Year 5 - 2.8%                                              |  | Year 5 - 2.8%                                             



32



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##### Table of Contents



Jamul Tribe


|                                                          |  |                                                            |  |                                                           
|--------------------------------------------------------- |  | ---------------------------------------------------------- |  | ----------------------------------------------------------
|                                                          |  | April 3, 2005                                              |  | January 2, 2005                                           
|                                                          |  |                                                            |  |                                                           
|No. of class III slot machines                            |  | 349                                                        |  | 349                                                       
|No. of class II slot machines                             |  | 1,651                                                      |  | 1,651                                                     
|No. of table games                                        |  | 65                                                         |  | 65                                                        
|No. of poker tables                                       |  | 10                                                         |  | 10                                                        
|Win/class III slot machine/day 
    1styear              |  | $285                                                       |  | $285                                                      
|Win/class II slot
    machine/day  1styear               |  | $200                                                       |  | $200                                                      
|Win/table game/day 
    1styear                          |  | $1,100                                                     |  | $1,100                                                    
|Win/poker table/day 
    1styear                         |  | $650                                                       |  | $650                                                      
|Expected increase (decrease) in management fee cash flows |  | Year 2 - (8.8%) (Decrease due to repayment of senior debt) |  | Year 2 - (8.8%) (Decrease due to repayment of senior debt)
|                                                          |  | Year 3 - 2.8%                                              |  | Year 3 - 2.8%                                             
|                                                          |  | Year 4 - 2.9%                                              |  | Year 4 - 2.9%                                             
|                                                          |  | Year 5 - 1.9%                                              |  | Year 5 - 1.9%                                             
|                                                          |  | Year 6 - 2.8%                                              |  | Year 6 - 2.8%                                             
|                                                          |  | Year 7 - 1.5%                                              |  | Year 7 - 1.5%                                             



Shingle Springs Tribe


|                                                          |  |                                                                          |  |                                                                         
|--------------------------------------------------------- |  | ------------------------------------------------------------------------ |  | ------------------------------------------------------------------------
|                                                          |  | April 3, 2005                                                            |  | January 2, 2005                                                         
|                                                          |  |                                                                          |  |                                                                         
|No. of class III slot machines                            |  | 349                                                                      |  | 349                                                                     
|No. of class II slot machines                             |  | 1,651                                                                    |  | 1,651                                                                   
|No. of table games                                        |  | 100                                                                      |  | 100                                                                     
|No. of poker tables                                       |  | 20                                                                       |  | 20                                                                      
|Win/class III slot machine/day 
    1styear              |  | $350                                                                     |  | $350                                                                    
|Win/class II slot
    machine/day  1styear               |  | $250                                                                     |  | $250                                                                    
|Win/table game/day 
    1styear                          |  | $1,275                                                                   |  | $1,275                                                                  
|Win/poker table/day 
    1styear                         |  | $624                                                                     |  | $624                                                                    
|Expected increase (decrease) in management fee cash flows |  | Year 2 - (8.9%) (Decrease due to repayment of senior debt)               |  | Year 2 - (8.9%) (Decrease due to repayment of senior debt)              
|                                                          |  | Year 3 - 3.6%                                                            |  | Year 3 - 3.6%                                                           
|                                                          |  | Year 4 - 3%                                                              |  | Year 4 - 3%                                                             
|                                                          |  | Year 5 - 5.1%                                                            |  | Year 5 - 5.1%                                                           
|                                                          |  | Year 6 - (17%) (Management fees were reduced in years six and
    seven) |  | Year 6 - (17%) (Management fees were reduced in years six and
    seven)
|                                                          |  | Year 7 - 10.8%                                                           |  | Year 7 - 10.8%                                                          



