##### Table of Contents



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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    June 28,
    2009oro

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

41-1913991(State or other jurisdiction

(I.R.S. Employerof incorporation or
    organization)

Identification No.)130 Cheshire Lane, Suite 101

55305Minnetonka, Minnesota

(Zip Code)(Address of principal executive
    offices)   (952) 449-9092 (Registrants
    telephone number, including area code)
  þ o
  Regulation S-T o o
  Rule 12b-2
  Large accelerated filer
    o

Accelerated filer
    þ

Non-accelerated filer
    o

Smaller reporting
    company o(Do not check if a smaller reporting company)   Rule 12b-2 o þ




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##### 



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


FINANCIAL STATEMENTS


3Consolidated Balance Sheets as of June 28,
    2009 (unaudited) and December 28, 2008


3Unaudited Consolidated Statements of Earnings
    (Loss) and Comprehensive Earnings (Loss) for the three months
    and six months ended June 28, 2009 and June 29,
    2008


4Unaudited Consolidated Statements of Cash Flows
    for the six months ended June 28, 2009 and June 29,
    2008


5Notes to Unaudited Consolidated Financial
    Statements


6ITEM 2.


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


19ITEM 3.


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK


40ITEM 4.


CONTROLS AND PROCEDURES


41PART II. OTHER INFORMATIONITEM 1.


LEGAL PROCEEDINGS


42ITEM 1A.


RISK FACTORS


42ITEM 6.


EXHIBITS


42EX-31.1EX-31.2EX-32.1   2




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##### Table of Contents



Part I.
    Financial Information  ITEM 1.
    FINANCIAL
    STATEMENTS  LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Consolidated
    Balance Sheets
  June 28,


December 28,2009


2008(In thousands)(Unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
10,836


$
6,170Accounts receivable


3,689



2,407Current portion of notes receivable from Indian tribes


8,558



9,151Deferred tax asset


1,930



Other current assets


616



1,232Total current assets


25,629



18,960Property and equipment, net


10,845



10,985Long-term assets related to Indian casino projects:Notes receivable, net of current portion


57,330



54,705Intangible assets, net of accumulated amortization of
    $14.7 million and $9.7 million


46,448



47,586Land held for development


1,810



1,810Other


3,605



4,781Total long-term assets related to Indian casino projects


109,193



108,882Other assets:Investments in securities, including put rights


26,700



26,544Other


56



73Total other assets


26,756



26,617Total assets

$
172,423


$
165,444LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Line of credit

$
18,001


$
18,152Current portion of contract acquisition costs payable, net of
    $1.6 million and $1.1 million discount


1,915



2,089Income taxes payable


17,746



16,241Accounts payable


705



531Accrued payroll and related costs


846



1,745Other accrued expenses


838



1,383Total current liabilities


40,051



40,141Long-term liabilities:Non-revolving line of credit


2,000



2,000Contract acquisition costs payable, net of current portion and
    $3.1 million and $1.4 million discount


7,927



5,253Long-term liabilities


9,927



7,253Total liabilities


49,978



47,394ContingenciesShareholders equity:Common stock, $.01 par value; authorized
    200,000 shares; 26,328 and 26,237 common shares issued and
    outstanding at June 28, 2009 and December 28, 2008


263



262Additional paid-in capital


201,631



201,082Accumulated deficit


(79,449
)


(83,294
)Total shareholders equity


122,445



118,050Total liabilities and shareholders equity

$
172,423


$
165,444    3




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##### Table of Contents



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


Six Months EndedJune 28,


June 29,


June 28,


June 29,2009


2008


2009


2008(In thousands, except per share data) (Unaudited)Revenues:Management fees

$
7,048


$
5,866


$
14,314


$
10,446License fees


16



19



28



39Total revenues


7,064



5,885



14,342



10,485Costs and expenses:Selling, general and administrative


3,767



3,624



7,809



7,489Ohio initiative costs






4,025







5,671Impairment losses


1,711







2,280



Amortization of intangible assets related to Indian casino
    projects


2,527



1,681



5,006



3,361Depreciation


69



84



142



172Total costs and expenses


8,074



9,414



15,237



16,693Net unrealized gains (losses) on notes receivable


2,506



1,125



2,343



(858
)Earnings (loss) from operations


1,496



(2,404
)


1,448



(7,066
)Other income (expense):Interest income


1,753



240



3,615



721Interest expense


(417
)


(348
)


(812
)


(713
)Other


(8
)


122



(16
)


173Total other income (expense), net


1,328



14



2,787



181Earnings (loss) before income taxes and discontinued
    operations


2,824



(2,390
)


4,235



(6,885
)Income taxes


4



431



390



1,119Earnings (loss) before discontinued operations


2,820



(2,821
)


3,845



(8,004
)Discontinued operations, net of tax (net of $1.5 million and
    $2.6 million for the allocation to the prior noncontrolling
    interest)






(2,365
)






(4,087
)Net earnings (loss) applicable to Lakes Entertainment,
    Inc.

