##### Table of Contents



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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    September 27,
    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(State or other jurisdiction
    of 
    incorporation or organization)

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

55305(Zip Code)   (952) 449-9092
 (Registrants telephone number, including area code)
  þ o
  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
    September 27, 2009 (unaudited) and December 28,
    2008


3Unaudited Consolidated Statements of Earnings
    (Loss) and Comprehensive Earnings (Loss) for the three months
    and nine months ended September 27, 2009 and
    September 28, 2008


4Unaudited Consolidated Statements of Cash Flows
    for the nine months ended September 27, 2009 and
    September 28, 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


41ITEM 4.


CONTROLS AND PROCEDURES


41PART II. OTHER INFORMATIONITEM 1.


LEGAL PROCEEDINGS


42ITEM 1A.


RISK FACTORS


42ITEM 4.


SUBMISSION OF MATTERS TO A VOTE OF SECURITY
    HOLDERS


48ITEM 6.


EXHIBITS


49EX-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  September 27, 2009


December 28, 2008(Unaudited)(In thousands)AssetsCurrent assets:Cash

$
6,962


$
6,170Accounts receivable


2,220



2,407Current portion of notes receivable from Indian casino projects


4,011



9,151Deferred tax asset


4,149



Investment in securities, including rights


24,339



Other


1,163



1,232Total current assets


42,844



18,960Property and equipment, net


10,791



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


47,545



44,002Notes receivable at fair value


14,421



10,703Intangible assets, net of accumulated amortization of
    $17.3 million and $9.7 million


47,878



47,586Land held for development


1,810



1,810Other


4,029



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


115,683



108,882Other assets:Investment in Kansas Gaming Partners, LLC


8,405



Investments in securities, including put rights






26,544Other


300



73Total other assets


8,705



26,617Total assets

$
178,023


$
165,444Liabilities and shareholders equityCurrent liabilities:Line of credit payable

$
16,338


$
18,152Current portion of contract acquisition costs payable, net of
    $2.1 million and $1.1 million discount


2,464



2,089Income taxes payable


18,115



16,241Accounts payable


713



531Accrued payroll and related


950



1,745Other accrued expenses


1,016



1,383Total current liabilities


39,596



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


2,000



2,000Contract acquisition costs payable, net of current portion and
    $4.6 million and $1.4 million discount


10,825



5,253Long-term liabilities


12,825



7,253Total liabilities


52,421



47,394Commitments and ContingenciesShareholders equity:Common stock, $.01 par value; authorized
    200,000 shares; 26,328 and 26,237 common shares issued and
    outstanding at September 27, 2009 and December 28, 2008


263



262Additional paid-in capital


202,500



201,082Deficit


(77,161
)


(83,294
)Total shareholders equity


125,602



118,050Total liabilities and shareholders equity

$
178,023


$
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


Nine Months EndedSeptember 27, 2009


September 28, 2008


September 27, 2009


September 28, 2008(In thousands, except per share data)(Unaudited)Revenues:Management fees

$
6,602


$
8,370


$
20,916


$
18,816License fees


15



13



43



52Total revenues


6,617



8,383



20,959



18,868Costs and expenses:Selling, general and administrative


3,508



4,232



11,317



11,720Ohio initiative costs






4,712







10,383Impairment losses


597







2,877



Amortization of intangible assets related to Indian casino
    projects


2,624



1,681



7,630



5,042Depreciation


69



84



211



256Total costs and expenses


6,798



10,709



22,035



27,401Net unrealized gains on notes receivable


904



1,842



3,247



984Earnings (loss) from operations


723



(484
)


2,171



(7,549
)Other income (expense):Interest income


1,669



130



5,284



851Interest expense


(509
)


(350
)


(1,321
)


(1,063
)Equity in loss of unconsolidated investee


(17
)






(17
)


Other


(4
)


65



(20
)


237Total other income (expense), net


1,139



(155
)


3,926



25Earnings (loss) before income taxes and discontinued
    operations


1,862



(639
)


6,097



(7,524
)Income taxes (benefit)


(426
)


2,390



(36
)


3,509Earnings (loss) before discontinued operations


2,288



(3,029
)


6,133



(11,033
)Discontinued operations, net of tax (net of $1.7 million
    and $4.4 million allocated to the prior noncontrolling
    interest)






(2,692
)






(6,779
)Net earnings (loss) applicable to Lakes Entertainment,
    Inc.

