UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended ~~September~~March 30, ~~2007~~2008
		or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission FileNo. 0-24993

LAKES ENTERTAINMENT, INC.

(Exact name of registrant as specified in its charter)


Minnesota		41-1913991
(State or other jurisdiction of incorporation or organization)		~~41-1913991~~ (I.R.S. Employer Identification No.)

130 Cheshire Lane, Suite 101 Minnetonka, Minnesota		55305 (Zip Code)
(Address of principal executive offices)		~~55305~~ ~~(Zip Code)~~

(952) 449-9092

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a ~~non-accelerated filer.~~smaller reporting company. See definition of “large accelerated filer,” “accelerated ~~filer~~filer” and ~~large accelerated filer”~~“smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one):

~~Large Accelerated Filer~~ o ~~Accelerated Filer~~ þ ~~Non Accelerated Filer~~


Large accelerated filer o		Accelerated filer þ
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes o No þ

As of ~~November~~May 5, ~~2007,~~2008, there were ~~24,515,675~~24,915,675 shares of Common Stock, $0.01 par value per share, outstanding.

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets


		September 30							March 30,
		2007			December 31,				2008			December 30,
		(Unaudited)			2006				(Unaudited)			2007
		(In thousands)							(In thousands)

ASSETS	ASSETS							ASSETS
Current assets:
Cash and cash equivalents		$	7,921		$	9,759
(balances include $4.5 million and $8.4 million of WPT Enterprises, Inc.)
Restricted cash			—			12,738
(balances include $5.0 million and $3.9 million of WPT Enterprises, Inc.)									$	8,644		$	9,248
Investments in marketable securities			51,572			52,901
(balances include $21.4 million and $24.3 million of WPT Enterprises, Inc.)
(balances include $8.5 million and $23.0 million of WPT Enterprises, Inc.)										8,511			53,546
Accounts receivable			4,453			2,963				5,045			3,570
Notes receivable — current			3,029			—
Notes receivable										1,133			—
Other current assets			3,087			2,706				3,367			3,028

Total current assets			70,062			81,067				26,700			69,392

Property and equipment, net			16,857			17,460				16,743			16,633

Long-term assets related to Indian casino projects:
Notes receivable from Indian tribes			79,278			164,308				77,899			78,795
Land held for development			7,597			16,790				7,663			7,631
Intangible assets, net of accumulated amortization of $1.1 million at September 30, 2007			66,942			54,279
Intangible assets , net of accumulated amortization of $4.4 million and $2.8 million										64,987			65,910
Other			5,615			8,450				5,116			5,176

Total long-term assets related to Indian casino projects			159,432			243,827				155,665			157,512

Other assets:
Investments in marketable securities			9,004			6,962				38,849			4,200
Investments			2,923			2,923
Investments in unconsolidated investee										2,923			2,923
Deferred tax asset			6,333			6,248				4,498			4,878
Debt issuance costs			—			1,972
Other long-term assets			546			717				530			563

Total other assets			18,806			18,822				46,800			12,564

Total assets		$	265,157		$	361,176			$	245,908		$	256,101


LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY							LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable		$	2,348		$	5,345			$	1,753		$	1,559
Income taxes payable			16,632			14,593				15,471			16,272
Accrued payroll and related costs			2,395			2,480				2,574			2,788
Deferred revenue			4,458			4,740				1,984			2,870
Current portion of contract acquisition costs payable related to Indian casino projects, net of $1.2 million discount			1,850			—
Current portion of contract acquisition costs payable, net of $1.3 million and $1.2 million discount										2,206			1,903
Other accrued expenses			2,209			2,191				2,166			2,074

Total current liabilities			29,892			29,349				26,154			27,466

Long-term Liabilities:
Long-term debt, other, net of unamortized discount of $0.9 million at December 31, 2006			—			104,471
Contract acquisition costs payable related to Indian casino projects, net of $2.8 million discount			7,923			—
Warrant liability			—			5,816

Long-term liabilities			7,923			110,287
Contract acquisition costs payable, net of $2.2 million and $2.5 million discount										6,737			7,342

Total liabilities			37,815			139,636				32,891			34,808

Commitments and contingencies
Minority interest in subsidiary			14,570			16,764				12,587			13,995
Shareholders’ equity:
Series A preferred stock, $.01 par value; authorized 7,500 shares; 4,458 issued and outstanding at September 30, 2007 and December 31, 2006, respectively			45			45
Common stock, $.01 par value; authorized 200,000 shares; 24,456 and 22,949 issued and outstanding at September 30, 2007, and December 31, 2006, respectively			245			229
Series A convertible, nonvoting preferred stock, $.01 par value with no dividend rights and no liquidation preference; authorized 7,500 shares; 4,458 issued and outstanding at March 30, 2008 and December 30, 2007										45			45
Common stock, $.01 par value; authorized 200,000 shares; 24,916 and 24,516 issued and outstanding at March 30, 2008, and December 30, 2007, respectively										249			245
Additional paid-in capital			189,148			171,710				192,658			190,228
Retained earnings			23,353			33,250				9,861			16,766
Accumulated other comprehensive loss			(19	)		(458	)
Accumulated other comprehensive earnings (loss)										(2,383	)		14

Total shareholders’ equity			212,772			204,776				200,430			207,298

Total liabilities and shareholders’ equity		$	265,157		$	361,176			$	245,908		$	256,101

See notes to unaudited condensed consolidated financial statements

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of ~~Earnings (Loss)~~Operations and Comprehensive ~~Earnings (Loss)~~Loss


													Three months ended
	Three months ended						Nine months ended						March 30,			April 1,
	September 30,			October 1,			September 30,			October 1,			2008			2007
	2007			2006			2007			2006			(In thousands, except
	(In thousands, except per share data)												per share data)
	(Unaudited)												(Unaudited)

Revenues:
License fee income	$	2,695		$	4,672		$	12,535		$	18,098		$	3,576		$	3,768
Host fees, sponsorship, online gaming and other		1,732			1,221			4,158			5,315			1,405			755
Management, consulting and development fees		2,580			15			3,415			345			4,580			449

Total revenues		7,007			5,908			20,108			23,758			9,561			4,972

Costs and expenses:
Selling, general and administrative		10,058			8,772			29,747			26,787			10,892			9,741
Production costs		1,355			1,737			6,594			8,333			2,670			2,152
Loss on abandonment of online gaming assets		—			—			2,270			—
Net impairment losses		—			—			331			—			—			331
Amortization of intangible assets related to Indian casino projects		1,121			6			1,126			6			1,681			3
Depreciation and amortization		192			158			573			431			188			192

Total costs and expenses		12,726			10,673			40,641			35,557			15,431			12,419

Net realized and unrealized gains (losses) on notes receivable		(600	)		5,788			8,503			38,911			(1,983	)		165

Earnings (loss) from operations		(6,319	)		1,023			(12,030	)		27,112
Loss from operations														(7,853	)		(7,282	)

Other income (expense):
Interest income		981			1,209			7,613			2,299			835			1,138
Interest expense, related party		—			—			—			(137	)
Interest expense, other		(330	)		(360	)		(646	)		(5,000	)
Amortization of debt issuance costs		—			(139	)		(95	)		(450	)
Interest expense														(367	)		(316	)
Loss on extinguishment of debt		—			—			(3,830	)		(6,821	)		—			(3,830	)
Gain on sale of investment		—			4,541			—			10,216
Other		50			5			78			81			62			(90	)

Total other income, net		701			5,256			3,120			188
Total other income (expense), net														530			(3,098	)

Earnings (loss) before income taxes and minority interest in net (earnings) loss of subsidiary		(5,618	)		6,279			(8,910	)		27,300
Loss before income taxes and minority interest in net loss of subsidiary														(7,323	)		(10,380	)
Income taxes		453			2,195			1,142			8,742			688			322

Earnings (loss) before minority interest in net (earnings) loss of subsidiary		(6,071	)		4,084			(10,052	)		18,558
Minority interest in net (earnings) loss of subsidiary		859			(1,035	)		3,035			(3,383	)
Loss before minority interest in net loss of subsidiary														(8,011	)		(10,702	)
Minority interest in net loss of subsidiary														1,106			881

Net earnings (loss)		(5,212	)		3,049			(7,017	)		15,175
Stock warrant inducement discount		—			—			1,444			—

Net earnings (loss) available to common shareholders		(5,212	)		3,049			(8,461	)		15,175
Net loss applicable to common shareholders														(6,905	)		(9,821	)

Other comprehensive earnings (loss):
Unrealized gains (loss) on marketable securities, net of tax		30			125			30			(301	)		(2,397	)		23
Change in estimated fair value of derivative		—			(468	)		409			(629	)		—			409

Comprehensive earnings (loss)	$	(5,182	)	$	2,706		$	(8,022	)	$	14,245
Comprehensive loss													$	(9,302	)	$	(9,389	)

Earnings (loss) available to common shareholders per share — basic	$	(0.21	)	$	0.13		$	(0.36	)	$	0.67
Loss applicable to common shareholders per share — basic and diluted													($	0.28	)	($	0.43	)

Earnings (loss) available to common shareholders per share — diluted	$	(0.21	)	$	0.12		$	(0.36	)	$	0.62
Weighted-average common shares outstanding — basic and diluted														24,604			22,970

Weighted-average common shares outstanding — basic		24,393			22,876			23,758			22,720

Dilutive effect of common stock equivalents		—			1,752			—			1,826

Weighted-average common shares outstanding — diluted		24,393			24,628			23,758			24,546

See notes to unaudited condensed consolidated financial statements

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows


	Nine months ended						Three months ended
	September 30,			October 1,			March 30,			April 1,
	2007			2006			2008			2007
	(In thousands)						(In thousands)
	(Unaudited)						(Unaudited)

OPERATING ACTIVITIES:
Net earnings (loss)	$	(7,017	)	$	15,175
Adjustments to reconcile net earnings (loss) to net cash used in operating activities:
Net loss							$	(6,905	)	$	(9,821	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		818			685			253			275
Amortization of debt issuance costs		95			450			—			95
Amortization of debt discount		33			446			—			33
Decrease in value of warrant liability		(2,272	)		(44	)		—			(2,272	)
Amortization of intangible assets related to Indian casino projects		1,126			6			1,681			3
Share-based compensation		3,607			4,973			461			1,232
Loss on extinguishment of debt		2,783			6,821			—			2,783
Loss on abandonment of online gaming assets		2,270			—
Net realized and unrealized gains on notes receivable		(9,565	)		(38,911	)
Minority interest in net earnings (loss) of subsidiary		(3,035	)		3,383
Gain on sale of investment		—			(10,216	)
Net realized and unrealized gains (losses) on notes receivable								1,983			(1,227	)
Minority interest in net loss of subsidiary								(1,106	)		(881	)
Deferred income taxes		(85	)		5,495			380			(112	)
Net impairment losses		331			—			—			331
Changes in operating assets and liabilities:
Accounts receivable		(1,501	)		294			(1,492	)		566
Other current assets		(666	)		(52	)		(339	)		(783	)
Income taxes payable		601			3,114			(801	)		34
Accounts payable		30			(1,054	)		266			(41	)
Deferred revenue		(281	)		(11	)		(885	)		403
Accrued expenses		(68	)		1,461			(125	)		(1,669	)
Contract acquisition costs payable		(227	)		—			(301	)		—

Net cash used in operating activities		(13,023	)		(7,985	)		(6,930	)		(11,051	)

INVESTING ACTIVITIES:
Purchase of marketable securities		(90,861	)		(78,202	)		(13,887	)		(26,630	)
Sale/maturity of marketable securities		90,179			39,351
Proceeds from sale of land held for development		8,758			—
Sale / maturity of marketable securities								21,877			33,785
Collections on notes receivable		3,759			2,955			276			49
Increases in long-term assets related to Indian casino projects		(15,120	)		(37,412	)		(2,153	)		(6,598	)
Advances to unconsolidated investees		—			(2,923	)
Advances on notes receivable — current		(3,029	)		—
Proceeds from sale of investment		—			10,236
Advances on notes receivable								(1,117	)		—
Purchase of property and equipment		(2,158	)		(4,682	)		(374	)		(614	)
Increase in other long-term assets		—			(78	)		29			—

Net cash used in investing activities		(8,472	)		(70,755	)
Net cash provided by (used in) investing activities								4,651			(8	)

FINANCING ACTIVITIES:
Decrease (increase) in restricted cash		12,844			(16,099	)
Debt issuance costs		—			(5,004	)
Restricted cash proceeds from long-term debt		—			19,090
Unrestricted cash proceeds from long-term debt		—			109,860
Decrease in restricted cash								—			12,735
Repayment of long-term debt		(105,000	)		(35,000	)		—			(105,000	)
Cash proceeds from issuance of common and preferred stock		9,699			3,283			1,675			376
Shareholder trading settlement		—			2,805
Cash proceeds from sale of participation notes		102,114			—
Cash proceeds from sale of notes receivable								—			102,114

Net cash provided by financing activities		19,657			78,935			1,675			10,225

Net increase (decrease) in cash and cash equivalents		(1,838	)		195
Net decrease in cash and cash equivalents								(604	)		(834	)
Cash and cash equivalents — beginning of period		9,759			9,912			9,248			9,759

Cash and cash equivalents — end of period	$	7,921		$	10,107		$	8,644		$	8,925

See notes to unaudited condensed consolidated financial statements

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements


1.	Basis of ~~Presentation~~presentation

The unaudited condensed consolidated financial statements of Lakes Entertainment, Inc., a Minnesota corporation (“Lakes” or the “Company”), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial information. Accordingly, certain information normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States has been condensedand/or omitted. As of ~~September~~March 30, ~~2007,~~2008, Lakes owned approximately 61% of WPT Enterprises, Inc. (“WPTE”). Accordingly, Lakes’ unaudited condensed consolidated financial statements include the unaudited results of operations of WPTE, and a substantial portion of Lakes’ revenues for the periods reported have been derived from WPTE’s business. For further information, please refer to the annual audited consolidated financial statements of the Company, and the related notes included within the Company’s Annual Report onForm 10-K for the year ended December ~~31, 2006, as amended,~~30, 2007, previously filed with the SEC on ~~October 19, 2007,~~March 12, 2008, from which the balance sheet information as of that date is derived.