$
2,820



(5,186
)

$
3,845


$
(12,091
)Other comprehensive loss:Unrealized loss on securities, net of tax






(379
)






(2,776
)Other comprehensive earnings (loss)

$
2,820


$
(5,565
)

$
3,845


$
(14,867
)Weighted-average common shares outstandingBasic


26,328



24,928



26,327



24,766Diluted


26,420



N/A



26,400



N/AEarnings (loss) applicable to Lakes Entertainment, Inc. per
    share (basic & diluted)Earnings (loss)  continuing operations

$
0.11


$
(0.11
)

$
0.15


$
(0.32
)Loss  discontinued operations






(0.10
)






(0.17
)Earnings (loss) per share

$
0.11


$
(0.21
)

$
0.15


$
(0.49
)    4




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Consolidated Statements of Cash
    Flows
  Six Months EndedJune 28,


June 29,2009


2008(In thousands)(Unaudited)OPERATING ACTIVITIES:Net earnings (loss)

$
3,845


$
(12,091
)Loss from discontinued operations






(4,087
)Earnings (loss) from continuing operations


3,845



(8,004
)Adjustments to reconcile net earnings (loss) from continuing
    operationsto net cash provided by (used in) operating activities:Depreciation


142



172Amortization of debt issuance costs


16



Accretion of contra note receivable


(1,357
)


Mark to market, trading securities


(156
)


Amortization of intangible assets related to Indian casino
    projects


5,006



3,361Share-based compensation


251



243Impairment losses


2,280



Net unrealized (gains) losses on notes receivable


(2,343
)


858Deferred income taxes


(1,930
)


872Changes in operating assets and liabilities:Accounts receivable


(1,282
)


(1,770
)Other current assets


616



(402
)Income taxes payable


1,505



(604
)Accounts payable


94



435Accrued expenses


(1,444
)


(566
)Contract acquisition costs payable


(1,301
)


(801
)Net cash provided by (used in) continuing operations


3,942



(6,206
)Net cash used in discontinued operations






(5,094
)Net cash provided by (used in) operating activities


3,942



(11,300
)INVESTING ACTIVITIES:Purchase of securities






(2,700
)Sale / redemption of securities






6,500Increases in long-term assets related to Indian casino projects


(1,375
)


(3,668
)Advances on notes receivable


(504
)


(1,117
)Purchase of property and equipment






(97
)Proceeds from repayment of note receivable


2,453



1,762Increase in other long-term assets






32Net cash provided by continuing operations


574



712Net cash provided by discontinued operations






6,816Net cash provided by investing activities


574



7,528FINANCING ACTIVITIES:Repayment of line of credit


(151
)


(240
)Cash proceeds from issuance of common and preferred stock


346



1,827Proceeds from borrowings






3,000Tax benefit from stock option exercises


(45
)


Net cash provided by continuing operations


150



4,587Net cash used in discontinued operations






(137
)Net cash provided by financing activities


150



4,450Net increase (decrease) in cash and cash
    equivalents  continuing operations


4,666



(907
)Cash and cash equivalents  beginning of
    period  continuing operations


6,170



5,396Cash and cash equivalents  end of
    period  continuing operations

$
10,836


$
4,489    5




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes
    to Unaudited Consolidated Financial Statements
  1.
    Basis of
    presentation  and/or Form 10-Q Form 10-K
      2.
    New
    accounting standards  FASB Accounting
    Standards Codification
  Subsequent Events
  157-4, Determining Fair Value When the Volume and Level of Activity
    for the Asset or Liability Have Significantly Decreased and
    Identifying Transactions That Are Not Orderly (FSP 157-4), FSP 157-4
  107-1 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP 107-1), FSP 107-1 FAS 115-2 FAS 124-2, Recognition and Presentation of
    Other-Than-Temporary
    Impairments FAS 115-2 FAS 124-2), other-than-temporary
 6




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Consolidated Financial
    Statements  (Continued)
  other-than-temporary FAS 115-2 FAS 124-2
  3.
    Financial
    instruments      4.
    Discontinued
    operations      Three Months


Six MonthsEnded


EndedJune 29, 2008


June 29, 2008Revenues

$
5,072


$
10,034Net loss before income taxes

$
(2,365
)

$
(4,087
)Income taxes






Discontinued operations (net of $1.5 million and $2.6 million
    for the allocation to the prior noncontrolling interest)

$
(2,365
)

$
(4,087
)   5.
    Investments
    in securities     7




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Consolidated Financial
    Statements  (Continued)
    Accounting for Derivative Instruments and Hedging
    Activities The
    Fair Value Option for Financial Assets and Financial Liabilities
  Accounting for Certain Investments in Debt and
    Equity Securities
  EstimatedGross


FairUnrealized


ValueCost


Losses


(Note 6)June 28, 2009 (unaudited)Maturity considered greater than one yearAuction rate securities (trading securities)

$
26,775


$
(3,046
)

$
23,729December 28, 2008Maturity considered greater than one yearAuction rate securities (trading securities)

$
26,775


$
(4,532
)

$
22,243     6.
    Fair
    Value Measurement  Fair Value Measurements FAS 157-4, Determining Fair Value When the Volume and Level of Activity
    for the Asset or Liability Have Significantly Decreased and
    Identifying Transactions That Are Not Orderly FAS 157-4) , FAS 157-4
   8




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Consolidated Financial
    Statements  (Continued)
    June 28,


December 28,2009


2008(Unaudited)Auction rate securities(*)

$
23,729


$
22,243Put Rights(*)(***)


2,971



4,301Notes receivable from Indian Tribes(**)


13,331



10,703$
40,031


$
37,247     (*)
    
    See Note 5.(**)
    
    See Note 7.(***)
    
    The Company has elected the fair value option as offered by SFAS
    159, only for its Rights. Therefore, material financial assets
    and liabilities not carried at estimated fair value are still
    reported at carrying values.      
    ARS  Credit ratings of the ARS and collateral
    securities, default rates, other market and liquidity
    circumstances.
    Put Rights  Credit worthiness of UBS including its
    credit swap rate.
    Notes receivable from Indian Tribes  Probability of
    the casino opening based on the status of critical project
    milestones and the expected opening date, estimated pre- and
    post-opening interest rates, contractual interest rate and other
    terms, yield rates on US Treasury Bills and other financial
    instruments, the risk/return indicators of equity investments in
    general, specific risks associated with operating the casino and
    similar projects, and scenario weighting alternatives.    NotesReceivable fromARS