$
2,288


$
(5,721
)

$
6,133


$
(17,812
)Other comprehensive loss:Unrealized loss on securities, net of tax






(903
)






(3,679
)Other comprehensive earnings (loss)

$
2,288


$
(6,624
)

$
6,133


$
(21,491
)Weighted-average common shares outstandingBasic


26,328



25,184



26,327



24,906Diluted


26,443



N/A



26,411



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

$
0.09


$
(0.12
)

$
0.23


$
(0.44
)Loss  discontinued operations






(0.11
)






(0.28
)Earnings (loss) per share

$
0.09


$
(0.23
)

$
0.23


$
(0.72
)    4




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##### Table of Contents



LAKES
    ENTERTAINMENT, INC. AND SUBSIDIARIES



Consolidated
    Statements of Cash Flows  Nine Months EndedSeptember 27, 2009


September 28, 2008(In thousands)(Unaudited)OPERATING ACTIVITIES:Net earnings (loss)

$
6,133


$
(17,812
)Loss from discontinued operations






(6,779
)Earnings (loss) from continuing operations


6,133



(11,033
)Adjustments to reconcile net earnings (loss) from continuing
    operations to net cash provided by (used in) operating
    activities:Depreciation


211



256Amortization of debt issuance costs


23



Accretion of contra note receivable


(2,009
)


Mark to market, trading securities


(195
)


Amortization of intangible assets related to Indian casino
    projects


7,630



5,042Equity in loss of unconsolidated investee


17



Share-based compensation


321



388Impairment losses


2,877



Net unrealized gains on notes receivable


(3,247
)


(984
)Deferred income taxes


(4,149
)


2,972Changes in operating assets and liabilities:Accounts receivable


188



(3,365
)Prepaid advertising






(7,578
)Other current assets


698



(386
)Income taxes payable


1,875



(366
)Accounts payable


130



138Accrued expenses


(1,165
)


296Contract acquisition costs payable


(1,884
)


(1,320
)Net cash provided by (used in) continuing operations


7,454



(15,940
)Net cash used in discontinued operations






(8,731
)Net cash provided by (used in) operating activities


7,454



(24,671
)INVESTING ACTIVITIES:Purchase of securities






(2,700
)Sale / redemption of securities


2,400



6,500Investment in Kansas Gaming Partners, LLC


(8,422
)


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


(3,260
)


(4,948
)Advances on notes receivable


(504
)


(1,117
)Purchase of property and equipment


(13
)


(122
)Collection on notes receivable


4,106



1,762Increase in other long-term assets


(254
)


35Net cash used in continuing operations


(5,947
)


(590
)Net cash provided by discontinued operations






10,125Net cash provided by (used in) investing activities


(5,947
)


9,535FINANCING ACTIVITIES:Repayment of line of credit


(2,530
)


(309
)Cash proceeds from issuance of common and preferred stock


346



6,272Proceeds from borrowings


716



12,000Tax benefit from stock option exercises


753



Net cash (used in) provided by continuing operations


(715
)


17,963Net cash used in discontinued operations






(18
)Net cash (used in) provided by financing activities


(715
)


17,945Net increase in cash


792



1,433Cash  beginning of period


6,170



5,397Cash  end of period

$
6,962


$
6,830    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
  2009-04, Accounting for Redeemable Equity Instruments, 2009-04
  2009-05, Measuring Liabilities at Fair Value, 2009-05
  3.
    Financial
    instruments     6




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##### Table of Contents



4.
    Discontinued
    operations      Three Months


Nine MonthsEnded


EndedSeptember 28, 2008


September 28, 2008Revenues

$
2,832


$
12,866Loss before income taxes

$
(2,690
)