In the opinion of management, all adjustments considered necessary for a fair presentation have been included, consisting only of normal recurring adjustments. The results for the current interim period are not necessarily indicative of the results to be expected for the full year.

WPTE has reclassified $7.0 million of investments in marketable securities that were previously reported erroneously as current assets to non-current assets as of December 31, 2006. This reclassification is also reflected in Lakes’ Unaudited Condensed Consolidated Balance Sheet. In addition, certain otherCertain minor reclassifications to amounts previously reported have been made to conform to the current period presentation. These reclassifications had no effect on net ~~earnings (loss)~~loss or shareholders’ equity as previously presented.


2.	~~Long-Term Assets Related to Indian Casino Projects~~Fair Value Measurement

~~At September 30, 2007 and~~On December 31, ~~2006, long-term~~2007, the Company adopted the methods of fair value as described in Statement of Financial Accounting Standards No. 157, Fair Value Measurements(“SFAS No. 157”), to value its financial assets. The adoption of SFAS No. 157 in the first quarter of 2008 did not impact net income.

The Company’s financial instruments that are measured at estimated fair value use inputs from among the three levels of the fair value hierarchy set forth in SFAS No. 157 as follows:

Level 1 inputs: Unadjusted quoted prices in active markets for identical assets ~~related to Indian casino projects~~or liabilities, which prices are ~~primarily related to three separate projects~~available at the measurement date.

Level 2 inputs: Include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable for the ~~Pokagon Band of Potawatomi Indians (the “Pokagon Band”), Shingle Springs Band of Miwok Indians (the “Shingle Springs Tribe”~~asset or liability (i.e.interest rates, yield curves,etc.) and ~~the Jamul Indian Village (the “Jamul Tribe”) as indicated in the following tables (in thousands):~~inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

September 30, 2007
Shingle

Pokagon
Springs
Jamul

Band Tribe Tribe Other Total
(Unaudited)

Notes receivable, at estimated fair value $ — $ 52,176 $ 23,616 $ 3,486 $ 79,278
Land held for development — — 6,751 846 7,597
Intangible assets related to Indian casino projects, net(*) 32,454 21,812 11,556 1,120 66,942
Other 60 767 1,016 3,772 5,615

$ 32,514 $ 74,755 $ 42,939 $ 9,224 $ 159,432

Level 3 inputs: Unobservable inputs that reflect management’s estimates about the assumptions that market participants would use in pricing the asset or liability. Management develops these inputs based on the best information available, including internally-developed data.

In estimating fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible.

None of the Company’s financial assets are measured using level 2 inputs.

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

December 31, 2006
Shingle

Pokagon
Springs
Jamul

Band Tribe Tribe Other Total

Notes receivable, at estimated fair value $ 100,544 $ 40,912 $ 20,754 $ 2,098 $ 164,308
Land held for development — 8,739 6,710 1,341 16,790
Intangible assets related to Indian casino projects, net(*) 23,573 20,387 9,760 559 54,279
Other 60 2,041 2,207 4,142 8,450

$ 124,177 $ 72,079 $ 39,431 $ 8,140 $ 243,827

Financial assets carried at fair value as of March 30, 2008 are classified in the table below in one of the three categories described above:


	Level 1		Level 3		Total
	(In thousands)

Municipal Bonds(*)	$	1,807	$	—	$	1,807
Auction rate securities(*)		—		36,756		36,756
Corporate preferred securities(*)		7,837		—		7,837
Certificates of deposit(*)		960		—		960
Notes receivable from Indian Tribes (**)		—		77,899		77,899

Total assets at estimated fair value (***)	$	10,604	$	114,655	$	125,259


(*)		~~Intangible~~See Note 3.

(**)		See Note 4.

(***)		The Company chose not to elect the fair value option as offered by Statement of Financial Accounting Standards No. 159,The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FAS 115,for its financial assets ~~consist primarily of contractual rights to develop, finance and/or manage Indian-owned casino properties. Amortization of intangible~~and liabilities that had not been previously carried at fair value. Therefore, material financial assets ~~begins once the related project becomes operational,~~ and ~~is calculated using the straight line method over the term of the underlying contract.~~liabilities not carried at fair value are still reported at carrying values.

~~Pokagon Band.~~For financial assets that utilize Level 1 inputs, the Company utilizes direct observable price quotes in active markets (corporate paper, municipal bond and certificate of deposit markets) for identical assets.

~~On August 2, 2007, the Four Winds Casino Resort in New Buffalo, Michigan opened~~Due to the ~~public. Lakes has a five-year contract for management~~lack of observable market quotes on the Company’s auction rate securities (“ARS”) portfolio, the Company utilizes valuation models that rely exclusively on Level 3 inputs, including those that are based on management’s estimates of expected cash flow streams and collateral values, default risk underlying the security, discount rates and overall capital market liquidity. The valuation of the ~~Four Winds Casino Resort. Accordingly, management fees for~~Company’s ARS investment portfolio is subject to uncertainties and evolving market conditions that are difficult to predict. Factors that may impact the ~~approximate eight weeks~~Company’s valuation include changes to credit ratings of ~~operations since~~ the securities as well as to the underlying assets supporting those securities, rates of default of the underlying assets, underlying collateral value, discount rates, and ongoing strength and quality of market credit and liquidity.

In addition, due to the lack of observable market quotes on the Company’s notes receivable from Indian tribes, the Company utilizes valuation models that rely exclusively on Level 3 inputs including those that are based on management’s estimates of expected cash flow streams, casino opening ~~have been included~~dates and probabilities of casinos opening, projected pre- and post-opening date interest rates, and discount rates. The estimated casino opening date used in the ~~accompanying unaudited condensed consolidated financial statements for~~valuation reflects the weighted-average of three scenarios: a base case (which is based on the Company’s forecasted casino opening date) and ~~nine months ended September 30, 2007.~~

~~On March 2, 2007 (the “Settlement Date”), Lakes contracted with a group of investors for their participation in~~one and two years out from the loans made by Lakes to the Pokagon Band for the development of the Four Winds Casino Resort, which loans have been assumed by the Pokagon Gaming Authority. As of the Settlement Date, the face value of Lakes’ notes receivable was approximately $104.2 million, including accruedbase case. The projected pre- and post-opening interest of approximately $33.0 million. On the Settlement Date, Lakes transferred 100% of the Pokagon Gaming Authority loans to the aforementioned group of investors for cash proceeds of approximately $102.1 million, which wasrates are based upon the ~~accreted value~~one year U.S. Treasury Bill spot-yield curve per Bloomberg and the specific assumptions on contract term, stated interest rate and casino opening date. The discount rate for the projects is based on the yields available on certain financial instruments at the valuation date, the risk level of equity investments in general, and the specific operating risks associated with open and operating gaming enterprises similar to each of the ~~Pokagon Gaming Authority loans less~~projects. In estimating this discount rate, market data of other public gaming related companies is also considered. The probability applied to each project is based upon a ~~two percent discount. Lakes incurred transaction fees~~weighting of ~~approximately $1.1 million, which were recorded~~four different scenarios with the fourth scenario assuming the casino never opens. The first three scenarios assume the casino opens but applies different opening dates as ~~a reduction~~discussed above. The probability weighting applied to each scenario captures the element of ~~net realized~~risk in these projects and ~~unrealized gains on notes receivable in the accompanying Unaudited Condensed Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss). Accordingly,~~is based upon the ~~previously recorded estimated fair value~~status of each project, review of the ~~notes at December 31, 2006, Lakes realized a gain~~critical milestones and likelihood of ~~$0.5 million as a result of~~achieving the ~~consummation of the participation agreement.~~

The participation agreements also allow the participants to pledge or exchange the notes receivable and Lakes no longer has any rights or obligations with respect to the loans and is isolated from liability, even in default. As a result, the Pokagon notes receivable participation transaction has been treated as a sale pursuant to Statement of Financial Accounting Standards No. 140,~~Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities~~~~. The sale does not have any effect on Lakes’ related management agreement with the Pokagon Band.~~

The participation agreements entitled Lakes to appoint an agent for purposes of servicing and administering of the loans. Accordingly, Lakes has appointed Bank of America, N.A. (“BofA”) to provide these services for an annual fee of approximately $20,000.milestones.

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

~~Shingle Springs Tribe.~~

The following table ~~provides~~summarizes the ~~key assumptions used to~~activity for those financial assets where fair value ~~the~~measurements are estimated utilizing Level 3 inputs (ARS and notes receivable ~~at estimated fair value (dollars in~~from Indian tribes) (in thousands):

As of September 30, 2007 As of December 31, 2006
(Unaudited)

Face value of note (principal and interest) $65,460 $55,942
($47,068 principal and $18,392 interest) ($42,310 principal and $13,632 interest)
Estimated months until casino opens (weighted-average of three scenarios) 15 months 28 months
Projected interest rate until casino opens 9.67% 9.98%
Projected interest rate during the loan repayment term 10.28% 9.76%
Discount rate 15% �� 15%
Repayment terms ofnote(*)
84 months —
Projected repayment terms of note (**) — 24 months
Probability rate of casino opening (weighting of four scenarios) 95% 85%


				Notes
				Receivable
				from
	ARS			Indian Tribes			Total

Beginning balance — December 30, 2007	$	38,300		$	78,795		$	117,095
Total realized and unrealized gains (losses):
Included in other comprehensive loss(*)		(2,419	)		—			(2,419	)
Included in net unrealized losses on notes receivable		—			(1,983	)		(1,983	)
Advances, allocation to intangible, other		—			1,087			1,087
Purchases, issuances and settlements		875			—			875

Ending balance — March 30, 2008 (unaudited)	$	36,756		$	77,899		$	114,655


(*)		~~Note~~The Company considers the decline in the estimated fair value of its ARS to be temporary. Accordingly, the related unrealized loss is ~~payable~~included in ~~even monthly installments over~~accumulated other comprehensive loss in the ~~course~~shareholders’ equity section of the ~~management agreement subsequent to the casino opening.~~balance sheet as of March 30, 2008.



~~(**)~~3.		~~Note was previously payable~~Investment in ~~varying monthly installments based on contract terms subsequent to the casino opening.~~marketable securities

~~On June 28,~~The Company’s investment portfolio includes investments in ARS. The types of ARS investments that the Company owns are backed by student loans, the majority of which are guaranteed under the Federal Family Education Loan Program (“FFELP”), and all of which have credit ratings of AAA or Aaa. As of March 30, 2008 and December 30, 2007, ~~an affiliate~~investments in marketable securities with original maturity dates beyond three months consist of the ~~Shingle Springs Tribe closed on a $450 million senior note financing to fund the Foothill Oaks Casino project in Shingle Springs, California. Immediately~~ following the closing of this financing, Lakes was repaid approximately $17.2 million by the Shingle Springs Tribe for land Lakes had previously purchased on behalf of the Shingle Springs Tribe, and for certain construction advances including accrued interest thereon. Lakes, through a wholly-owned subsidiary, has management and development agreements with an affiliate of the Shingle Springs Tribe to develop and manage the Foothill Oaks Casino. Amounts owed to Lakes under the management and development agreements are subordinated to the $450 million senior note financing.(in thousands):


			Gross
			Unrealized			Fair
March 30, 2008	Cost		Gains (Losses)			Value
	(Unaudited)

Maturity dates less than one year
Short-term municipal bonds	$	1,000	$	2		$	1,002
Corporate preferred securities		6,814		23			6,837
Certificates of deposit		672		—			672

	$	8,486	$	25		$	8,511

Final maturity dates greater than one year
Municipal bonds	$	800	$	5		$	805
Auction rate securities		39,175		(2,419	)		36,756
Corporate preferred securities		994		6			1,000
Certificates of deposit		288		—			288

	$	41,257	$	(2,408	)	$	38,849

The net unrealized gains on notes receivable related to the Shingle Springs Tribe casino project were $1.2 million and $2.6 million for the three months ended September 30, 2007 and October 1, 2006, respectively, and $7.9 million and $5.1 million for the nine months ended September 30, 2007 and October 1, 2006, respectively, and are included in the accompanying Unaudited Condensed Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss).

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)


			Gross
			Unrealized			Fair
December 30, 2007	Cost		Gains (Losses)			Value

Maturity dates less than one year
U.S. treasury and agency securities	$	1,000	$	—		$	1,000
Auction rate securities		38,300		—			38,300
Short-term municipal bonds		1,000		1			1,001
Corporate preferred securities		12,464		9			12,473
Certificates of deposit		672		—			672

	$	53,436	$	10		$	53,446

Maturity dates greater than one year
Municipal bonds	$	1,827	$	(3	)	$	1,824
Corporate preferred securities		1,985		7			1,992
Certificates of deposit		384		—			384

	$	4,196	$	4		$	4,200

During the first quarters of 2008 and 2007 the amount of unrealized gains (losses) previously reported as other comprehensive income that were realized and included in the unaudited condensed consolidated statement of operations and comprehensive loss were not material.

As a result of current liquidity issues surrounding the Company’s ARS, the Company’s ARS were reclassified from short-term to long-term investments in marketable securities as of March 30, 2008.


4.	Long-term assets related to Indian casino projects — notes receivable

The majority of the assets related to Indian casino projects are in the form of notes receivable due from the Indian tribes pursuant to the Company’s development, financing, consulting and management agreements. The repayment terms of the loans are specific to each Indian tribe and are dependent upon the operating performance of each gaming facility. Repayments of the loans are required to be made only if distributable profits are available from the operation of the related casinos. In addition, repayment of the loans and the development, financing, consulting and management fees under contracts are subordinated to certain other financial obligations of the respective operations. Generally, the order of priority of payments from the casinos’ cash flows is as follows: a certain minimum monthly priority payment to the Indian tribe; repayment of senior debt associated with construction and equipping of the casino with interest accrued thereon; repayment of various debt with interest accrued thereon due to Lakes; development, financing, consulting and management fees to Lakes; and other obligations, with the remaining funds distributed to the Indian tribe.