Rights


Indian Tribes


TotalBalances  December 28, 2008

$
22,243


$
4,301


$
10,703


$
37,247Total realized and unrealized gains (losses):Gains (losses) included in earnings(*)


1,289



(1,234
)






55Unrealized losses on notes receivable










(163
)


(163
)Advances, net of allocation to intangible, other










171



171Balances  March 29, 2009 (unaudited)


23,532



3,067



10,711



37,310Total realized and unrealized gains (losses):Gains (losses) included in earnings(*)


197



(96
)






101Unrealized gains on notes receivable










2,506



2,506Advances, net of allocation to intangible, other










114



114Balances  June 28, 2009 (unaudited)

$
23,729


$
2,971


$
13,331


$
40,031     (*)
    
    See Note 5. 9




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Consolidated Financial
    Statements  (Continued)
   7.
    Long-term
    assets related to Indian casino projects  notes
    receivable      ShingleSprings


JamulTribe


Tribe(*)


Other(*)


TotalBalances, December 28, 2008

$
44,002


$
7,116


$
3,587


$
54,705Advances






659



137



796Repayments


(1,476
)










(1,476
)Accretion of contra note receivable(**)


714











714Allocation of advances to intangible assets






(569
)


(56
)


(625
)Changes in estimated fair value(*)






(4
)


(159
)


(163
)Changes in current portion of notes receivable


2,081











2,081Balances, March 29, 2009 (unaudited)


45,321



7,202



3,509



56,032Advances






554



25



579Repayments


(977
)










(977
)Accretion of contra note receivable(**)


643











643Allocation of advances to intangible assets






(456
)


(9
)


(465
)Changes in estimated fair value(**)






2,183



323



2,506Changes in current portion of notes receivable


(988
)










(988
)Balances, June 28, 2009 (unaudited)

$
43,999


$
9,483


$
3,848


$
57,330     (*)
    
    The changes in estimated fair value of notes receivable related
    to Indian casino projects under development are recorded as
    unrealized gains (losses) within the consolidated financial
    statements.(**)
    
    The Company estimated the fair value of the notes receivable
    from the Shingle Springs Tribe in conjunction with the opening
    of the Red Hawk Casino on December 17, 2008. Pursuant to
    Lakes accounting policy (See critical accounting policy
    summary in Part I, Item 2 of this Quarterly Report on
    Form 10-Q),
    upon opening of the casino, the difference between the then
    estimated fair value of the notes receivable and the amount
    contractually due under the notes began being amortized into
    income using the effective interest method. This difference will
    fully amortize over the remaining term of the note. These notes
    are no longer adjusted to estimated fair value on a quarterly
    basis, but rather they are evaluated for impairment pursuant to
    SFAS 114, Accounting by Creditors for Impairment of a
    Loan. 10




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Consolidated Financial
    Statements  (Continued)
   Shingle Springs Tribe.
  As of December 17, 2008Face value of note (principal and interest)

$74,372($49,512 principal and $24,860 interest)Projected interest rate during the loan repayment term

6.41%Discount rate

18.50%Repayment terms of note

84 monthsProbability rate of casino opening

100%     Jamul Tribe.
  As of June 28, 2009

As of December 28, 2008(Unaudited)Face value of note (principal and interest)

$51,721

$49,171($34,780 principal and $16,941 interest)

($33,567 principal and $15,604 interest)Estimated months until casino opens (weighted average of three
    scenarios)

64 months

64 monthsProjected interest rate until casino opens

7.60%

6.45%Projected interest rate during the loan repayment term

9.96%

8.32%Discount rate(*)

22.00%

23.50%Repayment terms of note

120 months

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

50%

50%     (*)
    
    During the second quarter of 2009, Lakes decreased the discount
    rate to 22.00% for this project because improvements in the
    credit markets resulted in lower required rates of return. The
    probability rate of the casino opening remains at 50% as the
    Jamul Casino project has been delayed due to various political
    and regulatory issues. Significant risk exists related to this
    project moving forward to completion, and Lakes has recorded
    significant impairment charges against its investment in this
    project. However, the Jamul Tribe has the two basic requirements
    to eventually build a successful project  federal
    recognition as an Indian Tribe and Indian land eligible for
    gaming and Lakes currently expects to continue its involvement
    with this project. 11




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Consolidated Financial
    Statements  (Continued)
   Iowa Tribe.
  As of June 28, 2009

As of December 28, 2008(Unaudited)Face value of note (principal and interest)

$5,977

$5,660($4,897 principal and $1,080 interest)

($4,734 principal and $926 interest)Estimated months until casino opens

27 months

20 monthsProjected interest rate until casino opens

6.56%

5.93%Projected interest rate during the loan repayment term

8.68%

6.24%Discount rate(*)

17.00%

18.50%Repayment terms of note

24 months

24 monthsProbability rate of casino opening

85%

85%     (*)
    
    During the second quarter of 2009, Lakes decreased the discount
    rate to 17.00% for this project because improvements in the
    credit markets resulted in lower required rates of return.  8.
    Other
    long-term assets related to Indian casino projects  Intangible assets.
    ShinglePokagon


Springs


JamulBand


Tribe


Tribe


Other


TotalBalances, December 28, 2008

$
24,060


$
22,216


$



$
1,310


$
47,586Allocation of advances










569



56



625Amortization


(1,678
)


(798
)






(3
)


(2,479
)Impairment losses(*)










(569
)






(569
)Balances, March 29, 2009 (unaudited)