33



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



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



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









34



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##### Table of Contents





| |                                          
| | -----------------------------------------
| | Lakes evaluation of critical milestones:



|                                                                                                            |  |                                                                                                                                                                                                                                |  |                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Critical Milestone                                                                                          |  | December 28, 2003                                                                                                                                                                                                              |  | January 2, 2005                                                                                                                                     |  | April 3, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                            |  |                                                                                                                                                                                                                                |  |                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Federal recognition of the tribe                                                                            |  | Yes                                                                                                                                                                                                                            |  | Yes                                                                                                                                                 |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Possession of usable land corresponding with needs based on
    the Companys project plan                  |  | Yes                                                                                                                                                                                                                            |  | Yes                                                                                                                                                 |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                           
|Usable land placed in trust by Federal government                                                           |  | No  The Pokagon Band and Lakes continued to provide
    support for the case and in January 2003 the federal judge
    dismissed all issues except for the final issue and requested
    additional information from the BIA. |  | No  The additional information was submitted by the
    BIA in August 2004 and the lawsuit was still pending resolution
    as of January 2, 2005. |  | No  In March 2005 the federal judge dismissed the
    last remaining issue filed by Taxpayers of Michigan Against
    Casinos (TOMAC) and ruled in favor of the Pokagon Band allowing
    the land to be placed into trust by the BIA. During the required
    60 day waiting period, TOMAC filed for an appeal. An
    agreement has been reached between the Department of Justice and
    TOMAC to not take the land into trust during the appeal process
    in exchange for TOMAC agreeing to a fast track
    hearing process. The appeal hearing date was held on
    December 8, 2005 and a decision is pending.
|                                                                                                           
|Usable county agreement, if applicable                                                                      |  | Yes                                                                                                                                                                                                                            |  | Yes                                                                                                                                                 |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                           
|Usable state compact that allows for gaming consistent with
    that outlined in the Companys project plan |  | Yes                                                                                                                                                                                                                            |  | Yes                                                                                                                                                 |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

35



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|                                                                                                                                                                         |  |                                                                                            |  |                                                                                                                                                              |  |                                                                                                                                                             
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|Critical Milestone                                                                                                                                                       |  | December 28, 2003                                                                          |  | January 2, 2005                                                                                                                                              |  | April 3, 2005                                                                                                                                               
|                                                                                                                                                                         |  |                                                                                            |  |                                                                                                                                                              |  |                                                                                                                                                             
|                                                                                                                                                                        
|NIGC approval of management contract in current and desired
    form                                                                                                     |  | No, submitted to the NIGC for review in 2000.                                              |  | No, submitted to the NIGC for review in 2000 and approval is
    expected at approximately the same time the land is being placed
    into trust by the BIA. |  | No, submitted to the NIGC for review in 2000 and approval is
    expected at approximately the same time the land is being placed
    into trust by the BIA.
|                                                                                                                                                                        
|Resolution of all litigation and legal obstacles                                                                                                                         |  | No, Pending litigation regarding land in trust
     see below.                            |  | No, Pending litigation regarding land in trust
     see below.                                                                                              |  | No, Pending litigation regarding land in trust
     see below.                                                                                             
|                                                                                                                                                                        
|Financing for construction                                                                                                                                               |  | No, however the Tribe engaged an investment banker to assist
    with obtaining financing. |  | No, however the Tribe engaged an investment banker to assist
    with obtaining financing.                                                                   |  | No, however the Tribe engaged an investment banker to assist
    with obtaining financing.                                                                  
|                                                                                                                                                                        
|Any other significant project milestones or contingencies,
    the outcome of which could have a material affect on the
    probability of project completion as planned |  | No others known at this time by Lakes.                                                     |  | No others known at this time by Lakes.                                                                                                                       |  | No others known at this time by Lakes.                                                                                                                      



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







36



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##### Table of Contents







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



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











37



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| |                                              
| | ---------------------------------------------
| | Lakes Evaluation of the Critical Milestones:



|                                                                                                                                                                         |  |                                                                                                                                        |  |                                                                                                                                        |  |                                                                                                                                       
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------
|Critical Milestone                                                                                                                                                       |  | December 28, 2003                                                                                                                      |  | January 2, 2005                                                                                                                        |  | April 3, 2005                                                                                                                         
|                                                                                                                                                                         |  |                                                                                                                                        |  |                                                                                                                                        |  |                                                                                                                                       
|Federal recognition of the tribe                                                                                                                                         |  | Yes                                                                                                                                    |  | Yes                                                                                                                                    |  | Yes                                                                                                                                   
|Possession of usable land corresponding with needs based on
    the Companys project plan                                                                               |  | Yes                                                                                                                                    |  | Yes                                                                                                                                    |  | Yes                                                                                                                                   
|Usable land placed in trust by Federal government                                                                                                                        |  | Not necessary, as land is reservation land.                                                                                            |  | Not necessary, as land is reservation land.                                                                                            |  | Not necessary, as land is reservation land.                                                                                           
|Usable county agreement, if applicable                                                                                                                                   |  | N/A                                                                                                                                    |  | N/A                                                                                                                                    |  | N/A                                                                                                                                   
|Usable state compact that allows for gaming consistent with
    that outlined in the Companys project plan                                                              |  | Yes                                                                                                                                    |  | Yes                                                                                                                                    |  | Yes                                                                                                                                   
|NIGC approval of management contract in current and desired
    form                                                                                                     |  | No, submitted to the NIGC for review in 2000.                                                                                          |  | Yes  approval received in 2004.                                                                                                       |  | Yes  approval received in 2004.                                                                                                      
|                                                                                                                                                                        
|Resolution of all litigation and legal obstacles                                                                                                                         |  | No, Federal and state litigation regarding approval of highway
    interchange, environmental issues and other issues.
    -See below. |  | No, Federal and state litigation regarding approval of highway
    interchange, environmental issues and other issues.
    -See below. |  | No, Federal and state litigation regarding approval of highway
    interchange, environmental issues and other issues.
    -See below.
|Financing for construction                                                                                                                                               |  | No, however the Tribe has engaged investment banks to assist
    with obtaining financing.                                             |  | No, however the Tribe has engaged investment banks to assist
    with obtaining financing.                                             |  | No, however the 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.                                                                                                

38



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











39



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##### Table of Contents





Jamul Tribe




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











40



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##### Table of Contents





| |                                              
| | ---------------------------------------------
| | Lakes Evaluation of the Critical Milestones:



|                                                                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Critical Milestone                                                                                          |  | December 28, 2003                                                                                                                                                                                                                                                                                                                                                                                                                       |  | January 2, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | April 3, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Federal recognition of the tribe                                                                            |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Possession of usable land corresponding with needs based on
    the Companys project plan                  |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Usable land placed in trust by Federal government                                                           |  | 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
    were in the process of preparing an EIS, as described below and
    completing the land in trust application. |  | Yes, six acres is reservation land held by the Jamul Tribe on
    which the casino will be built. There is an additional
    82 acres contiguous to the reservation land pending BIA
    approval to be placed into trust that could be used for
    additional development of the project. The Jamul Tribe and Lakes
    prepared an EIS and trust application, which has been submitted
    to, reviewed and recommended for approval by the regional office
    of the BIA. The Washington, D.C. office of the BIA is
    currently reviewing the submission. |  | Yes, six acres is reservation land held by the Jamul Tribe on
    which the casino will be built. There is an additional
    82 acres contiguous to the reservation land pending BIA
    approval to be placed into trust that could be used for
    additional development of the project. The Jamul Tribe and Lakes
    prepared an EIS and trust application, which has been submitted
    to, reviewed and recommended for approval by the regional office
    of the BIA. The Washington, D.C. office of the BIA is
    currently reviewing the submission.
|Usable county agreement, if applicable                                                                      |  | N/A                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | N/A                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | N/A                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Usable state compact that allows for gaming consistent with
    that outlined in the Companys project plan |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | Yes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|NIGC approval of management contract in current and desired
    form                                        |  | No, submitted for approval by the NIGC in 2000 and approval is
    not expected to occur until the process to place land in trust
    by the BIA is complete.                                                                                                                                                                                                                                                                           |  | No, submitted for approval by the NIGC in 2000. We are in
    communication with the NIGC and have responded to initial
    comments. Approval is not expected until the process to place
    land in trust by the BIA is complete.                                                                                                                                                                                                                                                                                                                              |  | 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.                                                                                                                                                                                                                                                                                                                             