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

Information with respect to the estimated fair value of notes receivable activity primarily related to three separate projects for the Pokagon Band of Potawatomi Indians (“Pokagon Band”), Shingle Springs Band of Miwok Indians (“Shingle Springs Tribe”) and the Jamul Indian Village (“Jamul Tribe”) is summarized in the following table (in thousands):


				Shingle
	Pokagon			Springs			Jamul
	Band			Tribe			Tribe			Other			Total

Balance, December 31, 2006	$	100,544		$	40,912		$	20,754		$	2,098		$	164,308
Advances		—			5,321			5,606			2,639			13,566
Sale of Pokagon Band notes receivable		(102,114	)		—			—			—			(102,114	)
Allocation to intangible assets		—			(1,536	)		(2,212	)		(641	)		(4,389	)
Consulting contracts		—			—			—			195			195
Changes in estimated fair value(*)		1,570			8,895			(2,742	)		(494	)		7,229

Balance, December 30, 2007	$	—		$	53,592		$	21,406		$	3,797		$	78,795
Advances		—			656			1,085			161			1,902
Allocation to intangible assets		—			(146	)		(565	)		(47	)		(758	)
Consulting contracts		—			—			—			(57	)		(57	)
Changes in estimated fair value(*)		—			(962	)		(975	)		(46	)		(1,983	)

Balance, March 30, 2008	$	—		$	53,140		$	20,951		$	3,808		$	77,899


(*)		The changes in estimated fair value of notes receivable related to Indian casino projects are recorded as unrealized gains (losses) within the unaudited condensed consolidated statements of operations and comprehensive loss.

Pokagon Band. Lakes has a five-year contract to manage the Four Winds Casino Resort for the Pokagon Band in New Buffalo Township, Michigan near Interstate 94. Lakes began managing the Four Winds Casino Resort when it opened to the public on August 2, 2007. The Four Winds Casino Resort is located near the first Interstate 94 exit in southwestern Michigan and approximately 75 miles east of Chicago. The facility features approximately 3,000 slot machines and approximately 85 table games as well as multiple restaurants and bars, a parking garage, a hotel and other facilities.

Shingle Springs Tribe. Lakes has contracts to develop and subsequently manage for seven years the Red Hawk Casino, which is being built on the Rancheria of the Shingle Springs Band in El Dorado County, California, adjacent to U.S. Highway 50, approximately 30 miles east of Sacramento, California. The terms and assumptions

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

used to value the notes receivable at estimated fair value related to the Shingle Springs Tribe are as follows (dollars in thousands):


	As of March 30, 2008	As of December 30, 2007
	(Unaudited)

Face value of note (principal and interest)	$69,661	$67,585
	($48,287 principal and $21,374	($47,632 principal and $19,953 interest)
	interest)
Estimated months until casino opens (weighted-average of three scenarios)	9 months	12 months
Projected interest rate until casino opens	7.31%	9.12%
Projected interest rate during the loan repayment term	9.13%	10.16%
Discount rate	15%	15%
Repayment terms of note(*)	84 months	84 months
Probability rate of casino opening (weighting of four scenarios)	95%	95%


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

On April 30, 2007 a construction permit was issued for the U.S. Highway 50 interchange project, which provides direct access to the Red Hawk Casino site. Construction began on the U.S. Highway 50 interchange on May 7, 2007. On June 28, 2007 an affiliate of the Shingle Springs Tribe closed on a $450 million senior note financing to fund the Red Hawk Casino project, and site construction commenced. The Red Hawk Casino is planned to open in late 2008.

Jamul Tribe.

Lakes has contracts to develop and finance a casino to be built on the reservation of the Jamul Tribe located on Interstate 94, approximately 20 miles east of San Diego, California (the “Jamul Casino”). The ~~following table provides the key~~ terms and

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

assumptions used to value the notes receivable at estimated fair value related to the Jamul Tribe are as follows (dollars in thousands):


	As of September 30, 2007	As of December 31, 2006	As of March 30, 2008	As of December 30, 2007
	(Unaudited)		(Unaudited)

Face value of note (principal and interest)	$40,591	$32,952	$44,420	$42,426
	($29,278 principal and $11,313 interest)	($24,509 principal and $8,443 interest)	($31,199 principal and $13,221 interest)	($30,114 principal and $12,312 interest)
Estimated months until casino opens (weighted-average of three scenarios)	29 months	29 months	29 months	29 months
Projected interest rate until casino opens	9.67%	9.98%	7.48%	9.12%
Projected interest rate during the loan repayment term	10.49%	9.76%	10.23%	10.46%
Discount rate	17.50%	15.75%	20.00%	20.00%
Projected repayment terms of note	120 months	120 months	120 months	120 months
Probability rate of casino opening (weighting of four scenarios)	85%	85%	85%	85%

The ~~net unrealized gain (loss) on notes receivable related~~Jamul Casino project has been delayed due to issues with road access to the proposed casino site. The Jamul Tribe has submitted an encroachment permit application to CalTrans, which will result in a project study report to determine the optimal access point for traffic to the Jamul Casino without disruption of traffic on the state highway. The Jamul Tribe ~~casino project were ($1.8) million~~has continued construction on their reservation of the driveway road leading to the Jamul Casino site. In addition to its work with CalTrans, the Jamul Tribe has submitted an application to the Bureau of Indian Affairs (the “BIA”) for recognition of an access drive across its land to create a second means of access to the site over an Indian reservation road. Lakes and ~~$1.1 million~~the leaders of the Jamul Tribe are currently evaluating plans for the ~~three months ended September 30, 2007~~Jamul Casino to determine when construction of the facility will start and ~~October 1, 2006, respectively,~~when casino operations will begin. Lakes continues to believe that adequate financing will be obtained and ~~($0.1) million and $8.4 million for~~ the ~~nine months ended September 30, 2007 and October 1, 2006, respectively, and are included in the accompanying~~project will be successfully completed.

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements ~~of Earnings (Loss) and Comprehensive Earnings (Loss).~~— (Continued)


3.5.	~~Intangible~~Other long-term assets related to Indian casino projects ~~and related obligations~~

Intangible assets.Intangible assets consist of costs associated with the acquisition of the management, development, consulting or financing contracts related to tribal gaming projects and are periodically evaluated for impairment after they are initially recorded. Information with respect to the intangible assets related to the acquisition of management, development, consulting or financing contracts by project is summarized as follows, (in thousands):

Shingle

Pokagon
Springs
Jamul

Band Tribe Tribe Other Total

Balance as of January 1, 2006 $ 18,356 $ 18,755 $ 7,872 $ 1,105 $ 46,088
Allocation of advances made to Indian tribes 4,167 1,632 1,888 590 8,277
Acquisition of management contract rights 1,050 — — 74 1,124
Amortization expense — — — (9 ) (9 )
Impairment loss — — — (1,201 ) (1,201 )

Balance as of December 31, 2006 23,573 20,387 9,760 559 54,279
Allocation of advances made to Indian tribes — 1,425 1,796 598 3,819
Acquisition of management contract rights 10,000 — — — 10,000
Amortization expense (1,119 ) — — (6 ) (1,125 )
Impairment loss — — — (31 ) (31 )

Balance as of September 30, 2007 (unaudited) $ 32,454 $ 21,812 $ 11,556 $ 1,120 $ 66,942


				Shingle
	Pokagon			Springs		Jamul
	Band			Tribe		Tribe		Other			Total

Balance, December 31, 2006	$	23,573		$	20,387	$	9,760	$	559		$	54,279
Allocation of advances		—			1,536		2,212		641			4,389
Acquisition of contract rights		10,000			—		—		78			10,078
Amortization(*)		(2,798	)		—		—		(7	)		(2,805	)
Impairment loss		—			—		—		(31	)		(31	)

Balance, December 30, 2007	$	30,775		$	21,923	$	11,972	$	1,240		$	65,910
Allocation of advances		—			146		565		47			758
Amortization(*)		(1,679	)		—		—		(2	)		(1,681	)

Balance, March 30, 2008 (unaudited)	$	29,096		$	22,069	$	12,537	$	1,285		$	64,987


(*)		Amortization expense related to the Four Winds Casino Resort commenced upon opening in August of 2007.

Land held for development. Land held for development is comprised of land held for possible transfer to Indian tribes for use in certain of the future casino resort projects. In the event that this land is not transferred to the tribes, the Company has the right to sell it. These assets are evaluated for impairment in combination with intangible assets related to the acquisition of the management, development, consulting or financing contracts and other assets related to the Indian casino projects. As of March 30, 2008 and December 30, 2007, land held for development related to Indian casino projects was $7.7 million and $7.6 million, respectively, recorded at its cost. As of March 30, 2008, land held for development primarily related to land near the location of the planned Jamul Casino project.

Other. As of March 30, 2008 and December 30, 2007 other assets related to Indian casino projects were approximately $5.1 million and $5.2 million, respectively. Included in this category are costs incurred related to the Indian casino projects which have not yet been included as part of the notes receivable because of timing of the payment of these costs. When paid, these amounts will be allocated between notes receivable and intangible assets related to the acquisition of the management, development, consulting or financing contracts and will be evaluated for changes in fair value or impairment, respectively. These amounts vary from period to period due to timing of payment. Also included in this category are receivables from related parties of $4.3 million that are directly related to the development and opening of Lakes’ Indian casino projects.


6.	Contract acquisition costs payable

Upon opening of the Four Winds Casino Resort, the Company became obligated to pay approximately $11 million to an unrelated third party as part of an agreement associated with the Company obtaining the management contract with the Pokagon Band. The payment is payable quarterly over the term of the five-year management agreement for the Four Winds Casino Resort. The Company is also obligated to pay approximately $3 million over 24 months to a separate unrelated third party on behalf of the Pokagon Band in accordance with the management contract which commenced when the casino opened. These obligations do not have a stated interest rate and have payments terms which extend beyond one fiscal year. As a result, these obligations have been recorded at their net present value with effective interest rates of 16.7% and 14.1%, respectively, and the difference between

913

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

Lakes amortizes the intangible assets related to the acquisition of the management, development, consulting or financing contracts under the straight-line method over the lives of the contracts in accordance with FASB No. 142, which commences when the related casinos open. Amortization expense related to the Four Winds Casino Resort commenced upon opening in August of 2007.

The opening of the Four Winds Casino Resort triggered obligations for Lakes to pay two unrelated third parties amounts related to the acquisition of the management contract with the Pokagon Band. The first obligation of $10.6 million is payable quarterly for five years and the second obligation of $3.2 million is payable monthly for two years. These obligations do not have a stated interest rate and have payments terms which extend beyond one fiscal year. As a result, these intangible assets and related obligations have been recorded at their net present value. The intangible assets are being amortized over the life of the management contract.

~~The related obligations have also been recorded at their net present value and the difference between~~ the face amount ~~$13.8 million,~~ and the net present value of the obligations ~~$9.8 million,~~ is recorded as a discount, which is amortized to interest expense as the payments are made pursuant to the respective ~~agreement.~~

For the three and nine months ended September 30, 2007, Lakes recognized approximately $1.1 million of amortization expense for intangible assets related to Indian casino projects and $0.3 million of interest expense related to the obligation to third parties for acquisition of the Pokagon management contract. There was no amortization or interest expense related to intangible assets recognized in the comparable 2006 periods.agreements.

During ~~fiscal~~ 2006, ~~Lakes recognized~~the Lyle Berman Family Partnership (the “Partnership”) purchased a ~~$1.2~~portion of the first obligation discussed above from the unrelated third party and receives approximately $0.3 million ~~impairment charge~~per year of the payment stream related to ~~its intangible asset related to~~this obligation during the ~~acquisition~~five-year term of the management ~~development~~contract of the Four Winds Casino Resort. Lyle Berman, Lakes’ Chairman and ~~consulting contracts with~~Chief Executive Officer, does not have an ownership or other beneficial interest in the ~~Pawnee Nation’s Chilocco Casino and Travel Plaza.~~Partnership. Neil I. Sell, a director of Lakes, is one of the trustees of the irrevocable trusts for the benefit of Lyle Berman’s children that are the partners in the Partnership.


4.7.	~~Long-Term Debt~~Share-based compensation

On March 2, 2007, Lakes repaid its $105 million credit agreement with BofA and certain lenders under a financing facility (the “Credit Agreement”), using proceeds received from the Pokagon notes receivable participation transaction (as described in Note 2) in addition to amounts previously included in a restricted interest reserve account related to the Credit Agreement. Lakes incurred approximately $1.1 million in a prepayment penalty associated with the payoff of the Credit Agreement. The prepayment penalty, along with the remaining unamortized portion of the related debt issuance costs and unamortized discount of approximately $1.8 million and $0.9 million, respectively, were also written off, resulting in a loss on extinguishment of debt of approximately $3.8 million in the first quarter of 2007, which is included in the accompanying Unaudited Condensed Consolidated ~~Statement of Earnings (Loss) and Comprehensive Earnings (Loss).~~


5.	~~Stock Warrant~~

Pursuant to the terms and conditions of a financing agreement dated as of February 15, 2006 among Lakes, PLKS Funding, LLC and various subsidiaries of Lakes, PLKS Holdings, LLC (“PLKS”) was granted a warrant to purchase common shares of Lakes at $7.50 per share (the “Warrant”), which had an expiration date of February 15, 2013. During April 2007, PLKS exercised and purchased 102,500 shares underlying the Warrant at $7.50 per share and paid Lakes $0.8 million.

On May 4, 2007, Lakes and PLKS amended the exercise price of the Warrant (the “Amendment”). The Amendment reduced the exercise price of the Warrant from $7.50 per share to $6.50 per share for the remaining 1,147,500 shares underlying the Warrant. In consideration for the amended exercise price, PLKS agreed to, within two days of the execution of the Amendment, exercise the Warrant with respect to the remaining 1,147,500 shares underlying the Warrant and pay the aggregate exercise price of $7.5 million, which PLKS did on May 7, 2007. The Company calculated the impacts of the Amendment’s reduction in the exercise price and of PLKS’s agreement to exercise the Warrant within two days of the Amendment’s execution on the fair value of the Warrant using a Black-Scholes pricing model; this calculation of the impacts consisted of valuing the Warrant with and without the

~~LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)~~

Amendment in force. The variables used in the Black-Scholes model were the value of the common stock on which the Warrant was written, the Warrant’s exercise price, the period of time until the Warrant’s expected expiration date, the expected price volatility of the common stock, the zero-coupon risk-free interest rate applicable to the period of time until the Warrant’s expected expiration date, and the present value of the expected dividends on the common stock during the term of the Warrant. As a result of the reduction in exercise price of the Warrant, Lakes recognized a stock warrant inducement discount of approximately $1.4 million during the second quarter of 2007, which is included in the determination of net earnings available to common shareholders for the nine months ended September 30, 2007 in the accompanying Unaudited Condensed Consolidated Statement of Earnings (Loss) and Comprehensive Earnings (Loss).