22,382



21,418







1,363



45,163Allocation of advances










456



9



465Acquisition of contract rights(**)






3,803











3,803Amortization


(1,679
)


(846
)






(2
)


(2,527
)Impairment losses(*)










(456
)






(456
)Balances, June 28, 2009 (unaudited)

$
20,703


$
24,375


$



$
1,370


$
46,448     (*)
    
    Due to continued uncertainty surrounding the Jamul Casino
    project, Lakes recognized an impairment of $0.5 million and
    $1.0 million related to the intangible assets associated
    with this project during the three months and six months ended
    June 28, 2009, respectively. 12




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Consolidated Financial
    Statements  (Continued)
   (**)
    
    Effective June 2009, the Company became obligated to pay
    Mr. Jerry A. Argovitz $1 million per year related to
    the Red Hawk Casino project with the Shingle Springs Tribe,
    subject to certain conditions (Note 10). The acquisition of
    contract rights represents the net present value of the
    obligation.  Land held for development.
    Other. Form 10-Q,
  9.
    Debt  Line of Credit. 30-day
  Non-revolving line of credit.
  10.
    Contract
    acquisition costs payable     13




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Consolidated Financial
    Statements  (Continued)
    11.
    Share-based
    compensation    Three Months Ended

Six Months EndedJune 28,

June 29,

June 28,

June 29,2009

2008

2009

2008(In thousands)Total cost of share-based payment plans

$
167


$
147


$
251


$
243     Stock options.
    Three Months Ended

Six Months EndedJune 28,

June 29,

June 28,

June 29,Key Valuation Assumptions:

2009 (*)

2008

2009

2008Expected dividend yield














Risk-free interest rate






3.68%



2.52%



3.67%Expected term (in years)






8.18 years



7.69 years



8.18 yearsExpected volatility






52.70%



79.82%



49.75%Forfeiture rate














Weighted-average grant-date fair value per share





$
2.91


$
2.46


$
3.23     (*)
    
    There were no options granted during the three months ended
    June 28, 2009.  
    Expected dividend yield  As the Company does not pay
    dividends, the dividend rate variable in the Black-Scholes model
    is zero.
    Risk free interest rate  The risk free interest rate
    assumption is based on the U.S. Treasury yield curve in
    effect at the time of grant and with maturities consistent with
    the expected term of options.
    Expected term (in years)  The expected term of
    employee stock options represents the weighted-average period
    that the stock options are expected to remain outstanding. It is
    based upon an analysis of the historical behavior of option
    holders during the period from September 1995 to June 28,
    2009. Management believes historical data is reasonably
    representative of future exercise behavior. 14




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Consolidated Financial
    Statements  (Continued)
   
    Expected volatility  The volatility assumption is
    based on the historical weekly price data of Lakes stock
    over a two-year period. Management evaluated whether there were
    factors during that period which were unusual and which would
    distort the volatility figure if used to estimate future
    volatility and concluded that there were no such factors.
    Forfeiture rate  As share-based compensation expense
    recognized is based on awards ultimately expected to vest,
    expense for grants beginning upon adoption of Statement of
    Financial Accounting Standards (SFAS) No. 123R,
    Share-Based Payment-Revised 2004(SFAS 123R)
    will be reduced for estimated forfeitures. SFAS 123R
    requires forfeitures to be estimated at the time of grant and
    revised, if necessary, in subsequent periods if actual
    forfeitures differ from those estimates. The Company has
    reviewed the historical forfeitures which are minimal, and as
    such will amortize the grants to the end of the vesting period
    and will adjust for forfeitures at the end of the term.    Number of Common SharesWeighted-Avg.Options





Available


ExerciseOutstanding


Exercisable


for Grant


Price2009Balance at December 28, 2008


2,862,964



2,498,864



343,150


$
6.60Authorized














Granted


197,000







(197,000
)


3.25Forfeited/cancelled/expired


(109,423
)






109,423



4.29Exercised


(91,041
)










3.80Balance at March 29, 2009


2,859,500



2,455,700



255,573



6.54Authorized














Granted














Forfeited/cancelled/expired


(40,125
)






40,125



9.04Exercised














Balance at June 28, 2009(*)


2,819,375



2,433,575



295,698


$
6.512008Balance at December 30, 2007


4,345,650



3,842,200



584,750


$
6.08Authorized














Granted


196,000







(196,000
)


5.73Forfeited/cancelled/expired














Exercised


(400,000
)










4.19Balance at March 30, 2008


4,141,650



3,798,200



388,750



6.25Authorized














Granted


75,000







(75,000
)


4.74Forfeited/cancelled/expired














Exercised


(40,000
)










5.41Balance at June 29, 2008


4,176,650



3,767,075



313,750


$
6.24     (*)
    
    Does not include 135,000 of outstanding restricted stock units. 15




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Consolidated Financial
    Statements  (Continued)
     Options Outstanding at June 28, 2009Weighted-








Options Exercisable at June 28, 2009Average


Weighted-


Aggregate





Weighted-


AggregateNumber


Remaining


Average


Intrinsic


Number


Average


IntrinsicRange of exercise prices

Outstanding


Contractual Life


Exercise Price


Value


Exercisable


Exercise Price


Value$(3.25  3.63)


739,600



3.6 years


$
3.30


$
212,857



547,600


$
3.32


$
149,497(3.64  5.45)


295,775



3.0 years



4.32







221,525



4.34



(5.46  7.26)


174,750



7.0 years



6.50







89,625



6.57



(7.27  9.08)


1,333,000



4.4 years



7.54







1,332,625



7.54



(9.09  10.90)


109,250



3.6 years



10.04







89,650



10.14



(10.91  12.71)