$
(6,776
)Income taxes


2



3Discontinued operations (net of $1.7 million and
    $4.4 million allocated to the prior noncontrolling interest)

$
(2,692
)

$
(6,779
)   5.
    Investments
    in securities      Derivatives and Hedging. Financial Instruments
 7




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##### Table of Contents



Investments  Debt and Equity
    Securities
    EstimatedGross


FairUnrealized


ValueCost


Losses


(Note 6)September 27, 2009 (unaudited)Maturity considered less than one yearAuction rate securities (trading securities)

$
24,375


$
(2,516
)

$
21,859December 28, 2008Maturity considered greater than one yearAuction rate securities (trading securities)

$
26,775


$
(4,532
)

$
22,243   6.
    Fair
    value measurement      September 27,


December 28,2009


2008(Unaudited)Auction rate securities(*)

$
21,859


$
22,243Rights(*)


2,480



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


14,421



10,703$
38,760


$
37,247     (*)
    
    See Note 5.  (**)
    
    See Note 7.      
    ARS  Credit ratings of the ARS and collateral
    securities, default rates, other market and liquidity
    circumstances.
    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. 8




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##### Table of Contents



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



40,031Total realized and unrealized gains (losses):Gains (losses) included in earnings(*)


530



(491
)






39Unrealized gains on notes receivable










904



904Settlements (at par)


(2,400
)










(2,400
)Advances, net of allocation to intangible, other










186



186Balances, September 27, 2009 (unaudited)

$
21,859


$
2,480


$
14,421


$
38,760     (*)
    
    See Note 5.  7.
    Long-term
    assets related to Indian casino projects  notes
    receivable   9




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##### Table of Contents



ShingleSprings


Jamul


IowaTribe(**)


Tribe(*)


Tribe(*)


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



57,330Advances






734



74



808Repayments


(1,152
)










(1,152
)Accretion of contra note receivable(**)


651











651Allocation of advances to intangible assets






(597
)


(25
)


(622
)Changes in estimated fair value(*)(**)






661



243



904Changes in current portion of notes receivable


4,047











4,047Balances, September 27, 2009 (unaudited)

$
47,545


$
10,281


$
4,140


$
61,966     (*)
    
    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, 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 ASC 310, Receivables.  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%  10




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##### Table of Contents



Jamul Tribe.
  As of September 27, 2009

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

$53,147
    ($35,514 principal and $17,633 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

7.38%

6.45%Projected interest rate during the loan repayment term

9.73%

8.32%Discount rate(*)

21.00%

23.50%Repayment terms of note

120 months

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

50%

50%     (*)
    
    During 2009, Lakes decreased the discount rate to 21.00% 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 September 27, 2009

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

$6,130

$5,660($4,970 principal and $1,160 interest)

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

23 months

20 monthsProjected interest rate until casino opens

6.36%

5.93%Projected interest rate during the loan repayment term

8.30%

6.24%Discount rate(*)

16.00%

18.50%Repayment terms of note

24 months

24 monthsProbability rate of casino opening

85%

85%     (*)
    
    During 2009, Lakes decreased the discount rate to 16.00% 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.
 11




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##### Table of Contents



ShinglePokagon


Springs


Jamul


IowaBand


Tribe


Tribe


Tribe


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



46,448Allocation of advances










597



25



622Acquisition of contract rights(***)






4,029











4,029Amortization


(1,678
)


(943
)






(3
)


(2,624
)Impairment losses(*)










(597
)






(597
)Balances, September 27, 2009 (unaudited)

$
19,025


$
27,461


$



$
1,392


$
47,878     (*)
    
    Due to continued uncertainty surrounding the Jamul Casino
    project, Lakes recognized an impairment of $0.6 million and
    $1.6 million related to the intangible assets associated
    with this project during the three months and nine months ended
    September 27, 2009, respectively.(**)
    