6.	~~Share-based Compensation~~

~~The following table summarizes the consolidated~~ share-based compensation expense related to employee stock options was $0.5 million and ~~stock purchases and non-vested shares under Statement of Financial Accounting Standards (“SFAS”) No. 123(R),~~~~Share-Based Payment-Revised 2004~~~~(“SFAS No. 123(R)”)~~$1.2 million for the three months ended March 30, 2008 and ~~nine months ended September 30,~~April 1, 2007, ~~and October 1, 2006,~~ respectively.

Three months ended Nine months ended
September 30,
October 1,
September 30,
October 1,

2007 2006 2007 2006
(Unaudited, in thousands)

Total cost of share-based payment plans $ 1,172 $ 1,283 $ 3,607 $ 4,960

No income tax benefit was recognized in Lakes’ ~~Unaudited Condensed Consolidated Statement~~unaudited condensed consolidated statements of ~~Earnings (Loss)~~operations and ~~Comprehensive Earnings (Loss)~~comprehensive loss for share-based compensation arrangements for the three months ended March 30, 2008 and ~~nine months ended September 30, 2007 and October~~April 1, ~~2006.~~2007. Management assessed the likelihood that the deferred tax assets relating to future tax deductions from share-based compensation will be recovered from future taxable income and determined that a valuation allowance is necessary to the extent that management currently believes it is more likely than not that tax benefits will not be realized. Management’s determination is based primarily on historical earnings volatility, the relatively short operating history of WPTE, and Lakes’ current stages of planned operational activities.

Lakes and WPTE both use a Black-Scholes option-pricing model to value stock options, which requires the consideration of historical employee exercise behavior data and the use of a number of assumptions including volatility of the companies’ stock prices, the weighted-average risk-free interest rate, and the weighted-average expected life of the options. ~~Since neither Lakes nor WPTE currently pay dividends, the dividend rate variable in the Black-Scholes model is zero.~~

The following values represent the average per grant for the indicated variables used to value options granted during the three months ended March 30, 2008 and ~~nine months ended September 30,~~April 1, 2007, ~~and October 1, 2006,~~ respectively. There have been no significant changes to the assumptions thus far in ~~2007~~2008 and none are expected during the remainder of ~~2007.~~2008.

Lakes’ stock option plans:

Three months ended Nine months ended
September 30,
October 1,
September 30,
October 1,

Key valuation assumptions:
2007 2006 2007 2006

Expected volatility — * 58.21 % 54.95 % 59.99 %
Expected dividend yield — * — — —
Risk-free interest rate — * 4.72 % 4.89 % 4.78 %
Expected term (in years) — * 8.2 years 8.2 years 8.2 years


	Three Months Ended
	March 30,			April 1,
Key valuation assumptions:	2008			2007 (*)

Expected dividend yield		—			—
Risk-free interest rate		3.66	%		—
Expected term (in years)		8.18 years			—
Expected volatility		48.77	%		—
Forfeiture rate		—			—


()		There were no options granted during the three months ended ~~September 30,~~April 1, 2007.


	•	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

1114

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)


		behavior of option holders during the period from September 1995 to March 30, 2008. Management believes historical data is reasonably representative of future exercise behavior.


	•	Expected volatility — The volatility assumption is based on the historical weekly price data of Lakes’ stock over a two-year period. Management evaluated whether there were factors during that period which were unusual and which would distort the volatility figure if used to estimate future volatility and concluded that there were no such factors.

	•	Forfeiture rate — As share-based compensation expense recognized is based on awards ultimately expected to vest, expense for grants beginning upon adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123R,Share-Based Payment-Revised 2004(“SFAS ~~123(R)~~123R”) will be reduced for estimated forfeitures. SFAS ~~123(R)~~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.

	•	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 — 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 30, 2007. Management believes historical data is reasonably representative of future exercise behavior.

At Lakes’ annual shareholder meeting, which was held on June 6, 2007, Lakes’ shareholders approved the 2007 Lakes Stock Option and Compensation Plan, which reserves a total of 500,000 shares of the Company’s common stock. Shares that are subject to awards that terminate, lapse or are cancelled or forfeited will be available again for grant under the 2007 Plan. The Company issues new shares of common stock upon exercise of options.

~~LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)~~

The following table summarizes Lakes’ stock option activity during the three months ended March 30, 2008 and ~~nine months ended September 30,~~April 1, 2007 ~~and October 1, 2006~~ (unaudited):


				Number of common shares							Number of common shares
									Weighted-avg.										Weighted-avg.
	Options					Available			exercise		Options					Available			exercise
	outstanding			Exercisable		for grant			price		outstanding			Exercisable		for grant			price

2008
Balance at December 30, 2007												4,345,650			3,842,200		584,750		$	6.08
Authorized												—			—		—			—
Granted												196,000			—		(196,000	)		5.73
Forfeited/cancelled/expired												—			—		—			—
Exercised												(400,000	)		—		—			4.10

Balance at March 30, 2008												4,141,650			3,798,200		388,750		$	6.25

2007
Balance at December 31, 2006		4,716,400			3,712,350		35,500		$	6.15		4,716,400			3,712,350		35,500		$	6.15
Authorized		—			—		—			—		—			—		—			—
Granted		—			—		—			—		—			—		—			—
Forfeited/cancelled/expired		—			—		—			—		—			—		—			—
Exercised		(112,500	)		—		—			5.82		(112,500	)		—		—			5.82

Balance at April 1, 2007		4,603,900			4,025,750		35,500		$	6.15		4,603,900			4,025,750		35,500		$	6.15
Authorized		—			—		500,000			—
Granted		2,500			—		(2,500	)		11.84
Forfeited/cancelled/expired		(44,500	)		—		44,500			9.79
Exercised		(74,500	)		—		—			5.83

Balance at July 1, 2007		4,487,400			3,954,500		577,500		$	6.13
Authorized		—			—		—			—
Granted		—			—		—			—
Forfeited/cancelled/expired		(1,500	)		—		1,500			8.13
Exercised		(75,000	)		—		—			5.63

Balance at September 30, 2007		4,410,900			3,881,200		579,000		$	6.13

2006
Balance at January 1, 2006		5,307,626			4,153,476		94,500		$	6.03
Authorized		—			—		—			—
Granted		30,000			—		(30,000	)		9.77
Forfeited/cancelled/expired		—			—		—			—
Exercised		(550,000	)		—		—			5.65

Balance at April 2, 2006		4,787,626			3,711,626		64,500		$	6.10
Authorized		—			—		—			—
Granted		5,000			—		(5,000	)		12.10
Forfeited/cancelled/expired		(5,000	)		—		5,000			8.15
Exercised		(25,000	)		—		—			4.75

Balance at July 2, 2006		4,762,626			3,718,126		64,500		$	6.11
Authorized		—			—		—			—
Granted		2,000			—		(2,000	)		7.92
Forfeited/cancelled/expired		(1,500	)		—		—			5.67
Exercised		(2,000	)		—		—			8.25

Balance at October 1, 2006		4,761,126			3,750,326		62,500		$	6.11

1315

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

The following table summarizes significant ranges of Lakes’ outstanding and exercisable options as of ~~September~~March 30, ~~2007~~2008 (unaudited):


	Options outstanding at September 30, 2007								Options exercisable at September 30, 2007						Options outstanding at March 30, 2008								Options exercisable at March 30, 2008
			Weighted-														Weighted-
			average				Aggregate						Aggregate				average				Aggregate						Aggregate
	Number		remaining		Weighted-average		intrinsic		Number		Weighted-		intrinsic		Number		remaining		Weighted-average		intrinsic		Number		Weighted-		intrinsic
Range of exercise prices	outstanding		contractual life		exercise price		value		exercisable		average price		value		outstanding		contractual life		exercise price		value		exercisable		average price		value

$ (3.25 — 3.63)		286,200		3.7 years	$	3.45	$	1,738,086		286,200	$	3.45	$	1,738,086		280,200		3.2 years	$	3.46	$	313,416		280,200	$	3.46	$	313,416
(3.64 — 5.45)		2,324,700		1.5 years		4.21		12,355,612		2,324,700		4.21		12,355,612		2,010,700		1.5 years		4.23		731,511		1,908,700		4.21		731,511
(5.46 — 7.26)		60,000		6.2 years		7.18		141,300		45,000		7.18		105,975		179,000		8.4 years		6.92		—		60,000		7.18		—
(7.27 — 9.08)		1,412,000		6.0 years		8.13		1,980,330		1,074,000		8.13		1,506,285		1,382,000		5.6 years		8.12		—		1,357,000		8.13		—
(9.09 — 10.90)		72,000		6.3 years		10.36		—		27,450		10.48		—		52,500		8.2 years		10.26		—		19,950		10.22		—
(10.91 — 12.71)		91,000		7.4 years		11.47		—		41,350		11.44		—		72,250		3.0 years		11.51		—		60,600		11.40		—
(12.72 — 14.53)		95,000		7.4 years		14.00		—		45,500		14.01		—		95,000		6.9 years		14.00		—		66,250		14.03		—
(14.54 — 16.34)		5,000		7.3 years		16.11		—		2,000		16.11		—		5,000		6.8 years		16.11		—		3,000		16.11		—
(16.35 — 18.16)		65,000		6.5 years		17.91		—		35,000		17.97		—		65,000		3.6 years		17.91		—		42,500		18.00		—

		4,410,900		3.6 years	$	6.13	$	16,215,328		3,881,200	$	5.64	$	15,705,958		4,141,650		3.6 years	$	6.25	$	1,044,927		3,798,200	$	6.08	$	1,044,927

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on Lakes’ closing stock price of ~~$9.53~~$4.58 on ~~September~~March 28, ~~2007,~~2008, which would have been received by the option holders had all option holders exercised their options as of that date. Options exercised during the three months ended March 30, 2008 did not have an intrinsic value. The total intrinsic value of options exercised during the three months ~~and nine months~~ ended ~~September 30,~~April 1, 2007 ~~and October 1, 2006 were $0.4 million, $0.0 million, $1.3 million and $2.2 million, respectively.~~was $0.5 million. As of ~~September~~March 30, ~~2007,~~2008, Lakes’ unrecognized share-based compensation ~~related to stock options~~ was approximately ~~$1.4~~$1.3 million, which is expected to be recognized over a weighted-average period of ~~1.3~~3.0 years. The weighted-average grant-date fair value of stock options granted during the three months ended March 30, 2008 was $3.35 per share.

WPTE stock option plan:

Three months ended Nine months ended
September 30,
October 1,
September 30,
October 1,

2007 2006 2007 2006

Expected volatility 69.89 % 77.31 % 71.98 % 79.44 %
Forfeiture rate 16.71 % 4.13 % 16.71 % 4.13 %
Expected dividend yield — — — —
Risk-free interest rate 4.07 % 4.62 % 4.46 % 4.65 %
Expected term (in years) 6 years 6.5 years 6 years 6.5 years


	Three months ended
	March 30,		April 1,
Key valuation assumptions:	2008(*)		2007

Expected dividend yield		—		—
Risk-free interest rate		—		4.47	%
Expected term (in years)		—		6 years
Expected volatility		—		73.84	%
Forfeiture rate		—		12.16	%


(*)		There were no options granted during the three months ended March 30, 2008.


	•	Expected ~~volatility~~dividend yield — As WPTE ~~has a relatively short operating history and no definitive peer or peer groups, expected volatility was based on historical volatility of WPTE’s stock price since it began trading~~does not pay dividends, the dividend rate variable in ~~August 2004.~~

	•	~~Forfeiture rate — As share-based compensation expense recognized~~the Black-Scholes model is based on awards ultimately expected to vest, expense for grants beginning upon adoption of SFAS 123(R) will be reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. WPTE used historical data to estimate employee departure behavior in estimating future forfeitures.zero.

	•	Risk free interest rate — The risk free interest rate assumption is based on the U.S. Treasury yield curve in effect at the time of grant and with maturities consistent with the expected term of options.

	•	Expected term (in years) — Due to WPTE’s limited operating history including stock option exercises and forfeitures, WPTE calculated expected term for each grant using the “Simplified Method” in accordance with Staff Accounting ~~Bulletin 107.~~

~~LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)~~

~~The following table summarizes WPTE stock option activity during the three months and nine months ended September 30, 2007 and October 1, 2006 (unaudited):~~

Number of common shares
Weighted-avg.