18,000



6.5 years



11.52







12,350



11.52



(12.72  14.53)


89,000



1.3 years



13.04







86,200



13.04



(14.54  16.34)


30,000



5.7 years



16.01







24,000



16.01



(16.35  16.84)


30,000



5.6 years



16.84







30,000



16.84



2,819,375



4.2 years


$
6.21


$
212,857



2,433,575


$
6.77


$
149,497       Restricted stock units.
  Weighted-averageRestricted


Grant-Stock Units


Date Fair ValueNon-vested shares at December 28, 2008





$
Granted


140,000



3.25Forfeited






Non-vested shares at March 29, 2009


140,000



3.25Granted






Forfeited


(5,000
)


3.25Non-vested shares at June 28, 2009


135,000


$
3.25    16




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Consolidated Financial
    Statements  (Continued)
   12.
    Earnings
    (Loss) per share    13.
    Income
    Taxes      14.
    Contingencies  General.
  Louisiana Department of Revenue litigation tax
    matter.
 17




---



##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES
  Notes to
    Unaudited Consolidated Financial
    Statements  (Continued)
  Red Hawk Casino. Form 10-Q
  Miscellaneous legal matters.
  15.
    Lakes
    Kansas   18




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Overview
    
    We developed, and have a five-year contract to manage, the Four
    Winds Casino Resort for the Pokagon Band in New Buffalo
    Township, Michigan near Interstate 94. We began managing the
    Four Winds Casino Resort when it opened to the public on
    August 2, 2007. The Four Winds Casino Resort is located
    near the first Interstate 94 exit in southwestern Michigan and
    approximately 75 miles east of Chicago. The facility
    features approximately 3,000 slot machines, 72 table games, a
    12-table poker room, a 165-room hotel, five restaurants, three
    bars, a child care facility and arcade, retail space and a
    parking garage.
    We developed, and have a seven-year contract to manage, the Red
    Hawk Casino that was built on the Rancheria of the Shingle
    Springs Tribe in El Dorado County, California, adjacent to
    U.S. Highway 50, approximately 30 miles east of
    Sacramento, California. We began managing the Red Hawk Casino
    when it opened to the public on December 17, 2008. The Red
    Hawk Casino features approximately 2,100 electronic gaming
    devices, 75 table games, six restaurants, six bars, retail
    space, a parking garage, a child care facility and arcade. To
    provide direct freeway access to the Red Hawk Casino, an
    affiliate of the Shingle Springs Tribe constructed a dedicated
    inter-change on U.S. Highway 50.
    We are managing the Cimarron Casino for the Iowa Tribe in
    Perkins, Oklahoma, under a seven-year management contract, which
    commenced in 2006. The Cimarron Casino features approximately
    375 electronic gaming machines.
    We have contracts to develop and finance a casino to be built on
    the reservation of the Jamul Indian Village (the Jamul
    Tribe) located on State Highway 94, approximately
    20 miles east of San Diego, California (the
    Jamul Casino). This project has been significantly
    delayed due to various political and regulatory issues.
    Significant risk exists related to this project moving forward
    to completion, and we have recorded significant impairment
    charges against our investment in this project. However, the
    Jamul Tribe has the two basic requirements to eventually build a
    successful project  federal recognition as an Indian
    Tribe and Indian land eligible for gaming and we currently
    expect to continue our involvement with this project.
    We have a consulting agreement and management contract with the
    Iowa Tribe in connection with developing, equipping and managing
    a casino resort which is planned to be built near Route 66 and
    approximately 25 miles northeast of Oklahoma City, Oklahoma
    (the Ioway Casino Resort). 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. In January 2009, the BIA granted approval on
    the purchase of a
    60-acre
    allotment. The remaining transactions for the final
    14 acres still require BIA approval. However, due to
    continued delays in approval of the additional 14 acres,
    the Iowa Tribe is proceeding with design plans for the
    construction of the project on the approved 60 acres. Lakes
    submitted its management contract with the Iowa Tribe for the
    Ioway Casino Resort to the NIGC for review in 2005. The NIGC has
    stated that it is waiting for the BIA to approve all land leases
    before it will issue an opinion on the management contract.     19




---



##### Table of Contents



Results
    of Operations
  Form 10-Q
  Three
    months ended June 28, 2009 compared to the three months
    ended June 29, 2008
  Revenues.
  Selling, general and administrative
    expenses.
  Ohio initiative costs.
  Impairment losses.
  Amortization of intangible assets related to Indian casino
    projects.
  Net unrealized gains on notes receivable.
  Other income (expense), net.
  Income Taxes.
 20




---



##### Table of Contents



Form 10-Q),
  Six
    months ended June 28, 2009 compared to the three months
    ended June 29, 2008
  Revenues.
  Selling, general and administrative
    expenses.
  Ohio initiative costs.
  Impairment losses.
  Amortization of intangible assets related to Indian casino
    projects.
  Net unrealized gains (losses) on notes
    receivable.
  Other income (expense), net.
  Income Taxes.
 21




---



##### Table of Contents



Form 10-Q),
  Liquidity
    and Capital Resources
          30-day
     22




---



##### Table of Contents



and/or
        Payment Due by PeriodLess than








More thanContractual Obligations

Total


1 Year


1-3 Years


3-5 Years


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

$



$



$



$



$
Shingle Springs Tribe(3)


3.7



0.3



0.9



1.3



1.2Pokagon Band(4)


6.1



1.6



3.9



0.6



Iowa Tribe  Ioway Casino project(5)


















Non-revolving line of credit(6)


2.0







2.0







Lakes operating leases(7)


4.3



0.4



0.9



0.9



2.1$
16.1


$
2.3


$
7.7


$
2.8


$
3.3     (1)
    