    Effective June 2009, the Company 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 the Company and the Shingle
    Springs Tribe, as a result of Mr. Argovitzs election
    under an existing agreement related to this project. Also as a
    result of this election, Mr. Argovitz will not be entitled
    to obtain a 15% equity interest in the Companys entity
    that holds the rights to the management fees earned by the
    Company from the Red Hawk Casino operations. The acquisition of
    contract rights represents the net present value of the
    obligation (Note 10).(***)
    
    During September 2009, it became probable that the Company will
    be required to pay Mr. Kevin M. Kean $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 the Company
    and the Shingle Springs Tribe, as a result of
    Mr. Keans election under an existing agreement
    related to this project. Also as a result of this election,
    Mr. Kean will not be entitled to receive consulting fees
    equal to 15% of the management fees earned by the Company from
    the Red Hawk Casino operations. The acquisition of contract
    rights represents the net present value of the obligation
    (Note 10).  Land held for development.
    Other.
 12




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##### Table of Contents



9.
    Debt  Line of credit payable. 30-day
  Non-revolving line of credit payable.
  10.
    Contract
    acquisition costs payable         13




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##### Table of Contents



11.
    Share-based
    compensation      Three Months Ended

Nine Months EndedSeptember 27,

September 28,

September 27,

September 28,2009

2008

2009

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

$
70


$
146


$
321


$
388     Stock options.
    Three Months Ended

Nine Months EndedSeptember 27,

September 28,

September 27,

September 28,Key Valuation Assumptions:

2009 (*)

2008

2009

2008Expected dividend yield














Risk-free interest rate






4.01
%


2.52
%


3.78
%Expected term (in years)






8.18 years



7.69 years



8.18 yearsExpected volatility






57.92
%


79.82
%


52.48
%Estimated forfeiture rate














Weighted-average grant-date fair value per share





$
3.27


$
2.46


$
3.23     (*)
    
    There were no options granted during the three months ended
    September 27, 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
    September 27, 2009. Management believes historical data is
    reasonably representative of future exercise behavior.
    Expected volatility  The volatility assumption is
    based on the historical weekly price data of Lakes stock
    over a two-year period. Management evaluated whether there were
    factors during that period which were unusual and which would
    distort the volatility figure if used to estimate future
    volatility and concluded that there were no such factors. 14




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##### Table of Contents




    Estimated forfeiture rate  Share-based compensation
    expense recognized is based on awards ultimately expected to
    vest. ASC 718, Compensation  Stock Compensation,requires forfeitures to be estimated at the time of grant
    and revised quarterly, if necessary, in subsequent periods if
    actual forfeitures differ from those estimates. Management has
    reviewed the historical forfeitures which have been minimal, and
    as such will amortize the grants to the end of the vesting
    period subject to any revisions to its estimated forfeiture
    rates prior to vesting.    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



6.51Authorized










2,000,000



Granted














Forfeited/cancelled/expired


(215,000
)






20,000



4.37Option exchange modification(**)


(1,827,400
)










7.25Option exchange post modification(**)


1,046,587







(1,046,587
)


3.40Exercised














Balance at September 27, 2009(*)


1,823,562



543,725



1,269,111


$
4.232008Balance 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



6.24Authorized














Granted


3,000







(3,000
)


4.99Forfeited/cancelled/expired


(31,000
)






31,000



7.30Exercised


(1,062,500
)










4.18Balance at September 28, 2008


3,086,150



2,701,775



341,750


$
6.94     (*)
    
    Does not include 135,000 of outstanding restricted stock units. 15




---



##### Table of Contents



(**)
    
    On September 22, 2009, Lakes offered eligible employees,
    including current employees, executive officers and members of
    the Board of Directors of Lakes, the opportunity to exchange
    eligible outstanding stock options granted under the 1998 Stock
    Option and Compensation Plan, the 1998 Director Stock
    Option Plan and the 2007 Stock Option and Compensation Plan that
    were issued with exercise prices equal to or greater than the
    closing per share price on September 22, 2009 of $3.40, for
    new stock options to purchase fewer shares of Lakes common stock
    at an exercise price equal to the closing price of Lakes common
    stock on the NASDAQ Global Market on September 22, 2009 of
    $3.40.      Options Outstanding at September 27, 2009Weighted-