41



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|                                                                                                                                                                         |  |                                                                                                                      |  |                                                                                                                               |  |                                                                                                                              
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------
|Critical Milestone                                                                                                                                                       |  | December 28, 2003                                                                                                    |  | January 2, 2005                                                                                                               |  | April 3, 2005                                                                                                                
|                                                                                                                                                                         |  |                                                                                                                      |  |                                                                                                                               |  |                                                                                                                              
|                                                                                                                                                                        
|Resolution of all litigation and legal obstacles                                                                                                                         |  | N/A, there has been some local opposition regarding the project,
    although no formal legal action has been taken. |  | N/A, there has been some local opposition regarding the project,
    although no formal legal action has been taken.          |  | N/A, there has been some local opposition regarding the project,
    although no formal legal action has been taken.         
|Financing for construction                                                                                                                                               |  | No                                                                                                                   |  | No, however, preliminary discussions with investment bankers
    regarding assisting in obtaining financing have taken place. |  | No, however, preliminary discussions with investment bankers
    regarding assisting in obtaining financing have taken place.
|Any other significant project milestones or contingencies,
    the outcome of which could have a material affect on the
    probability of project completion as planned |  | No others known at this time by Lakes.                                                                               |  | No others known at this time by Lakes.                                                                                        |  | No others known at this time by Lakes.                                                                                       



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







42



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##### Table of Contents











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



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











43



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##### Table of Contents





th th




Arrangement with Consultant.




| |                                                           
| | ----------------------------------------------------------
| | Lakes Evaluation of the three Pawnee Nation
    Projects:



|                                                                                  |  |                                                                                      |  |                                                                                                                                                                                                                    |  |                                         
|--------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------
|Critical Milestone                                                                |  | New Casino Project                                                                   |  | Travel Plaza                                                                                                                                                                                                       |  | Trading Post                            
|                                                                                  |  |                                                                                      |  |                                                                                                                                                                                                                    |  |                                         
|Federal recognition of the tribe                                                  |  | Yes                                                                                  |  | Yes                                                                                                                                                                                                                |  | Yes                                     
|Possession of usable land corresponding with needs based on
    your project plan |  | Yes, the Tribe currently holds land in trust where the new
    casino will be built. |  | Yes, the Tribe is currently leasing land from tribal members,
    which is held in trust for the individual tribal members by the
    United States Government. The lease will need to be
    approved by the BIA. |  | Yes, the Trading Post is currently open.

44



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|                                                                                                                                                                         |  |                                                                                                                                             |  |                                                                                                                                                                                                                    |  |                                                        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------
|Critical Milestone                                                                                                                                                       |  | New Casino Project                                                                                                                          |  | Travel Plaza                                                                                                                                                                                                       |  | Trading Post                                           
|                                                                                                                                                                         |  |                                                                                                                                             |  |                                                                                                                                                                                                                    |  |                                                        
|Usable land placed in trust by Federal government                                                                                                                        |  | Yes, the Tribe currently holds land in trust where the Chilocco
    Casino will be built.                                                   |  | Yes, the Tribe is currently leasing land from tribal members,
    which is held in trust for the individual tribal members by the
    United States Government. The lease will need to be
    approved by the BIA. |  | Yes, the Trading Post is currently open.               
|Usable county agreement, if applicable                                                                                                                                   |  | N/A                                                                                                                                         |  | N/A                                                                                                                                                                                                                |  | N/A                                                    
|Usable state compact that allows for gaming consistent with
    that outlined in your project plan                                                                       |  | Yes                                                                                                                                         |  | Yes                                                                                                                                                                                                                |  | Yes                                                    
|NIGC approval of management contract in current and desired
    form                                                                                                     |  | No, submitted to the NIGC for review on March 22, 2005. An
    EA will be prepared in order for the management contract to be
    approved. |  | No, submitted to the NIGC for review on March 22, 2005. An
    EA will be prepared in order for the management contract to be
    approved.                                                                        |  | No, submitted to the NIGC for review on March 22, 2005.
|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.                                                                                                                                            |  | None needed.                                           
|Any other significant project milestones or contingencies,
    the outcome of which could have a material affect on the
    probability of project completion as planned |  | No others known at this time by Lakes                                                                                                       |  | The acquisition of other tribal land needs to be approved by the
    BIA.                                                                                                                                          |  | No others known at this time by Lakes                  