    We may be required to provide a guarantee of tribal debt
    financing or otherwise provide support for the tribal
    obligations related to any of the projects (see (2) and
    (5) below). Any guarantees by us or similar off-balance
    sheet liabilities will increase our potential exposure in the
    event of a default by any of these tribes. No such guarantees or
    similar off-balance sheet liabilities existed at June 28,
    2009.(2)
    
    Effective March 30, 2006, we entered into a development
    financing and services agreement with the Jamul Tribe. As part
    of the agreement, we will use our best efforts to obtain
    financing of up to $350 million from which advances will be
    made to the Jamul Tribe to pay for the design and construction
    of a casino project. The current plan is for a smaller scale
    gaming facility that will become a solely class II
    electronic gaming device facility which will not require a
    compact with the State of California. The agreement between
    Lakes and the Jamul 23




---



##### Table of Contents



Tribe is being modified to reflect the new economics of the
    revised casino plan but is not currently believed to require
    approval by the State of California or the NIGC.(3)
    
    Effective June 2009, we became obligated to pay Mr. Jerry
    A. Argovitz $1 million per year (prorated based on a
    365 day year) during the remainder of the seven-year
    initial term of the management contract which commenced in
    December 2008 between Lakes and the Shingle Springs Tribe,
    subject to certain conditions. (Note 10 to the unaudited
    consolidated financial statements in Part I, Item 1 of
    this Quarterly Report on
    Form 10-Q).We may also be required to pay Mr. Kevin M. Kean under his
    agreement with Lakes resulting from the opening of the Red Hawk
    Casino on December 17, 2008. See also the discussion below
    included under the caption Description of each Indian
    casino project and evaluation of critical milestones 
    Shingle Springs Tribe.(4)
    
    We are obligated to pay approximately $11 million to an
    unrelated third party as part of an agreement associated with
    obtaining the management contract with the Pokagon Band, payable
    in quarterly installments over five years. We are also obligated
    to pay approximately $3 million over 24 months to a
    separate, unrelated third party on behalf of the Pokagon Band in
    accordance with the management contract. (Note 10 to the
    unaudited consolidated financial statements in Part I,
    Item 1 of this Quarterly Report on
    Form 10-Q).(5)
    
    We have agreed to make advances to the Iowa Tribe subject to a
    project budget to be agreed upon by us and the Iowa Tribe and
    certain other conditions. The development loan will be for
    preliminary development costs under the Ioway project budget. We
    have also agreed to use reasonable efforts to assist the Iowa
    Tribe in obtaining permanent financing for any projects
    developed under the Iowa consulting agreement.(6)
    
    During 2008, Lakes closed on a two-year interest only
    $8.0 million non-revolving line of credit (the Loan
    Agreement) with First State Bank. Amounts borrowed under
    the Loan Agreement bear interest at 8.95%. See Note 9 to
    the unaudited consolidated financial statements in Part I,
    Item 1 of this Quarterly Report on
    Form 10-Q.(7)
    
    Lakes leases an airplane under a non-cancelable operating lease
    that expires on March 1, 2018 and has certain other
    operating leases.  Critical
    Accounting Policies and Estimates
      Revenue recognition.
  Share-based compensation.
 24




---



##### Table of Contents



Income taxes. Accounting for Income
    Taxes.
  Accounting for
    Uncertainty in Income Taxes
  Long-term
    assets related to Indian casino projects:
  Notes receivable.
  
    Has the U.S. Governments Bureau of Indian Affairs
    federally recognized the tribe as a tribe?
    Does the tribe hold or have the right to acquire land to be
    used for the casino site?
    Has the Department of the Interior put the land into trust
    for purposes of being used as a casino site?
    Has the tribe entered into a gaming agreement with the state
    in which the land is located, if required by the state?
    Has the tribe obtained approval by the National Indian Gaming
    Commission of the management agreement?
    Do other legal and political obstacles exist that could block
    development of the project and, if so, what is the likelihood of
    the tribe successfully prevailing?
    An evaluation by management of the financial projections of
    the project given the projects geographic location and the
    feasibility of the projects success given such
    location;
    The structure and stability of the tribal government;
    The scope of the proposed project, including the physical
    scope of the contemplated facility and the expected financial
    scope of the related development;
    An evaluation of the proposed projects ability to be
    built as contemplated and the likelihood that financing will be
    available; and
    The nature of the business opportunity to us, including
    whether the project would be a financing, development
    and/or
    management opportunity.  96-12, Recognition of Interest Income and Balance Sheet
    Classification of Structured Notes
 25




---



##### Table of Contents



Accounting by Creditors for Impairment of a
    Loan (SFAS 114).
  Intangible assets related to Indian casino
    projects. Goodwill and Other Intangible Assets 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3). FSP 142-3,
  Land held for development.
  Other.
   26




---



##### Table of Contents



June 28, 2009ShinglePokagon


Springs


Jamul


IowaBand


Tribe


Tribe


Tribe


Other


Total(Unaudited)Notes receivable(*)

$



$
43,999


$
9,483


$
3,848


$



$
57,330Intangible assets related to Indian casino projects


20,703



24,375







1,370







46,448Land held for development










960



850







1,810Other


60



25



355



446



2,719



3,605$
20,763


$
68,399


$
10,798


$
6,514


$
2,719


$
109,193   December 28, 2008ShinglePokagon


Springs


Jamul


IowaBand


Tribe


Tribe


Tribe


Other


TotalNotes receivable(*)