Options Exercisable at September 27, 2009Average


Weighted-


Aggregate





Weighted-


AggregateNumber


Remaining


Average


Intrinsic


Number


Average


IntrinsicRange of Exercise Prices

Outstanding


Contractual Life


Exercise Price


Value


Exercisable


Exercise Price


Value$(2.86  3.63)


1,536,187



8.2 years


$
3.33


$
76,410



312,600


$
3.12


$
65,790(3.64  5.45)


24,375



7.3 years



4.25







8,625



4.21



(5.46  7.26)


55,250



8.0 years



6.16







14,750



6.18



(7.27  9.08)


72,500



0.3 years



7.54







72,500



7.54



(9.09  10.90)


56,250



0.1 years



10.51







56,250



10.51



(10.91  13.21)


79,000



0.3 years



13.05







79,000



13.05



1,823,562



7.6 years


$
4.23


$
76,410



543,725


$
6.02


$
65,790       Restricted stock units.
  Weighted-averageRestricted


Grant-Non-vested Shares:

Stock Units


Date Fair ValueDecember 28, 2008





$
Granted


140,000



3.25Forfeited






March 29, 2009


140,000



3.25Granted






Forfeited


(5,000
)


3.25June 28, 2009


135,000



3.25Granted






Forfeited






September 27, 2009


135,000


$
3.25  16




---



##### Table of Contents



12.
    Earnings
    (loss) per share    13.
    Income
    taxes      14.
    Commitments
    and contingencies  General.
  Kansas Gaming Partners, LLC.
  Louisiana Department of Revenue litigation tax
    matter.
 17




---



##### Table of Contents



Miscellaneous legal matters.
  15.
    Kansas      (
    16.
    Subsequent
    event  Ohio.
   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 of
    Oklahoma, a federally recognized Indian Tribe, and the Iowa
    Tribe of Oklahoma, a federally-chartered corporation
    (collectively, the Iowa Tribe) in Perkins, Oklahoma,
    under a seven-year management contract, which commenced in 2006.
    The Cimarron Casino features approximately 375 electronic gaming
    machines and a food and beverage outlet.
    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. The Bureau of Indian Affairs (the
    BIA) has granted approval on the purchase of a
    60-acre
    allotment, but 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 National Indian Gaming Commission
    (the NIGC) for review in 2005. The NIGC has stated
    that it is waiting for the BIA to approve all land leases before
    it will issue an opinion on the management contract. In
    addition, uncertainty exists surrounding the development of this
    project due to changes in the economic environment and credit
    markets.   19




---



##### Table of Contents



Results
    of Operations
  Form 10-Q
  Three
    months ended September 27, 2009 compared to the three
    months ended September 28, 2008
  Revenues.
  Selling, general and administrative
    expenses.
  Ohio initiative costs.
  Impairment losses.
  Amortization of intangible assets related to Indian casino
    projects.
 20




---



##### Table of Contents



Net unrealized gains on notes receivable.
  Other income (expense), net.
  Income taxes (benefit). Form 10-Q).
  Nine
    months ended September 27, 2009 compared to the nine months
    ended September 28, 2008
  Revenues.
  Selling, general and administrative
    expenses.
  Ohio initiative costs.
  Impairment losses.
  Amortization of intangible assets related to Indian casino
    projects.
 21




---



##### Table of Contents



Net unrealized gains on notes receivable.
  Other income (expense), net.
  Income taxes (benefit). Form 10-Q),
  Liquidity
    and Capital Resources
  Form 10-Q)
       22




---



##### Table of Contents



30-day
      Form 10-Q)
    and/or
   23




---



##### Table of Contents



Payment Due by PeriodLess than








More thanContractual Obligations

Total


1 Year


1-3 Years


3-5 Years


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

$



$



$



$



$
Shingle Springs Tribe(3)