Options
Available
exercise

outstanding Exercisable for grant price

2007

Balance at December 31, 2006
2,318,166 1,050,200 983,501 $ 6.76
Authorized — — — —
Granted 287,000 — (287,000 ) 4.80
Forfeited/cancelled/expired (90,466 ) — 90,466 8.49
Exercised — — — —

Balance at April 1, 2007
2,514,700 1,010,533 786,967 $ 6.47
Authorized — — — —
Granted 182,000 — (182,000 ) 4.53
Forfeited/cancelled/expired (85,667 ) — 85,667 5.25
Exercised (113,660 ) — — 0.0049

Balance at July 1, 2007
2,497,373 912,139 690,634 $ 6.67

Authorized — — — —
Granted 220,000 — (220,000 ) 3.50
Forfeited/cancelled/expired (202,599 ) — 202,599 7.26
Exercised — — — —
��
Balance at September 30, 2007
2,514,774 1,307,106 673,233 $ 6.34

2006

Balance at January 1, 2006
2,158,000 620,333 283,667 $ 7.14
Authorized — — — —
Granted 219,000 — (219,000 ) 6.20
Forfeited/cancelled/expired (159,333 ) — 159,333 8.13
Exercised (115,000 ) — — 0.0049

Balance at April 2, 2006
2,102,667 785,500 224,000 $ 7.36
Authorized — — 1,080,000 —
Granted 109,500 — (109,500 ) 5.18
Forfeited/cancelled/expired (153,501 ) — 153,501 10.07
Exercised (105,000 ) — — 0.0049

Balance at July 2, 2006
1,953,666 619,333 1,348,001 $ 7.42

Authorized — — — —
Granted 249,000 — (249,000 ) 4.22
Forfeited/cancelled/expired (15,333 ) — 15,333 13.50
Exercised — — — —

Balance at October 1, 2006
2,187,333 1,043,167 1,114,334 $ 7.01

~~LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)~~

~~The following table summarizes significant ranges of WPTE outstanding and exercisable options as of September 30, 2007 (unaudited):~~

Options outstanding Options exercisable
Weighted-avg.
Weighted-
Aggregate
Aggregate

Range of
Number
remaining
avg. exercise
intrinsic
Number
Weighted-
intrinsic

exercise prices
outstanding contractual life price value exercisable avg. price value

$ 0.0049 111,340 4.41 $ 0.0049 $ 320,114 111,340 $ 0.0049 $ 320,114
$ 3.50 - 4.80 910,500 9.46 4.19 — 37,500 4.21 —
$ 5.18 - 9.92 1,317,600 7.23 7.57 — 1,073,600 7.93 —
$11.95 - 14.51 166,000 7.88 12.17 — 77,333 12.27 —
$15.05 - 19.50 9,334 7.83 15.53 — 7,333 15.45 —

2,514,774 7.96 $ 6.34 $ 320,114 1,307,106 $ 7.45 $ 320,114

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on WPTE’s closing stock price of $2.88 on September 28, 2007, which would have been received by the option holders had all option holders exercised their options as of that date. The total intrinsic value of options exercised during the nine months ended September 30, 2007 and October 1, 2006 were, $0.5 million and $1.4 million, respectively. As of September 30, 2007. No options were exercised during the three months ended September 30, 2007 and October 1, 2006, respectively. As of September 30, 2007, WPTE’s unrecognized share-based compensation related to stock options was approximately $2.5 million, which is expected to be recognized over a weighted-average period of 2.7 years.

	Bulletins 107 and 110.
7.	~~Earnings (Loss) Available to Common Shareholders Per Share~~

For all periods, basic earnings (loss) available to common shareholders per share is calculated by dividing net earnings (loss) available to common shareholders by the weighted-average number of common shares outstanding during the applicable period. For the three months and nine months ended October 1, 2006, respectively, diluted earnings (loss) available to common shareholders per share reflects the effect of all potentially dilutive common shares outstanding by dividing net earnings (loss) available to common shareholders by the weighted-average of all common and potentially dilutive shares outstanding. Stock options of approximately 1.9 million were not included in the computation of diluted earnings (loss) available to common shareholders per share for the three months and nine months ended September 30, 2007, respectively, because the effects would have been anti-dilutive for those periods.


8.	~~Income Taxes~~•	Expected volatility — As WPTE has a relatively short operating history and no definitive peer or peer groups, expected volatility was based on historical volatility of WPTE’s stock price since it began trading in August 2004.

Lakes evaluated the ability to utilize deferred tax assets arising from net operating loss carryforwards, and other ordinary items and determined that a valuation allowance was appropriate at September 30, 2007 and December 31, 2006. Lakes evaluated all evidence and determined net losses (excluding net realized and unrealized gains and losses on notes receivable) generated over the past five years outweighed the current positive evidence that Lakes believes exists surrounding its ability to generate significant income from its long-term assets related to Indian casino projects. Therefore, Lakes recorded a 100% valuation allowance against its deferred tax assets related to net operating losses and other ordinary items at September 30, 2007, and December 31, 2006, which is the primary reason that Lakes’ effective tax rate is not comparable to the statutory federal rate of 35%.

Lakes has recorded deferred tax assets related to capital losses. The realization of these benefits is dependent on the generation of capital gains during the applicable carryforward periods. Lakes believes it will have sufficient capital gains in the foreseeable future to utilize these benefits due to significant appreciation in its investment in WPTE, which has a minimal cost basis and could be sold at a substantial gain. Lakes owns approximately 12.5 million shares of WPTE common stock valued at approximately $36 million as of September 30, 2007 based

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)


	•	Forfeiture rate — As share-based compensation expense recognized is based on awards ultimately expected to vest, expense for grants beginning upon adoption of SFAS 123R will be reduced for estimated forfeitures. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. WPTE used historical data to estimate employee departure behavior in estimating future forfeitures.

The following table summarizes WPTE stock option activity during the three months ended March 30, 2008 and April 1, 2007 (unaudited):


				Number of common shares
									Weighted-avg.
	Options					Available			exercise
	outstanding			Exercisable		for grant			price

2008
Balance at December 30, 2007		2,920,857			1,322,206		267,150		$	5.66
Authorized		—			—		—			—
Granted		—			—		—			—
Forfeited/cancelled/expired		(83,600	)		—		83,600			4.33
Exercised		—			—		—			—

Balance at March 30, 2008		2,837,257			1,412,373		350,750		$	5.70

2007
Balance at December 31, 2006		2,318,166			1,050,200		983,501		$	6.76
Authorized		—			—		—			—
Granted		287,000			—		(287,000	)		4.80
Forfeited/cancelled/expired		(90,466	)		—		90,466			8.49
Exercised		—			—		—			—

Balance at April 1, 2007		2,514,700			1,010,533		786,967		$	6.47

The following table summarizes significant ranges of WPTE outstanding and exercisable options as of March 30, 2008 (unaudited):


	Options outstanding								Options exercisable
			Weighted-avg.		Weighted-		Aggregate						Aggregate
Range of	Number		remaining		avg. exercise		intrinsic		Number		Weighted-		intrinsic
exercise prices	outstanding		contractual life		price		value		exercisable		avg. price		value

$ 0.0049		111,340		3.91	$	0.0049	$	168,691		111,340	$	0.0049	$	168,691
$ 1.87 — 4.80		1,260,350		9.25		3.43		—		119,533		4.44		—
$ 5.18 — 9.92		1,305,566		6.73		7.56		—		1,107,166		7.86		—
$11.95 — 14.51		154,000		7.37		12.18		—		70,000		12.47		—
$15.05 — 19.50		6,001		7.31		15.79		—		4,334		16.08		—

		2,837,257		7.77	$	5.70	$	168,691		1,412,373	$	7.20	$	168,691

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on WPTE’s closing stock price of $1.52 on March 28, 2008, which would have been received by the option holders had all option holders exercised their options as ~~reported by NASDAQ on September 28,~~of that date. No options were exercised during the three months ended March 30, 2008 and April 1, 2007, respectively. As of ~~$2.88. Accordingly, Lakes has not established~~March 30, 2008, WPTE’s unrecognized share-based compensation was approximately $2.4 million, which is expected to be recognized over a ~~valuation allowance for these deferred tax assets.~~weighted-average period

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Lakes is currently disputing the results of an audit by the Internal Revenue Service (“IRS”) for the fiscal years ended 2001 and 2000, and has been petitioned by the Louisiana Department of RevenueNotes to ~~pay additional Louisiana corporation incomeand/or~~Unaudited Condensed Consolidated Financial Statements — (Continued) franchise taxes for the fiscal years ended 1999 through 2002. Lakes may be required to pay taxes up to approximately $12 million plus interest and fees related to these two tax matters. Excluding these matters, Lakes is no longer subject to U.S. federal or state/local income tax examinations by tax authorities for years prior to 2003.

~~Effective January 1, 2007, Lakes adopted the provisions~~ of ~~Financial Accounting Standards Board Interpretation No. 48,~~~~Accounting for Uncertainty in Income Taxes~~(“FIN 48”). The adoption of FIN 48 resulted in an increase of $1.4 million in Lakes’ liability for unrecognized tax benefits, which was accounted for as a reduction of retained earnings as of January 1, 2007. The adoption of FIN 48 did not materially affect net operating loss carry forwards, the related deferred tax assets and valuation allowance thereon, nor the income tax provision through September 30, 2007.

At the beginning of 2007, Lakes’ liability for uncertain tax positions was $10.1 million plus an additional $8.2 million for the possible payment of interest and fees related to these tax liabilities. These tax liabilities are considered unrecognized tax benefits which would affect Lakes’ effective tax rate if recognized. Lakes records changes in accrued interest related to uncertain tax positions as a component of income tax expense.2.7 years. There were no ~~significant changes in components of the liability~~options granted during the ~~first nine~~three months ended March 30, 2008. The weighted-average grant-date fair value of ~~2007.~~stock options granted during the three months ended April 1, 2007 was $3.27 per share.

Both Lakes ~~files a consolidated U.S. federal income tax return, as well as income tax returns in various states.~~and WPTE issue new shares of common stock upon the exercise of options.


8.	Loss per share

~~Lakes believes it~~

For all periods, basic loss applicable to common shareholders per share is ~~reasonably possible~~calculated by dividing net loss applicable to common shareholders by the weighted-average number of common shares outstanding. Stock options that ~~within~~could potentially dilute the ~~next 12~~loss applicable to shareholders per share in the future of 4,141,650 and 4,603,900 shares were not included in the computation of diluted loss applicable to common shareholders per share for the three months ~~it could recognize previously unrecognized tax benefits of between $0.6 million~~ended March 30, 2008 and ~~$1.4 million as a result of~~April 1, 2007, respectively, because the ~~resolution of the IRS audit discussed above.~~effects would have been anti-dilutive for those periods due to net losses.


9.	~~Commitments and contingencies~~Income Taxes

~~IRS tax audit.~~ ~~Lakes is under audit by~~Management has evaluated all evidence and determined that historical net losses (excluding net realized and unrealized gains on notes receivable) generated over the ~~IRS for~~past five years, outweighed the ~~fiscal years ended 2001 and 2000. The IRS is challenging~~current positive evidence that the ~~treatment of~~Company believes exists surrounding its ability to generate significant income ~~categorized as a capital gain. If Lakes is unsuccessful in sustaining~~from its ~~position, Lakes may be required to pay up to approximately $3.2 million plus accrued interest~~long-term assets related to ~~tax on ordinary income. Lakes~~Indian casino projects. Therefore, the Company has recorded a ~~liability for this matter including interest,~~100% valuation allowance against deferred tax assets arising from net operating loss carryforwards and other ordinary items at March 30, 2008, and December 30, 2007, as ~~described~~management has concluded that is it more likely than not that the tax benefits will not be realized in ~~Note 8, which~~the foreseeable future.

The Company also has deferred tax assets related to capital losses of approximately $8.1 million as of March 30, 2008. The realization of these benefits is ~~included as part of income taxes payable~~dependent on the ~~accompanying Unaudited Condensed Consolidated Balance Sheets.~~generation of capital gains during the applicable carryforward periods. The Company believes that it will have capital gains in future years to utilize a portion of these benefits due to significant appreciation in its investment in WPTE, which has a minimal cost basis. The Company owns approximately 12.5 million shares of WPTE common stock valued at approximately $19 million as of March 30, 2008, based upon the closing stock price as reported by the NASDAQ Global Market. However, as of the first quarter of 2008, the Company has recorded a valuation allowance against the portion of the capital losses that are not expected to be covered by future sales of WPTE based on the price of WPTE’s common stock at March 30, 2008, combined with volume restrictions on how many WPTE shares Lakes can sell, and Lakes will monitor and adjust this valuation allowance on a quarterly basis, if necessary. As of March 30, 2008, the valuation allowance was $3.6 million, resulting in a net deferred tax asset related to capital losses of $4.5 million.


10.	Legal Proceedings

Louisiana Department of Revenue ~~Litigation Tax Matter.~~litigation tax matter. The Louisiana Department of Revenue maintains a position that Lakes owes additional Louisiana corporation income tax for the period ended January 3, 1999 and the tax years ended 1999 through 2001 and additional Louisiana corporation franchise tax for the tax years ended 2000 through 2002. This determination is the result of an audit of Louisiana tax returns filed by Lakes for the tax periods at issue and relates to the reporting of income earned by Lakes in connection with the managing of two Louisiana-based casinos. On December 20, 2004, the Secretary of the Department of Revenue of the State of Louisiana filed a petition to collect taxes in the amount of $8.6 million, plus interest, against Lakes for the taxable periods set forth above. Lakes maintains that it remitted the proper Louisiana corporation income tax and Louisiana corporation franchise tax for the taxable periods at issue. On February 14, 2005, Lakes filed an answer to the petition to collect taxes asserting all proper defenses and maintaining that no additional taxes were owed and that the petition to collect taxes should be dismissed. Management intends to continue to vigorously contest this action by the Louisiana Department of Revenue. Lakes may be required to pay an assessment of up to ~~the~~ $8.6 million, ~~assessment~~ plus interest, if ~~Lakes~~it is not successful in this matter. ~~Lakes~~Lakes’ management has determined that it is more likely than not that it will ~~not~~ be able to support its position related to this tax matter. ~~As such, Lakes~~A liability has been recorded ~~a liability~~ for an estimated settlement ~~related to this examination~~ including accrued interest and fees, which is included as part of income taxes payable on the accompanying ~~Unaudited Condensed Consolidated Balance Sheets.~~condensed consolidated balance sheets. Interest expense related to this uncertain tax position is recorded as a component of income tax expense.