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



45



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| |                       
| | ----------------------
| | Iowa Tribe of Oklahoma



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







| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Development Project. For its gaming development
    consulting services under the Iowa Consulting Agreement related
    to the Development Project, the Company will receive a
    development fee of two percent of the project costs of the
    Development Project, paid upon the opening of the Development
    Project, and a flat monthly fee of $500,000 for a period of
    120 months commencing upon the opening of the project.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | The Company has agreed to make advances to the Iowa Tribe,
    subject to a project budget to be agreed upon by the Company and
    the Iowa Tribe and certain other conditions. The development
    loan will be for preliminary development costs under the
    Development Project budget. The Company has also agreed to use
    reasonable efforts to assist the Iowa Tribe in obtaining
    permanent financing for any projects developed under the Iowa
    Consulting Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | The Iowa Management Contract for the Development Project is
    subject to the approval of the NIGC and certain other
    conditions. For its performance under the Iowa Management
    Contract, the Company will be entitled to receive management
    fees of approximately 30% of net income, as defined in the
    agreement, for each month during the term of the Iowa Management
    Contract less any amounts earned by any Company affiliate for
    consulting on the Development Project. The Iowa Management
    Contract term is seven years from the first day that the Company
    is able to commence management of the Development Project gaming
    operations under all legal and regulatory requirements (the
    Commencement Date), provided that the Iowa Tribe has
    the right to buy out the remaining term of the Iowa Management
    Contract after the Development Project has been in continuous
    operation for 60 months, for an amount based on the then
    present value of estimated future management fees. If the Iowa
    Tribe elects to buy-out the contract, all outstanding amounts
    owed to Lakes become payable if not already paid. Subject to
    certain conditions, the Company agrees to make advances for the
    Development Projects working capital requirements, if
    needed, during the first six months after the Commencement Date.
    The advances are to be repaid through an operating note payable
    from revenues generated by future operations of the Development
    Project bearing interest at two percent over the prime rate. The
    Company also agrees to fund any shortfall in certain minimum
    monthly Development Project payments to the Iowa Tribe by means
    of non-interest bearing advances under the same operating note.
|
| | Cimarron Casino. The Company has entered into a separate
    gaming consulting agreement (Cimarron Consulting
    Agreement) and management contract (Cimarron
    Management Contract) with the Iowa Tribe with respect to
    the Cimarron Casino. Many of the material provisions of these
    two agreements are similar to those for the Development Project,
    except that: (i) the Cimarron Consulting Agreement is
    primarily for services related to the existing operations (with
    the possibility of further development); (ii) the Company
    will provide up to a $1 million business improvement loan
    rather than a preliminary development loan; (iii) the fee
    under the Cimarron Consulting Agreement will consist                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

46



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##### Table of Contents



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | entirely of a limited flat monthly fee of $50,000 ; and
    (iv) the annual fee under the Cimarron Management Contract
    will be 30% of net income in excess of $4 million (reduced
    by any amounts earned by any Company affiliate for consulting
    services under the Cimarron Consulting Agreement).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | Arrangement with Consultant. The Company has executed an
    agreement stipulating that Kevin Kean will be compensated for
    his consulting services (relating to the Iowa Tribe) rendered to
    the Company. Under this arrangement, subject to Mr. Kean
    obtaining certain regulatory approvals, Mr. Kean will
    receive 20 percent of the Companys fee compensation
    that is received under the Iowa Consulting Agreement, Cimarron
    Consulting Agreement, Iowa Management Contract and Cimarron
    Management Contract with the Iowa Tribe (i.e., six percent of
    the incremental total net income or 20 percent of the
    Companys 30 percent share). This agreement provides
    that payments will be due to Mr. Kean when the Company is
    paid by the Iowa Tribe.