7.7



1.0



1.8



2.7



2.2Pokagon Band(4)


5.6



1.5



4.1







Iowa Tribe  Ioway Casino project(5)


















Lakes Kansas(6)


















Non-revolving line of credit(7)


2.0







2.0







Lakes operating leases(8)


4.3



0.5



0.9



0.9



2.0$
19.6


$
3.0


$
8.8


$
3.6


$
4.2     (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
    September 27, 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 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, as a
    result of Mr Argovitzs election under an existing
    agreement related to this project. Also as a result of this
    election Mr. Argovitz will not be entitled to obtain a 15%
    equity interest in our entity that holds the rights to the
    management fees we earn from the Red Hawk Casino operations
    (Note 10 to the unaudited consolidated financial statements
    in Part I, Item 1 of this Quarterly Report on
    Form 10-Q).  Form 10-Q).
  (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 (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. 24




---



##### Table of Contents



(6)
    
    We may be obligated to pay $1.0 million to an unrelated
    third party. The amount is payable under an agreement with Lakes
    resulting from services previously performed and is only payable
    if we are the manager or an owner of the Chisholm Creek Casino
    and if the casino is open and operational (Note 15 to the
    unaudited consolidated financial statements in Part I,
    Item 1 of this Quarterly Report on
    Form 10-Q.)(7)
    
    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% (Note 9 to the
    unaudited consolidated financial statements in Part I,
    Item 1 of this Quarterly Report on
    Form 10-Q).(8)
    
    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.
  Income taxes. Income Taxes.
    Investment in debt securities. Investments  Debt and Equity Securities
   25




---



##### Table of Contents



Derivatives and Hedging. Financial Instruments
  Investment. Investments 
    Equity Method and Joint Ventures
  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 evaluationof 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.  Investments  Debt and Equity
    Securities
   26




---



##### Table of Contents



Receivables
  Intangible assets related to Indian casino
    projects. Intangibles  Goodwill and Other
  Land held for development.
  Other.
   27




---



##### Table of Contents



September 27, 2009ShinglePokagon


Springs


Jamul


IowaBand


Tribe


Tribe


Tribe


Other


Total(Unaudited)Notes receivable(*)

$



$
47,545


$



$



$



$
47,545Notes receivable at fair value










10,281



4,140







14,421Intangible assets related to Indian casino projects


19,025



27,461







1,392







47,878Land held for development










960



850







1,810Other


60



1,098



418



360



2,093



4,029$
19,085


$
76,104


$
11,659


$
6,742


$
2,093


$
115,683   December 28, 2008ShinglePokagon


Springs


Jamul


IowaBand


Tribe


Tribe


Tribe


Other


TotalNotes receivable(*)

$



$
44,002


$



$



$



$
44,002Notes receivable at fair value










7,116



3,587







10,703Intangible 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 ASC
    310. Approximately $4.0 million and $9.2 million of
    the notes receivable from the Shingle Springs Tribe are
    estimated to be collected within the next fiscal year and have
    been classified as a current asset in the unaudited consolidated
    balance sheets as of September 27, 2009 and
    December 28, 2008, respectively.   28




---



##### Table of Contents



Jamul
    Tribe:
  As of September 27, 2009

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

$53,147 
    ($35,514 principal and $17,633 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

7.38%

6.45%Projected interest rate during the loan repayment term

9.73%

8.32%Discount rate(*)

21.00%

23.50%Repayment terms of note

120 months

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

50%

50%     (*)
    
    During 2009, Lakes decreased the discount rate to 21.00% 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 September 27, 2009

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

$6,130 
    ($4,970 principal and $1,160 interest)

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

23 months

20 monthsProjected interest rate until casino opens

6.36%

5.93%Projected interest rate during the loan repayment term

8.30%

6.24%Discount rate(*)

16.00%

18.50%Repayment terms of note

24 months

24 monthsProbability rate of casino opening

85%

85%     (*)
    
    During 2009, Lakes decreased the discount rate to 16.00% 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. 29