$



$
44,002


$
7,116


$
3,587


$



$
54,705Intangible assets related to Indian casino projects


24,060



22,216







1,310







47,586Land held for development










960



850







1,810Other


60



767



847



388



2,719



4,781$
24,120


$
66,985


$
8,923


$
6,135


$
2,719


$
108,882     (*)
    
    In conjunction with the opening of the Red Hawk Casino on
    December 17, 2008 and pursuant to Lakes accounting
    policy, the notes receivable from the Shingle Springs Tribe are
    no longer adjusted to estimated fair value on a quarterly basis,
    but rather they are evaluated for impairment pursuant to
    SFAS 114. Approximately $8.6 million and
    $9.2 million of the notes receivable from the Shingle
    Springs Tribe are due within the next fiscal year and have been
    classified as a current asset in the unaudited consolidated
    balance sheets as of June 28, 2009 and December 28,
    2008, respectively.   27




---



##### Table of Contents



Jamul
    Tribe:
  As of June 28, 2009

As of December 28, 2008(Unaudited)Face value of note (principal and interest)

$51,721
    ($34,780 principal and
    $16,941 interest)

$49,171
    ($33,567 principal and
    $15,604 interest)Estimated months until casino opens (weighted-average of three
    scenarios)

64 months

64 monthsProjected interest rate until casino opens

7.60%

6.45%Projected interest rate during the loan repayment term

9.96%

8.32%Discount rate(*)

22.00%

23.50%Repayment terms of note

120 months

120 monthsProbability rate of casino opening (weighting off our scenarios)

50%

50%     (*)
    
    During the second quarter of 2009, Lakes decreased the discount
    rate to 22.00% for this project because improvements in the
    credit markets resulted in lower required rates of return. The
    probability rate of the casino opening remains at 50% as the
    Jamul Casino project has been delayed due to various political
    and regulatory issues. Significant risk exists related to this
    project moving forward to completion, and Lakes has recorded
    significant impairment charges against its investment in this
    project. However, the Jamul Tribe has the two basic requirements
    to eventually build a successful project  federal
    recognition as an Indian Tribe and Indian land eligible for
    gaming and Lakes currently expects to continue its involvement
    with this project.  Iowa
    Tribe:
  As of June 28, 2009

As of December 28, 2008(Unaudited)Face value of note (principal and interest)

$5,977
    ($4,897 principal and
    $1,080 interest)

$5,660
    ($4,734 principal and
    $926 interest)Estimated months until casino opens

27 months

20 monthsProjected interest rate until casino opens

6.56%

5.93%Projected interest rate during the loan repayment term

8.68%

6.24%Discount rate(*)

17.00%

18.50%Repayment terms of note

24 months

24 monthsProbability rate of casino opening

85%

85%     (*)
    
    During the second quarter of 2009, Lakes decreased the discount
    rate to 17.00% for this project because improvements in the
    credit markets resulted in lower required rates of return. See
    also the discussion below included under the caption
    Description of each Indian casino project and evaluation
    of critical milestones  Iowa Tribe. 28




---



##### Table of Contents



Estimated Fair


Sensitivity AnalysisValue Notes


5% Less


One Year





5% Increased


One YearReceivable


Probable


Delay


Both


Probability


Sooner


Both(In thousands)Jamul Tribe

$
9,483


$
8,565


$
8,420


$
7,608


$
10,401


$
10,685


$
11,723Iowa Tribe


3,848



3,626



3,515



3,309



4,079



4,222



4,471$
13,331


$
12,191


$
11,935


$
10,917


$
14,480


$
14,907


$
16,194       As of June 28, 2009Jamul


IowaAdvances Principal Balance

Tribe


Tribe


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

$
33,830


$
3,788


$
37,618Note receivable, land(b)


950



1,109



2,059$
34,780


$
4,897


$
39,677   As of December 28, 2008Jamul


IowaAdvances Principal Balance

Tribe


Tribe


TotalNote receivable, pre-construction(a)

$
32,617


$
3,746


$
36,363Note receivable, land(b)


950



988



1,938$
33,567


$
4,734


$
38,301     (a)
    
    We fund certain costs incurred to develop the casino project.
    These costs relate to construction costs, legal fees in
    connection with various regulatory approvals and litigation,
    environmental costs and design consulting, and we, in order to
    obtain the development agreement and management contract, agree
    to advance a monthly amount used by the tribe for a variety of
    tribal expenses.(b)
    
    We purchased land to be used and transferred to the tribe in
    connection with the casino project. 29




---



##### Table of Contents



June 28,


December 28,Jamul Tribe

2009


2008(Unaudited)Monthly stipend

$
5,996


$
5,687Construction


2,260



2,102Legal


4,714



4,598Environmental


2,293



2,292Design


14,884



14,324Gaming license


986



917Lobbyist


2,697



2,697$
33,830


$
32,617   June 28,


December 28,Iowa Tribe

2009


2008(Unaudited)Construction

$
253


$
253Legal


266



252Design


3,244



3,216Gaming license


25



25$
3,788


$
3,746   Evaluation
    of impairment related to our long-term assets related to Indian
    casino projects, excluding the notes receivable, which are
    valued at fair value:
     30




---



##### Table of Contents



Jamul
    Tribe
    June 28,


December 28,2009


2008(Unaudited)No. of Class II electronic gaming devices


1,000



1,000No. of Table games


20



20No. of Poker tables


5



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

$
172


$
172Win/Table game/day  1st year

$
471


$
471Win/Poker table/day  1st year

$
312


$
312     Iowa
    Tribe
  June 28,


December 28,2009


2008(Unaudited)No. of Class II electronic gaming devices


825



1,200No. of Table games


25



20No. of Poker tables






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

$
170


$
232Win/Table game/day  1st year

$
450


$
1,171Win/Poker table/day  1st year

$



$
529     Description
    of each Indian casino project and evaluation of critical
    milestones:
  Pokagon
    Band
  Business arrangement.
 31




---



##### Table of Contents



Shingle
    Springs Tribe
  Business arrangement.
        Jamul
    Tribe
     32




---



##### Table of Contents



Business arrangement. six-acre
       33




---



##### Table of Contents



Our evaluation of the critical milestones.
  Critical milestone

June 28, 2009

December 28, 2008

December 30, 2007Federal recognition of the tribe

Yes

Yes

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

Yes

Yes

YesUsable land placed in trust by Federal government

Not necessary, as the land is reservation land.