WPTE litigation. In 2006, a legal action was commenced against WPTE by seven poker players that alleged, among other things, an unfair business practice of WPTE. On April 18, 2008, WPTE settled the lawsuit without cost

1718

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

~~WPTE China agreement and related commitment.~~ ~~On August 6, 2007, WPTE entered into an agreement with~~by agreeing to implement a Chinese government-sanctioned body with authority over certain leisure sports, including the popular national Chinese card game “Traktor Poker,” known as Tuo La Ji. During the five year term of the agreement, WPTE is to receive exclusive branding and certain marketing and sponsorship rights related to the China National Traktor Poker Tour. In exchange for these rights, WPTE is required to pay an annual fee, which starts at approximately $0.5 million in the first year and increases by 10% annually for the remaining four years of the agreement. WPTE does not consider the annual fees for years two through fivenew standard player release form to be ~~commitments as the agreement terminates for failure of payment.~~

~~WPTE poker player litigation.~~ ~~On July 19, 2006, a legal action was commenced against WPTE by seven poker~~provided to all players ~~that alleges, among other things, an unfair business practice of WPTE. On March 14, 2007, the plaintiffs filed a motion for summary judgment in the case~~at all future WPT tournaments and on April 12, 2007, WPTE filed its opposition to the motion. On May 22, 2007, the plaintiffs’ motion for summary judgment was denied. A trial date has been set for April 1, 2008. Although WPTE’s management is currently unable to estimate the minimum loss to be incurred, if any, as a result of the ultimate outcome of this matter, it believes that WPTE is not likely to sustain any material loss in connection therewith, and accordingly, no provision for loss has been recorded in connection therewith.events.

Miscellaneous legal matters. Lakes and its subsidiaries (including WPTE) are involved in various other inquiries, administrative proceedings, and ~~pending or threatened~~ litigation relating to contracts and other matters arising in the normal course of business. While any proceeding or litigation has an element of uncertainty, management currently believes that ~~an unfavorable outcome in these matters is not probable. Furthermore, even in~~ the ~~event~~likelihood of an unfavorable outcome ~~in one or all of these matters, the estimated effect on the unaudited condensed consolidated financial statements would not likely be material.~~is remote. Accordingly, no provision for loss has been recorded in connection therewith.


~~10.~~11.	Segment Information

Lakes’ principal business is the development, financing and management of gaming-related properties. Additionally, the Company is the majority owner of WPTE. ~~Substantially all~~All of Lakes’ and substantially all of WPTE’s operations to date are conducted in the United States. Episodes of the World Poker Tour^® television series are distributed internationally primarily by a third party distributor. Lakes’ segments reported below (in millions) are the segments of the Company for which separate financial information is available and for which operating results are evaluated by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. The total assets in “Corporate and Eliminations” below primarily relate to Lakes’ short-term investments, deferred tax assets, Lakes’ corporate office building and construction in progress related to a Company-owned casino project in Vicksburg, Mississippi. Costs in “Corporate and Eliminations” below have not been allocated to the other segments because these costs are not easily allocable and to do so would not be practical.


	Industry Segments
	Indian
	casino		WPTE					Corporate &
	projects		Domestic			International		eliminations			Consolidated

Total assets as of March 30, 2008	$	159.9	$	36.6		$	—	$	49.4		$	245.9
Total assets as of December 30, 2007	$	158.2	$	41.7		$	—	$	56.2		$	256.1
For the three months ended March 30, 2008 Revenue	$	4.6	$	3.2		$	1.8	$	—		$	9.6
Earnings (loss) from operations		0.6		(3.2	)		—		(5.3	)		(7.9	)
Depreciation and amortization expense		—		0.1			—		0.1			0.2
Amortization of intangible assets related to Indian casino projects		1.7		—			—		—			1.7
For the three months ended April 1, 2007 Revenue	$	0.5	$	3.5		$	1.0	$	—		$	5.0
Net impairment charges		0.3		—			—		—			0.3
Earnings (loss) from operations		1.0		(2.9	)		—		(5.4	)		(7.3	)
Depreciation and amortization expense		—		0.1			—		0.1			0.2


12.	Subsequent Event

Lakes’ Margin Account Agreement. Effective April 11, 2008, Lakes entered into an agreement with UBS Financial Services Inc for the purpose of borrowingand/or obtaining credit in a principal amount not to exceed $11.0 million (the “Margin Account Agreement”). Lakes has made an initial draw under the Margin Account Agreement in the principal amount of $3.0 million to be used for working capital purposes. The Margin Account Agreement is secured by Lakes’ ARS. Amounts borrowed under the Margin Account Agreement are due and

1819

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

Industry segments
Indian

casino
WPT
Corporate and
Total

projects Enterprises, Inc. eliminations consolidated
(Unaudited)

Total assets as of September 30, 2007 $ 163.8 $ 44.7 $ 56.7 $ 265.2
Total assets as of December 31, 2006 $ 242.8 $ 51.3 $ 67.1 $ 361.2
For the three months ended September 30, 2007
Revenue $ 2.6 $ 4.4 $ — $ 7.0
Earnings (loss) from operations 0.1 (2.6 ) (3.8 ) (6.3 )
Depreciation and amortization expense — 0.1 0.1 0.2
For the three months ended October 1, 2006
Revenue $ — $ 5.9 $ — $ 5.9
Earnings (loss) from operations 5.6 (0.4 ) (4.2 ) 1.0
Depreciation and amortization expense — 0.1 0.1 0.2
For the nine months ended September 30, 2007
Revenue $ 3.4 $ 16.6 $ 0.1 $ 20.1
Earnings (loss) from operations 10.1 (9.1 ) (13.0 ) (12.0 )
Depreciation and amortization expense — 0.3 0.3 0.6
For the nine months ended October 1, 2006
Revenue $ 0.3 $ 23.4 $ 0.1 $ 23.8
Earnings (loss) from operations 38.1 1.0 (12.0 ) 27.1
Depreciation and amortization expense — 0.2 0.2 0.4

payable on demand and bear interest at a floating rate of interest per annum equal to the sum of the prevailing daily30-day LIBOR plus 25 basis points.


~~11.~~	~~Subsequent Event~~

~~WPTE Israel office closure.~~Lakes’ joint venture with Myohionow.com, LLC. AsEffective as of April 29, 2008, Lakes Ohio Development, LLC, an indirect wholly owned subsidiary of Lakes, entered into a joint venture agreement with Myohionow.com, LLC (“Myohio”) dated April 29, 2008 (the “Agreement”) for the purpose of placing on the November 4, 2008 Ohio statewide election ballot a referendum to amend the Ohio constitution to permit a casino resort to be located at the intersections of Interstate 71 and State Route 73 in Clinton County, Ohio (the “Referendum”) and, if approved, developing and operating the proposed casino resort in Clinton County, Ohio. Lakes is planning to loan approximately $8 million to the joint venture through August at an interest rate of 10% per annum, and an additional amount from August to the November election depending on various factors including polling numbers, market studies, and media efforts. Lakes will be required to seek additional sources of financing to fund the additional costs Lakes plans to incur from August to the November of 2008 election. Lakes is currently exploring several financing alternatives and expects to be able to obtain funding as necessary. The amounts loaned will be repaid only upon the successful development, opening and operation of this proposed casino. Although the Agreement provides that Lakes will initially own 80% of the joint venture, Lakes anticipates that its ownership will be reduced to not more than 70% at the time the proposed casino resort opens as a result of contingent factors arising from the ~~decision to cease~~passage of the Referendum and financing the development of ~~WPTE’s stand alone online gaming platform based on~~ the ~~CyberArts software, WPTE wrote off certain property and equipment and related capitalized costs of approximately $2.3 million during~~proposed casino resort.

If the ~~second quarter of 2007. In addition~~Referendum passes, the joint venture must advance to the ~~write off, WPTE curtailed~~owners of Myohio an annual amount totaling approximately $250,000 to be paid in equal monthly installments commencing on December 1, 2008, as an advance of any profit distributions due and payable to Myohio, which will be offset against the ~~Israel operations and closed~~first such profit distribution. As compensation for Lakes’ management services for the casino resort once open, Lakes shall be paid one percent of the two offices. During the fourth quarter of 2007, further restructuring of the online division has been initiated, including closing down the remaining office in Israel. WPTE expects to incur approximately $0.2 million in costs during the fourth quarter of 2007 related to the closing of the Israel location.gross casino revenues.

19
20


ITEM 2.	*MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS*

Overview

We develop, finance and manage Indian-owned casino properties. We currently have development and management or financing agreements with ~~five~~four separate tribes for casino operations in Michigan, California, and Oklahoma for a total of ~~eight~~five separate casino ~~sites.~~ projects as follows:


	•	We are currently managing the Cimarron Casino for the Iowa Tribe of Oklahoma, a federally recognized Indian Tribe, and the Iowa Tribe of Oklahoma, a federally-chartered corporation (collectively, the “Iowa Tribe”) in Perkins, Oklahoma, under a seven-year management contract, which commenced in 2006.

	•	We have a five-year contract to manage the Four Winds Casino Resort for the Pokagon Band of Potawatomi Indians (the “Pokagon Band”) in New Buffalo Township, Michigan near Interstate 94. Lakes began managing the Four Winds Casino Resort when it opened to the public on August 2, 2007. The Four Winds Casino Resort is located near the first Interstate 94 exit in southwestern Michigan and approximately 75 miles east of Chicago. The facility features approximately 3,000 slot machines and approximately 85 table games as well as multiple restaurants and bars, a parking garage, a hotel and other facilities.

	•	We have contracts to develop and subsequently manage for seven years the Red Hawk Casino, which is being built on the Rancheria of the Shingle Springs Band of Miwok Indians (the “Shingle Springs Tribe”) in El Dorado County, California, adjacent to U.S. Highway 50, approximately 30 miles east of Sacramento, California. The Red Hawk Casino is planned to open in late 2008.

	•	We have contracts to develop and finance a casino to be built on the reservation of the Jamul Indian Village (the “Jamul Tribe”) located on Interstate 94, approximately 20 miles east of San Diego, California (the “Jamul Casino”). The Jamul Casino project has been delayed due to issues with road access to the proposed Jamul Casino site. The Jamul Tribe has submitted an encroachment permit application to CalTrans, which will result in a project study report to determine the optimal access point for traffic to the Jamul Casino without disruption of traffic on the state highway. The Jamul Tribe has continued construction on their reservation of the driveway road leading to the Jamul Casino site. In addition to its work with CalTrans, the Jamul Tribe has submitted an application to the Bureau of Indian Affairs (the “BIA”) for recognition of an access drive across its land to create a second means of access to the site over an Indian reservation road. We and the leaders of the Jamul Tribe are currently evaluating plans for the Jamul Casino facility to determine when construction of the facility will start and when casino operations will begin. We continue to believe that adequate financing will be obtained and the project will be successfully completed.

	•	We have a consulting agreement and management contract with the Iowa Tribe in connection with developing, equipping and managing the Ioway Casino Resort which is planned to be built near Route 66 and approximately 25 miles northeast of Oklahoma City, Oklahoma. The Iowa Tribe is currently leasing and acquiring land from tribal members, which is held in trust for the individual tribal members by the United States Government. These transactions need to be approved by the BIA. Lakes submitted its management contract with the Iowa Tribe for the Ioway Casino Resort to the National Indian Gaming Commission (the “NIGC”) for review in 2005. The NIGC has stated that it is waiting for the BIA to approve all land leases before it will issue an opinion on the management contract.

We ~~are currently managing the Cimarron Casino for the Iowa Tribe of Oklahoma (“Iowa Tribe”)~~have also explored, and ~~the Four Winds Casino Resort for the Pokagon Band of Potawatomi Indians (“Pokagon Band”). The remaining~~continue to explore, other development projects ~~are in various stages of development.~~with Indian tribes. We are also involved in other business activities, including potential development of a non-Indian casino in Mississippi, pursuing potential development of a non-Indian casino in Ohio, and the development of new table games for licensing to both Tribal and non-Tribal casinos. In addition, as of ~~September~~March 30, ~~2007,~~2008, we owned approximately 61% of ~~WPT Enterprises, Inc. (“WPTE”),~~WPTE, a separate ~~publicly held media~~publicly-held company principally engaged in the creation of internationally branded entertainment and ~~entertainment company.~~consumer projects driven by the development, production and marketing of televised programming based on gaming themes, the development and operation of an online gaming website, the licensing and sale of branded products and the sale of corporate sponsorships. Our ~~unaudited condensed~~ consolidated financial statements include the results of operations of ~~WPTE, and our revenues have been derived primarily from WPTE’s business.~~WPTE.

of the WPT Studios business. ~~The following table describes the timing of Seasons One through~~For Season Six of the WPT, ~~series, including the delivery~~WPTE is scheduled to produce a total of 23 episodes, production of which began in May of 2007 and ~~exhibition~~WPTE expects to be completed by July 2008, with telecasts of the episodes ~~each season:~~


	~~Date of~~	~~Number of~~
	~~agreement or~~	~~episodes~~
~~World Poker~~	~~option for~~	~~(including~~		~~Production period and delivery~~
~~Tour~~^® ~~season~~	~~season~~	~~specials)~~		~~of episodes~~	~~Initial telecast of episodes in season~~

~~Season One~~	~~January 2003~~		15	~~February 2002 — June 2003~~	~~March 2003 — June 2003~~
~~Season Two~~	~~August 2003~~		25	~~July 2003 — June 2004~~	~~December 2003 — September 2004~~
~~Season Three~~	~~May 2004~~		21	~~May 2004 — April 2005~~	~~October 2004 — August 2005~~
~~Season Four~~	~~March 2005~~		21	~~May 2005 — April 2006~~	~~October 2005 — June 2006~~
~~Season Five~~	~~March 2006~~		22	~~May 2006 — April 2007~~	~~August 2006 — August 2007~~
~~Season Six~~	~~April 2007~~		23	~~May 2007 — April 2008 (projected)~~	~~March 2008 — August 2008 (projected)~~

scheduled to air between March 2008 and August 2008. Pursuant to the GSN Agreement, they have an exclusive option to license Season Seven of the WPT series which expires on May 24, 2008.

~~The~~From 2004 until December 2006, WPTE licensed its shows internationally through an exclusive agreement with ~~TRV relating~~Alfred Haber Distribution, Inc. (“Alfred Haber”). In December 2006, WPTE notified Alfred Haber that they would no longer be the international distributor for WPTE shows, since WPTE began utilizing its internal staff and resources to distribute its shows into the ~~PPT series, which continues to cover the broadcast rights to Season One of the PPT, was substantially similar in structure to the TRV Agreement.~~

~~Under the WPT and PPT Agreements, TRV has the right to receive a percentage of WPTE’s adjusted gross revenues from~~ international ~~television licenses, product licensing and publishing, merchandising and certain other sources, after specified minimum amounts are met. For the nine months ended September 30,~~marketplace. During 2007, WPTE ~~recognized $0.5 million of Travel Channel participation expense that was recorded in cost of revenues.~~came to an arrangement with Alfred Haber whereby they provide non-exclusive assistance on international licensing matters on acase-by-case basis based on substantially the same terms as WPTE’s previous relationship with them.