---



##### 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

$
10,281


$
9,288


$
9,184


$
8,301


$
11,274


$
11,514


$
12,630Iowa Tribe


4,140



3,901



3,807



3,583



4,389



4,513



4,778$
14,421


$
13,189


$
12,991


$
11,884


$
15,663


$
16,027


$
17,408       As of September 27, 2009Jamul


IowaAdvances Principal Balance

Tribe


Tribe


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

$
34,564


$
3,861


$
38,425Note receivable, land(b)


950



1,109



2,059$
35,514


$
4,970


$
40,484   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. 30




---



##### Table of Contents



September 27,


December 28,Jamul Tribe

2009


2008(Unaudited)Monthly stipend

$
6,151


$
5,687Construction


2,349



2,102Legal


4,799



4,598Environmental


2,317



2,292Design


15,230



14,324Gaming license


1,021



917Lobbyist


2,697



2,697$
34,564


$
32,617   September 27,


December 28,Iowa Tribe

2009


2008(Unaudited)Construction

$
253


$
253Legal


266



252Environmental


4



Design


3,313



3,216Gaming license


25



25$
3,861


$
3,746   Evaluation
    of possible impairment of our long-term assets related to Indian
    casino projects, excluding the notes receivable, which are
    valued at fair value:
     31




---



##### Table of Contents



Jamul
    Tribe
    September 27,

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
  September 27,

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.
 32




---



##### Table of Contents



Shingle
    Springs Tribe
  Business arrangement.
        Form 10-Q.
  Jamul
    Tribe
     33




---



##### Table of Contents



Business arrangement. six-acre
         34




---



##### Table of Contents



Our evaluation of the critical milestones.
  September 27,

December 28,

December 30,Critical Milestone

2009

2008

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. 35




---



##### Table of Contents



September 27,

December 28,

December 30,Critical Milestone

2009

2008

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.
   36




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Cimarron Casino.
  Arrangement with Consultant.
 37




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Our evaluation of the Ioway Casino Resort.
  September 27,

December 28,

December 30,Critical Milestone

2009

2008

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

Yes

Yes

Yes 38




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September 27,

December 28,

December 30,Critical Milestone

2009

2008

2007NIGC 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, but financing is uncertain due to changes in the
    economic environment and credit markets.

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.   Our evaluation and conclusion regarding the above critical
    milestones and progress.
  60-acre
 39




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Recently
    issued accounting pronouncements
  Form 10-Q.
  Seasonality
    Regulation
    and taxes
      Off-balance
    sheet arrangements
    Private
    Securities Litigation Reform Act
  Form 10-Q
     40




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Form 10-K
  ITEM 3.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      30-day
  and/or
    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,
  Current
    economic conditions may cause further declines in casino gaming
    activity and other consumer spending which could adversely
    affect the financial performance of the casinos we manage and
    our financial condition, results of operations, and cash
    flows.
    Because
    our primary source of revenue is generated from our management
    agreements with Indian Tribes which have finite terms, our
    failure to develop new business opportunities would impact our
    future growth, cash flow and profitability.
    The
    commencement or completion of our planned casino development
    projects may be significantly delayed or prevented due to a
    variety of factors, many of which are beyond our control, which
    could have a material adverse effect on our profitability, cash
    flow and financial condition.
       42




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and/or
    Failure
    of our existing and future casino projects to successfully
    compete may have a material adverse effect on our results of
    operations, cash flow and financial condition.
      The
    early termination or modification of our management,
    development, consulting or financing agreements with Indian
    tribes may reduce or eliminate our revenues under such
    agreements.
    Our
    joint venture project in Kansas may not be approved and, as a
    result, this potential casino opportunity would be lost along
    with many of the resources we expended in pursuing the
    project.
   43