Not necessary, as land is reservation land.

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

N/A

N/A

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

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

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

N/A  the Jamul Tribes current plan is to
    operate a solely class II electronic gaming device
    facility, which does not require a compact with the State.NIGC approval of management contract in current and desired
    form

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

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

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

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

No, see discussion above regarding the federal complaint filed
    by the Jamul Tribe against CalTrans.

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

No, however, preliminary discussions with investment bankers
    regarding assisting in obtaining financing have taken place. The
    current general economic environment may limit our ability to
    obtain financing at desirable levels in the near-term.

No, however, preliminary discussions with investment bankers
    regarding assisting in obtaining financing have taken place. The
    current general economic environment may limit our ability to
    obtain financing at desirable levels in the near-term.

No, however, preliminary discussions with investment bankers
    regarding assisting in obtaining financing have taken place. 34




---



##### Table of Contents



Critical milestone

June 28, 2009

December 28, 2008

December 30, 2007Any other significant project milestones or contingencies,
    the outcome of which could have a material affect on the
    probability of project completion as planned

Yes. The current plan is for the gaming facility to be a solely
    class II electronic gaming device facility. The agreement
    between Lakes and the Jamul Tribe will also be modified to
    reflect the new economics of the revised casino plan but is not
    currently believed to require approval by the State or the NIGC.

Yes. The current plan is for the gaming facility to be a solely
    class II electronic gaming device facility. The agreement
    between Lakes and the Jamul Tribe will also be modified to
    reflect the new economics of the revised casino plan but is not
    currently believed to require approval by the State or the NIGC.

Yes. The current plan is for the gaming facility to be a solely
    class II electronic gaming device facility. The agreement
    between Lakes and the Jamul Tribe will also be modified to
    reflect the new economics of the revised casino plan but is not
    currently believed to require approval by the State or the NIGC.   Our evaluation and conclusion regarding the above critical
    milestones and progress. land-in-trust
    Iowa
    Tribe
  Business arrangement.
    Ioway Casino Resort.
   35




---



##### Table of Contents



Cimarron Casino.
  Arrangement with Consultant.
 36




---



##### Table of Contents



Our evaluation of the Ioway Casino Resort.
  Critical milestone

June 28, 2009

December 28, 2008

December 30, 2007Federal recognition of the tribe

Yes

Yes

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

Yes, the Iowa Tribe has members that own a 74-acre allotment on
    US Route 66 midway between the access points to Warwick and
    Chandler, Oklahoma from I44. The Iowa Tribe has obtained the
    rights to purchase and/or lease substantially all of this parcel
    from the allottees. Approval from the BIA was obtained in
    January 2009 for 60 acres of the 74-acre allotment. The
    remaining 14 acres still require BIA approval. An
    additional 100 acres of fee land has been optioned to
    provide the necessary site area for the beginning of the project
    before the casino resort development can begin. Due to continued
    delays in approval of the additional 14 acres, the Iowa
    Tribe is proceeding with design plans for the construction of
    the project on the approved 60 acres.

Yes, the Iowa Tribe has members that own a 74-acre allotment on
    US Route 66 midway between the access points to Warwick and
    Chandler, Oklahoma from I44. The Iowa Tribe has obtained the
    rights to purchase and/or lease substantially all of this parcel
    from the allottees. Approval from the BIA was obtained in
    January 2009 for 60 acres of the 74-acre allotment. The
    remaining 14 acres still require BIA approval. An
    additional 100 acres of fee land has been optioned to
    provide the necessary site area for the beginning of the project
    before the casino resort development can begin.

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

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

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

N/A

N/A

N/A 37




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Critical milestone

June 28, 2009

December 28, 2008

December 30, 2007Usable state compact that allows for gaming consistent with
    that outlined in Lakes project plan

Yes

Yes

YesNIGC approval of management contract in current and desired
    form

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

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

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

None at this time.

None at this time.

None at this time.Financing for construction

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

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

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

No others known at this time by Lakes.

No others known at this time by Lakes.

No others known at this time by Lakes.  38




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Our evaluation and conclusion regarding the above critical
    milestones and progress.
  60-acre
  Recently
    issued accounting pronouncements
  Form 10-Q.
  Seasonality
    Regulation
    and taxes
      Off-balance
    sheet arrangements
    Private
    Securities Litigation Reform Act
  Form 10-Q
 39




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Form 10-K
  ITEM 3.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      30-day
  and/or
   40




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ITEM 4.
    CONTROLS
    AND PROCEDURES  Rule 13a-15(e)
   41




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Part II.
    Other Information  ITEM 1.
    LEGAL
    PROCEEDINGS    ITEM 1A.
    RISK
    FACTORS  Form 10-K,
  ITEM 6.
    EXHIBITS  Exhibits

Description31
.1

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

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

Certification of Chief Executive Officer and Chief Financial
    Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  42




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SIGNATURES
  Form 10-Q
  LAKES ENTERTAINMENT, INC.
 Registrant
  LYLE
    BERMAN
       TIMOTHY
    J. COPE
       43