In December 2006, WPTE signed a multi-year agreement with PartyGaming Plc (“PartyGaming”), owner of PartyPoker.com, pursuant to which they will sponsor certain international television broadcasts of the WPT and PPT. ~~The agreement covers shows produced under~~PartyGaming pays WPTE ~~Seasons Four, Five, and Six and PPT Seasons One, Two and Three. The agreement helps solidify and expand~~fixed fees for entering into broadcast sponsorship arrangements that meet certain requirements, with maximum payment levels for each of the international WPT brand through PartyGaming’s extensive marketing resources, provides valuable promotional opportunities for WPT’s online gaming site, WorldPokerTour.com, and represents a new revenue stream for WPTE. PartyGaming receives exclusive in-show branded integration and association with a premiere brand in televised poker.covered seasons of each series. For the ~~three months~~quarter ended ~~September~~

March 30, ~~2007,~~2008, WPTE recognized revenues of $0.7 million from the PartyGaming agreement. No revenues were recognized for the quarter ended April 1, 2007.

WPT Global ~~Marketing.~~Marketing ~~Includes~~includes branded consumer products, sponsorship and partnerships, and event management divisions. ~~WPTE~~WPTE’s branded consumer products division generates revenue principally from royalties from the licensing of ~~the WPTE~~WPTE’s brand to companies seeking to use the WPT brand and logo in the retail sales of their consumer products. In addition, this business unit generates revenue from direct sales of WPTE-produced branded merchandise. WPTE has generated significant revenues from existing licensees, including Hands-On Mobile and MDI.

WPTE domestic sponsorship and event management division generates revenue from corporate sponsorship and management of televised and live events. During 2007, WPTE ~~sponsorship program uses the professional sports model as~~signed a method to foster entitlement sponsorship opportunities and naming rights to major corporations. Anheuser-Busch has been the largest source of revenues through its sponsorship of Seasons Two, Three, Four and Five of the WPT series on TRV. In addition, WPTE had anthree-year agreement with Blue Diamond Almonds to sponsor Seasons Six, Seven and Eight of the WPT. In return for online and event presence, Blue Diamond will pay approximately $0.2 million per season. WPTE also signed an agreement with Southwest Airlines to be the official airline of the WPT for Season ~~Five Championship~~Six.

In February 2006, WPTE launched an events division offering help in ~~April 2007 at the Bellagio. WPTE recognized revenues from these agreements when the Season Five~~designing special programs ~~were broadcast.~~for corporations, meeting planners and charitable organizations for entertainment purposes only.

WPT ~~Online.~~Online ~~In 2005, WPTE began operating WPTonline.com through a license agreement with WagerWorks, Inc. (“WagerWorks”), under~~includes the international real money gaming website at WorldPokerTour.com and content website at WorldPokerTour.com, which ~~WPTE licensed its brand to WagerWorks~~includes poker tournament coverage and ~~WagerWorks shared a percentage of all net revenue it collected from the operation of the~~live updates thereof, statistics, poker player information, an online ~~poker room~~merchandise store, and ~~online casino. In June 2007, WPTonline.com ceased operations and the relationship with WagerWorks, Inc. was terminated as WPTE transitioned to a new online gaming software platform as described below.~~ClubWPT.com which launched in January 2008.

In 2006, WPTE decided to ~~develop~~commission the development of its own software for ~~its~~WPTE’s online poker room. WPTE licensed a software platform from CyberArts Licensing, LLC, ~~(“CyberArts”),~~ and hired approximately 30 employees in Israel to develop the software and a support infrastructure. OnHowever, the development of the CyberArts-based site ceased on April 23, 2007, when WPTE entered into a three year software supply and support agreement (the ~~“CryptoLogic Agreement”~~“Agreement”) with ~~CryptoLogic Inc., and its wholly-owned subsidiary WagerLogic Limited, (collectively referred to as “CryptoLogic”).~~CryptoLogic. As a result of ~~WPTE’s~~the decision to

utilize CryptoLogic and move away from the internally-developed online gaming platform ~~WPTE was developing~~ based on ~~the~~ CyberArts software, ~~and stopping the development of WPTE’s own online gaming site,~~ WPTE wrote off certain property and equipment and related capitalized costs of approximately $2.3 million during the second quarter of 2007. In addition to the write off ~~during the second quarter~~ of ~~2007,~~assets, WPTE curtailed its Israel operations and closed one of ~~WPTE’s~~its two ~~offices. In~~offices during the second quarter of 2007 and in the fourth quarter of 2007, WPTE ~~decided to close~~closed the remaining office in ~~Israel and expects to incur approximately $0.2 million in closing costs during the quarter.~~Israel.

Pursuant to the ~~CryptoLogic~~ Agreement, CryptoLogic operates an online gaming site for WPTE featuring a poker room and casino games utilizing its proprietary software, in exchange for a percentage of the revenue generated from the site. WPTE is entitled to approximately 80% of net gaming revenues, as defined below, from the operation of the site. Under the ~~CryptoLogic~~ Agreement, WPTE is also a member in a centralized online gaming network (the “Network”) with several other licensees of CryptoLogic pursuant to which players are able to play on ~~WPTE’s~~WPTE branded gaming site on the ~~online gaming network.~~Network.

On June 14, 2007, CryptoLogic delivered the poker software to WPTE and the ~~go-live date for WPTE’s~~ online poker room ~~was~~became operational on June 28, 2007. On July 26, 2007, CryptoLogic delivered 10 casino games (the “Initial Casino”)~~, including multi-hand blackjack, European roulette and multiple interactive slots including their most popular casino games — Millionaire’s Club~~^®~~, Bejeweled~~^® ~~and The Hulk TM.~~. Effective March 5, 2008, WPTE ~~also has~~executed an amendment to the Agreement, exercising its option ~~exercisable at any time prior to July 1, 2008, to require CryptoLogic to provide WPTE’s customers with access to~~for a full suite of casino games ~~within three months~~(the “Full Casino”) with an annual minimum guarantee payable to CryptoLogic from WPTE of ~~such notice.~~approximately $0.8 million, and WPTE exercised its option to have CryptoLogic develop two additional poker language rooms in Spanish and German for $0.1 million. In a separate amendment to the agreement dated March 5, 2008, WPTE agreed to extend the term of the License Agreement with CryptoLogic an additional year through June 30, 2011.

As a result of the amendments, WPTE is now entitled to the following percentages of net gaming revenue: (a) ~~78%~~100% of the first ~~$150,000~~$37,500 per month, (b) 79% of revenue in excess of ~~$150,000~~$37,500 but less than $500,000 per month; and ~~(c)~~(d) 80% of the revenue in excess of $500,000 per month. CryptoLogic is entitled to earn a minimum guaranteed revenue associated with the Initial ~~casino~~Casino of $500,000 per year or $125,000 ~~for~~per quarter and upon launch of the ~~Initial~~Full Casino, CryptoLogic will be entitled to a minimum revenue guarantee of $750,000 per year or $187,500 per quarter. InFor the ~~third~~ quarter ~~WPTE had a shortfall~~ended March 30, 2008, the minimum revenue guarantee to CryptoLogic exceeded WPTE’s share of ~~$77,000,~~net revenues by approximately $101,000, which will be netted against future settlements due from CryptoLogic.

If, at any time after the ~~nine month~~nine-month anniversary of the go-live date, monthly gaming revenues fall below ~~$500,000~~$0.5 million for three consecutive months, CryptoLogic has the right to terminate the ~~CryptoLogic~~ Agreement on 90 days written

notice. However, WPTE may prevent any such termination through payment of the shortfall of CryptoLogic’s percentage of such gaming revenue within 30 days of receipt of CryptoLogic’s notice of termination.

For the three months ended March 30, 2008, WPTE’s online gaming business generated approximately $240,000 in net revenues, compared to costs of revenues of approximately $181,000. Online revenues are presented gross of CryptoLogic costs and net of network promotions, bonuses, and cash incentives provided to patrons.

The non-gaming website at WorldPokerTour.com includes poker tournament coverage and live updates thereof, statistics, poker player information, an online merchandise store and ClubWPT.com which launched in January 2008. ClubWPT.com offers a monthly subscription package for $19.95 per month, as well as discounted quarterly and annual options. In return, members receive exclusive club benefits and points which make them eligible to enter into over 5,000 live poker and elimination black jack tournaments, sit-n-go poker tournaments and poker ring games for a chance to win over $100,000 in cash and prizes each month which could include a $10,000 seat into a WPT televised main event. Non-subscribers who do not wish to purchase the other club benefits are offered a free or alternative means of entry.

WPTE uses a third party service provider, Ultimate Blackjack Tour, LLC (“UBT”), to operate its subscription-based online service for ClubWPT.com, which includes supporting the software, technical operations and customer service. In return for UBT’s services, UBT earns a percentage of net revenues which is calculated as subscriber fees less certain costs (which are allocated on acustomer-by-customer basis) including chargebacks, prize pool, club content, financial charges and compliance fees.

WPT China. On August 6, 2007, WPTE entered into a ~~Cooperation Agreement~~cooperation agreement (the “Cooperation Agreement”) with the ~~China Leisure Sports Administrative Center (the “CLSAC”),~~CLSAC, a Chinese government-sanctioned body with authority over certain leisure sports, including the popular Chinese national card game “Traktor Poker” or “Tuo La Ji.” Pursuant to the Cooperation Agreement, WPTE has the right to brand and exploit the WPT China National Traktor Poker ~~TourTM~~Tour (the “Traktor Poker Tour”) during the five year term of the Cooperation Agreement. Additionally, WPTE is afforded certain marketing and sponsorship rights in conjunction with the Traktor Poker Tour, including the right to sanction and derive revenue from third-party branding at tour events, ~~and~~ the right to exploit films and other content generated in conjunction with the Traktor Poker Tour in all ~~media.~~media and WPTE expects the largest opportunities to stem from online and mobile subscriptions. Furthermore, the CLSAC agreed to organize no less than 15 Traktor Poker Tour events each year during the term, to secure placement of the championship finals on a major Chinese television station, and ~~agreed~~ to promote the Traktor Poker Tour. In exchange, WPTE pays a yearly fee to the CLSAC, ~~starting~~which started at approximately $0.5 million for the first year and ~~increasing~~increases by ~~10%~~ten percent annually for the remaining four years of the term. WPTE also has a unilateral option to extend the agreement for an additional five years, provided that the yearly fee for the first year of the renewed term, will increase by 25% from the fifth year of the term.

On October 12, 2007, WPTE officially launched the inaugural season of the Traktor Poker Tour in Lanzhou, ~~Gansu. The tournament was~~Gansu, and to date, the ~~first of~~WPTE has completed the 15 regional preliminary ~~tournaments~~tournaments. The Traktor Poker Tour Season One champion will be crowned at the championship event in mid-2008 and WPTE expects the event to be ~~held each weekend throughout China, which will run from October 2007 through April 2008. Tour play is based~~televised on a ~~team structure where teams in each tour city compete to qualify for a final tournament called the grand final.~~major Chinese broadcaster.

Results of Operations

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report onForm 10-Q for the three months ~~and nine months~~ ended ~~September~~March 30, ~~2007, respectively.~~2008.

Three months ended ~~September~~March 30, ~~2007~~2008 compared to the three months ended ~~October~~April 1, ~~2006~~2007

Revenues. ~~Total~~Consolidated revenues for the first quarter of 2008 increased to $9.6 million, or 92.3% from the prior-year period. Lakes’ revenue increased to $4.6 million, primarily due to a full quarter contribution of management fees from the Four Winds Casino Resort, which is owned by the Pokagon Band, compared to no contribution from the Four Winds Casino Resort in the prior-year period. Revenue related to WPTE increased to $5.0 million for the first quarter of 2008, compared to $4.5 million in the prior-year period. This increase was due to

an increase in hosting and sponsorship revenues, primarily driven by international television sponsorship revenues that did not exist in the prior-year period.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $1.2 million from the prior-year period to $10.9 million due to $1.6 million in development costs associated with the proposed Ohio casino resort project. For the first quarter of 2008, Lakes’ selling, general and administrative expenses were $5.5 million and consisted primarily of payroll and related expenses of $2.2 million, including share-based compensation, the development costs associated with the Ohio casino resort project of $1.6 million and professional fees of $0.6 million. WPTE’s selling, general and administrative expenses increased $0.2 million from the prior-year period to $5.4 million in the first quarter of 2008. WPTE’s selling, general and administrative expenses consisted primarily of payroll and related expenses of $2.0 million, including share-based compensation, promotional costs of $1.3 million and professional fees of $0.8 million.

Production costs. WPTE’s production costs increased by ~~$1.1~~approximately $0.5 million ~~during~~in the ~~three months ended September 30, 2007~~first quarter of 2008 compared to the ~~three months ended October 1, 2006. Domestic television licensing revenues decreased $1.7 million in the third quarter of~~ 2007 ~~compared to the 2006~~ period. The ~~decrease~~increase was primarily a result of the delivery of ~~three~~seven episodes of Season ~~Five~~Six of the WPT ~~series~~ in the ~~third quarter of 2007~~current period versus the delivery of ~~one episode~~five episodes of Season Five of the WPT and nine episodes of the PPT in the 2006 period. International television licensing revenues decreased by $0.1 million as a result of fewer distribution agreements in the international marketplace. Product licensing revenues decreased by approximately $0.1 million in the third quarter of 2007 compared to the 2006 period. The decrease was primarily due to lower license revenues from US Playing Cards and MDI. Online gaming decreased $0.8 million primarily due to lower levels of player activity versus the prior year period, which was primarily a result of migrating less than 20% of WPTE’s player database from WagerWorks, as well as not aggressively marketing the online gaming site. Event hosting and sponsorship revenues increased $1.3 million primarily due to PartyGaming sponsorship revenues that did not exist in the same period in 2006 and sponsorship revenues from the airing of seven Season Five episodes in the third quarter of 2007 versus no airings in the prior year period.