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If we
    fail to comply with the laws, regulations and ordinances
    (including tribal or local laws) applicable to gaming
    facilities, we may be unable to operate or develop casino
    projects.
      If
    Indian tribes default on their repayment obligations or
    wrongfully terminate their management, development, consulting
    or financing agreements with us, we may be unable to collect the
    amounts due.
      A
    deterioration of our relationship with an Indian tribe could
    cause delay or termination of a casino project and prevent or
    significantly impede recovery of our investment
    therein.
    If we
    are unable to liquidate our investments to provide liquidity
    when and as needed, and we are unable to obtain additional
    financing in order to satisfy our cash requirements, we may be
    forced to delay, scale back or eliminate some of our expansion
    and development goals.
    and/or
 44




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##### Table of Contents



We may
    be unable to generate sufficient cash flow to satisfy our debt
    obligations, which would adversely affect our financial
    condition and results of operations.
    If we
    are unsuccessful in our litigation with the Louisiana Department
    of Revenue, we may need to raise additional capital or revise
    our development and/or operational plans which could have a
    negative effect on existing shareholders or future
    operations.
    We may
    be adversely impacted by economic factors beyond our control and
    may incur additional impairment charges to our investment
    portfolio.
        and/or
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##### Table of Contents



If one
    or more of our Indian casino projects fail, the recorded assets
    related to those projects will be impaired and there may be a
    material adverse impact on our financial condition, results of
    operations, and cash flow.
      Various
    regulatory bodies have made proposals which, if implemented,
    could negatively impact the economic viability of the Jamul
    Casino project.
    Our
    entry into new businesses may result in future
    losses.
  and/or and/or
  We are
    dependent on the ongoing services of our senior corporate
    management, and the loss of their services could have a
    detrimental effect on the pursuit of our business objectives,
    profitability and the price of our common stock.
   46




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Our
    Articles of Incorporation and Bylaws may discourage lawsuits and
    other claims against our directors.
    Our
    Articles of Incorporation contain provisions that could
    discourage or prevent a potential takeover, even if the
    transaction would be beneficial to our
    shareholders.
    The
    price of our common stock may be adversely affected by
    significant price fluctuations due to a number of factors, many
    of which are beyond our control.
    
    obtaining all necessary regulatory approvals for our casino
    development projects;
    litigation surrounding one or more of our casino developments;
    the announcement of new products or product enhancements by us
    or our competitors;
    technological innovations by us or our competitors;
    quarterly variations in our or our competitors operating
    results;
    changes in prices of our or our competitors products and
    services;
    changes in our revenue and revenue growth rates;
    changes in earnings or (loss) per share estimates by market
    analysts or speculation in the press or analyst community;
    future sales of our common stock or securities linked to our
    common stock; and
    general market conditions or market conditions specific to
    particular industries.  We
    have issued numerous options to acquire our common stock and
    have the ability to issue additional options, each of which
    could have a dilutive effect on our common stock.
   47




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The
    market price of our common stock may be reduced by future sales
    of our common stock in the public market.
    ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS        Affirmative Votes

Negative Votes

Abstentions

Broker Non-Vote22,466,847

2,158,715

10,710

     Affirmative Votes

Authority WithheldLyle Berman


22,168,331



2,467,941Timothy J. Cope


21,836,324



2,799,948Morris Goldfarb


18,606,535



6,029,737Neil I. Sell


21,038,093



3,598,179Ray Moberg


21,476,709



3,159,563Larry C. Barenbaum


18,605,680



6,030,592Richard White


21,477,175



3,159,097     Affirmative Votes

Negative Votes

Abstentions

Broker Non-Vote13,914,137

4,578,024

42,943

6,101,168     Affirmative Votes

Negative Votes

Abstentions

Broker Non-Vote14,002,696

4,515,543

17,865

6,101,168   value-for-value
  Affirmative Votes

Negative Votes

Abstentions

Broker Non-Vote11,259,033

7,257,893

18,178

6,101,168     Affirmative Votes

Negative Votes

Abstentions

Broker Non-Vote23,008,230

239,964

27,129

  48




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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  49




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SIGNATURES
  Form 10-Q
  LAKES ENTERTAINMENT, INC. Registrant
  LYLE
    BERMAN
       TIMOTHY
    J. COPE
       50