| |                                                      
| | -----------------------------------------------------
| | Lakes Evaluation of the two Iowa Tribe
    Projects:



|                                                                                                   |  |                                                                                                                                                                                                                                                |  |                                                                                                                                
|-------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------
|                                                                                                   |  | Development Project                                                                                                                                                                                                                            |  | Cimarron Casino                                                                                                                
|                                                                                                   |  |                                                                                                                                                                                                                                                |  |                                                                                                                                
|Federal recognition of the tribe                                                                   |  | Yes                                                                                                                                                                                                                                            |  | Yes                                                                                                                            
|Possession of usable land corresponding with needs based on
    your project plan                  |  | Yes, the Iowa Tribe is currently leasing and acquiring land from
    tribal members, which is held in trust for the individual tribal
    members by the United States Government. These transactions will
    need to be approved by the BIA. |  | Yes, currently an open casino.                                                                                                 
|Usable land placed in trust by Federal government                                                  |  | Yes, the Iowa Tribe is currently leasing and acquiring land from
    tribal members, which is held in trust for the individual tribal
    members by the United States Government. These transactions will
    need to be approved by the BIA. |  | Yes, currently an open casino.                                                                                                 
|Usable county agreement, if applicable                                                             |  | N/A                                                                                                                                                                                                                                            |  | N/A                                                                                                                            
|Usable state compact that allows for gaming consistent with
    that outlined in your project plan |  | Yes                                                                                                                                                                                                                                            |  | Yes                                                                                                                            
|NIGC approval of management contract in current and desired
    form                               |  | No, submitted to the NIGC for review on April 22, 2005. An
    EA will be prepared in order for the management contract to be
    approved.                                                                                                    |  | No, submitted to the NIGC for review on April 22, 2005.                                                                        
|Resolution of all litigation and legal obstacles                                                   |  | No, the acquisition of other tribal land needs to be approved by
    the BIA.                                                                                                                                                                  |  | None at this time.                                                                                                             
|Financing for construction                                                                         |  | No, preliminary discussions with lending institutions have
    occurred.                                                                                                                                                                       |  | Third party financing arrangements for the refurbishment project
    are in negotiations and were obtained on December 2, 2005.

47



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|                                                                                                                                                                         |  |                                        |  |                                       
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------- |  | --------------------------------------
|                                                                                                                                                                         |  | Development Project                    |  | Cimarron Casino                       
|                                                                                                                                                                         |  |                                        |  |                                       
|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.



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





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





| |             
| | ------------
| | Income Taxes

Accounting for Income Taxes.




48



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##### Table of Contents







| |                                   
| | ----------------------------------
| | Common stock subject to repurchase





| |                          
| | -------------------------
| | Stock-based compensation:

Accounting for Stock Issued to Employees Share-Based Payment Accounting for Stock-Based Compensation.




| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements



Accounting for Stock Issued to Employees


49



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##### Table of Contents



Accounting Changes and Error Corrections Accounting Changes Reporting
Accounting Changes in Interim Financial Statements


Seasonality




Regulation and Taxes






Off-Balance Sheet Arrangements




Private Securities Litigation Reform Act








50



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51



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##### Table of Contents



LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES


Quantitative and Qualitative Disclosures about Market Risk;
Controls and Procedures







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














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





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LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES





Part II


Other Information







|        |                  
|------- | -----------------
|ITEM 1. | LEGAL PROCEEDINGS



| |                        
| | -----------------------
| | Slot Machine Litigation







| |                                
| | -------------------------------
| | Willard Eugene Smith Litigation





| |                                        
| | ---------------------------------------
| | El Dorado County, California Litigation



53



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##### Table of Contents













| |                               
| | ------------------------------
| | Grand Casinos, Inc. Litigation



54



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##### Table of Contents







| |                                                      
| | -----------------------------------------------------
| | Louisiana Department of Revenue Litigation Tax Matter

th


WPTE litigation with TRV




55



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##### Table of Contents





| |                 
| | ----------------
| | Other Litigation








|        |         
|------- | --------
|ITEM 6. | EXHIBITS

Exhibits


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

56



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##### Table of Contents



SIGNATURES






| |                                                  
| | -------------------------------------------------
| | LAKES ENTERTAINMENT, INC.                        
| | Registrant                                       
|
| | /s/ Lyle Berman                                  
| |                                                  
| | Lyle Berman                                      
| | Chairman of the Board and Chief Executive Officer
|
| | /s/ Timothy J. Cope                              
| |                                                  
| | Timothy J. Cope                                  
| | President and Chief Financial Officer            



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