~~Lakes’ casino management fees~~Gross margins. WPTE’s overall gross margins were ~~$2.6 million during~~46% in the ~~third~~first quarter of ~~2007 and primarily related~~2008 compared to ~~fees from the management of the Four Winds Casino Resort and the Cimarron Casino. There were no casino management fees during the third quarter of 2006.~~

~~Selling, general and administrative expense.~~ ~~Selling, general and administrative expense increased approximately $1.3 million~~52% in the ~~third quarter of~~ 2007 ~~compared to the 2006~~ period. ~~The increase was primarily due to costs associated with WPTE’s online gaming operations, as well as increased costs associated with WPT China, which was not established in the 2006 period.~~

~~Production costs.~~ Production costs decreased by approximately $0.4 million in the third quarter of 2007 compared to the 2006 period. The decrease was primarily a result of a decrease in online gaming costs as there were lower levels of player activity as WPTE transitioned operations from the WagerWorks network to the CryptoLogic network. Overall gross margins for WPTE were 69% in the third quarter of 2007 compared to 70% in the third quarter of 2006. Domestic television licensing margins were ~~42%~~6% in the ~~third~~first quarter of ~~2007~~2008 compared to ~~73%~~37% in the ~~same period in 2006. This~~2007 period. The decrease was principally because of the ~~delivery of nine episodes of WPTE’s PPT series in~~lower fees per episode under the ~~2006 period for which the production costs had been expensed in an earlier period.~~GSN contract. The lower domestic television margins in the ~~2007 period~~first quarter of 2008 were ~~largely~~partially offset by increased margin contribution from international television and sponsorship.

Amortization of intangible assets related to Indian casino projects. Amortization of intangible assets related to Indian casino projects was ~~$1.1~~$1.7 million for the ~~three months ended September 30, 2007.~~first quarter of 2008. This amortization related primarily to the intangible assets associated with the Four Winds Casino Resort, which began when it opened to the public on August 2, 2007. ~~There was no amortization~~Amortization of intangible assets related to the Indian casino projects for the ~~three months ended October 1, 2006.~~

~~Net unrealized gains (losses) on notes receivable.~~ Net unrealized gains (losses) on notes receivable were ($0.6) million and $5.8 million for the three months ended September 30, 2007 and October 1, 2006, respectively. The net unrealized loss in the third quarter of 2007 related primarily to our notes receivable from the Jamul Indian Village (“Jamul Tribe”), which were partially offset by unrealized gains from the Shingle Springs Band of Miwok Indians (“Shingle Springs Tribe”). Net unrealized gains (losses) are the result of adjustment of notes receivable related to tribal casino projects to their estimated fair value based upon current tribal casino projects status.

The increase in fair value of the notes receivable from the Shingle Springs Tribe relates primarily to continued progress on the construction of this project, which is currently within budget and on schedule.

The decrease in fair value of the notes receivable from the Jamul Tribe relates primarily to an increase in discount rate which resulted from a decrease in current estimated win per unit for this project.

During the third quarter of 2006, the net unrealized gains of $5.8 million related primarily to favorable events occurring during the third quarter of 2006, which increased the estimated probability of opening for the Shingle

Springs Tribe’s casino development project. Specifically, during September of 2006, the Shingle Springs Tribe reached an agreement with El Dorado County that will provide El Dorado County with certain funding from the planned Shingle Springs Tribe casino operations. El Dorado County also agreed to seek dismissal of all of its existing litigation against the Shingle Springs Tribe and formally support the Shingle Springs Tribe interchange and casino projects.

~~Other income.~~ ~~Other income for the third~~first quarter of 2007 was $0.7 million compared to other income of $5.3 million for the third quarter of 2006. In the first quarter of 2006, Lakes issued a warrant to PLKS Holdings, LLC in connection with a financing agreement. During the third quarter of 2006, we adjusted the liability related to this warrant to its estimated fair value, which resulted in a decrease to interest expense of approximately $2.9 million. Also during the third quarter of 2006, WPTE recognized a $4.5 million gain on sale of investment relating to the sale of its remaining stock in PokerTek, Inc. (“PokerTek”).

~~Income taxes.~~ The provision for income taxes was $0.5 million and $2.2 million for the three months ended September 30, 2007 and October 1, 2006, respectively. Our effective income tax rates were (8%) and 35% for the third quarter of 2007 and the corresponding period of 2006, respectively. In the current year period, the provision consisted primarily of Lakes’ interest expense on the Louisiana state income tax dispute and the IRS tax matter. The prior year period provision consisted of $0.3 million related to Lakes and $1.9 million related to WPTE. The prior year period provision for Lakes consisted primarily of interest expense on the Louisiana state income tax dispute and the IRS tax matter. WPTE’s prior year period provision was due to positive taxable income that WPTE expected to generate during 2006, which resulted from the sale of its interest in PokerTek.

~~Minority interest.~~ The minority interest in WPTE’s earnings (loss) was approximately ($0.9) million and $1.0 million for the three months ended September 30, 2007 and October 1, 2006, respectively. WPTE’s net earnings (loss) were ($2.2) million and $2.7 million for the three months ended September 30, 2007 and October 1, 2006, respectively.

~~Nine months ended September 30, 2007 compared to the nine months ended October 1, 2006~~

~~Revenues.~~ Total revenues decreased by $3.6 million during the nine months ended September 30, 2007 compared to the nine months ended October 1, 2006. Domestic television licensing revenues decreased $5.3 million in the first nine months of 2007 compared to the 2006 period. The decrease was primarily the result of the delivery of 17 episodes of Season Five of the WPT television series in the first nine months of 2007 versus 16 episodes of Season Four of the WPT and 19 episodes of the PPT delivered in the 2006 period. International television licensing revenues decreased by $0.5 million as a result of fewer distribution agreements in the international marketplace. Product licensing revenues increased by approximately $0.2 million in the first nine months of 2007 compared to the 2006 period. The increase was primarily due to higher interactive gaming revenues from Take Two. Online gaming revenues decreased $1.7 million primarily due to lower levels of player activity versus the prior year period, as well as WPTE ceasing operations on the WagerWorks network in June while transitioning WPTE’s online gaming operation to CryptoLogic. Event hosting and sponsorship revenues increased $0.6 million due primarily to PartyGaming sponsorship revenues that did not ~~exist in the same period in 2006.~~

Lakes’ casino management fees were $3.4 million during the first nine months of 2007 and primarily related to fees from the management of the Four Winds Casino Resort and the Cimarron Casino. Lakes’ casino management fees during the first nine months of 2006 primarily related to fees from the management of the Cimarron Casino.

~~Selling, general and administrative expense.~~ Selling, general and administrative expense increased approximately $3.0 million in the first nine months of 2007 compared to the 2006 period. The increase primarily related to WPTE’s efforts to develop their own online gaming software and support infrastructure prior to entering into an agreement with CryptoLogic, as well as costs associated with WPT China.

~~Production costs.~~ Production costs decreased by approximately $1.7 million in the first nine months of 2007 compared to the 2006 period. The decrease was primarily a result of a decrease in production costs of $1.3 million as WPTE delivered fewer episodes in the 2007 period versus the 2006 period, as noted above. Additionally, online gaming costs of revenues decreased $0.8 million in the first nine months of 2007 versus the 2006 period due to lower revenues. The decreased costs were offset by higher costs of $0.4 million related to PartyGaming sponsorship

revenues. Overall gross margins for WPTE were 60% in the first nine months of 2007 compared to 64% in the first nine months of 2006. Domestic television licensing margins were 41% in the first nine months of 2007 compared to 55% in the same period in 2006. This decrease was principally because of the delivery of 19 episodes of WPTE’s PPT series in 2006 for which the production costs had been expensed in an earlier period. In addition, online gaming contributed to the overall lower margin in the first nine months of 2007 as a result of an amendment of the agreement with WagerWorks that was effective in July of 2006, which significantly increased the percentage of revenues paid to it.

~~Loss on abandonment of online gaming assets.~~ During the second quarter of 2007, WPTE wrote off approximately $2.3 million in online gaming assets as a result of ceasing development of the stand-alone online gaming platform WPTE was developing based on the CyberArts software.

~~Impairment losses.~~ We recognized a $0.3 million impairment charge in the first quarter of 2007 related to the Trading Post casino project with the Pawnee Tribal Development Corporation (“Pawnee TDC”). The Pawnee TDC, together with its three wholly-owned subsidiaries, are referred to collectively as the “Pawnee Nation”. No impairment losses were recognized during the nine months ended October 1, 2006.

~~Amortization of intangible assets related to Indian casino projects.~~ Amortization of intangible assets related to Indian casino projects was $1.1 million for the nine months ended September 30, 2007. This amortization related primarily to the intangible assets associated with the Four Winds Casino Resort, which began when it opened to the public on August 2, 2007. There was no amortization of intangible assets related to the Indian casino projects for the nine months ended October 1, 2006.material.

Net realized and unrealized gains (losses) on notes receivable. Net realized and unrealized gains (losses) on notes receivable ~~were $8.5 million and $38.9 million for the nine months ended September 30, 2007 and October 1, 2006, respectively. The net realized and unrealized gains in the first nine months of 2007 related~~relate primarily to our notes receivable from ~~the Shingle Springs Tribe~~Indian tribes, which are adjusted to estimated fair value, based upon the current status of the related tribal casino ~~project. The~~projects and evolving market conditions. In the first quarter of 2008, we reported net unrealized losses on notes receivable of $2.0 million, compared to net realized and unrealized gains ~~associated with~~of $0.2 million in the prior-year period. Net unrealized losses in the first quarter of 2008 were due primarily to a decrease in projected pre- and post-opening date interest rates, due to current market conditions related to the notes receivable ~~from~~related to the Shingle Springs Tribe were the result of the close of third party financing by the Shingle Springs Tribe in June of 2007, which resulted in an increased probability of opening of the casino developmentRed Hawk Casino project with the Shingle Springs ~~Tribe. The result was an unrealized gain of approximately $7.9 million during~~Tribe and the ~~nine months ended September 30, 2007.~~

~~During the first nine months of 2006, unrealized gains of approximately $33.5 million related primarily to the increased probability of opening~~notes receivable related to the ~~casino development projects with the Pokagon Band,~~ Jamul ~~Tribe and with the Shingle Springs Tribe as well as the increased interest rate charged on the notes~~Casino project with the Jamul Tribe as a result of the development financing and services agreement entered into on March 30, 2006 with the Jamul Tribe, along with a retroactive interest rate adjustment on the Pokagon Band loans. In addition, we recognized gains of approximately $5.4 million related to a note receivable repayment and liability releases received from various venders related to the settlement with the Kickapoo Traditional Tribe of Texas.Tribe.

Other income (expense). Other income (expense) for the first ~~nine months~~quarter of ~~2007~~2008 was ~~$3.1~~$0.5 million compared to ~~$0.2~~($3.1) million for the first nine months of 2006. In conjunction with the close of the Shingle Springs Tribe’s $450 million senior note financing, the Shingle Springs Tribe repaid us for land we had previously purchased on its behalf and the related accrued interest. The repayment resulted in interest income of approximately $4.9 million in Junequarter of 2007. In March 2007, Lakes contracted with a group of investors for their participation in the loans made by Lakes to the Pokagon Band (and assumed by the Pokagon Gaming Authority) at an agreed upon price of 98% of the face value of the loans as of the settlement date of March 2, 2007. This participation arrangement was accounted for as a sale during 2007. Lakes’ then existing $105 million ~~Credit Agreement~~credit agreement was repaid in conjunction with ~~proceeds from~~ the Pokagon notes receivable participation transaction. This repayment resulted in a loss on extinguishment of debt of approximately $3.8 million during ~~March~~the first quarter of 2007.

In the second quarter of 2006, we refinanced substantially all of our long-term debt. As a result, we wrote-off the unamortized portion of the debt discount related to the issuance of common stock warrants ($4.3 million) as well as unamortized closing costs ($2.5 million), resulting in a loss on extinguishment of debt of approximately $6.8 million. This activity was offset by a WPTE gain on sale of securities of approximately $10.2 million related to a sale of WPTE’s shares of common stock of PokerTek.

Income ~~taxes.~~Taxes. The income tax provision ~~for income taxes~~ was ~~$1.1~~$0.7 million and ~~$8.7~~$0.3 million for the ~~nine~~three months ended ~~September~~March 30, ~~2007~~2008 and ~~October~~April 1, ~~2006,~~2007, respectively. Our effective ~~income~~ tax rates were ~~(13%)~~9% and ~~32%~~3% for the first ~~nine months~~quarter of ~~2007~~2008 and the corresponding 2007 period, ~~of 2006,~~ respectively. InLakes’ income tax provision in the current year period ~~the provision~~consists primarily of a valuation allowance against deferred tax assets related to capital losses for the portion that are not expected to be realized through future sales of WPTE common stock as described below, and approximately $0.3 million of interest ~~charges~~ on a Louisiana tax audit matter (Note 10 to the ~~Louisiana state income tax dispute and the IRS tax matter.~~

unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report onForm 10-Q).In the prior year period, the income tax provision ~~consisted of $5.2 million~~was primarily related to ~~Lakes and $3.5 million related to WPTE.~~ Lakes’ ~~provision included approximately $2.0 million related to~~interest on an ~~IRS~~ audit matter and $2.0 million related to the reversal of deferred tax assets related to the losses that were reversed during the period related to the Kickapoo Traditional Tribe of Texas. The remainder of Lakes’ provision primarily consisted of interest charges on the Louisiana state income tax dispute. WPTE’s prior year period provision was due to positive taxable income that WPTE expected to generate during 2006, which resulted from the sale of its interest in PokerTek.matter.

Minority interest. The minority interest in WPTE’s ~~earnings (loss)~~loss was approximately ~~($3.0)~~$1.1 million and ~~$3.4~~$0.9 million for the ~~nine~~three months ended ~~September~~March 30, ~~2007~~2008 and ~~October~~April 1, ~~2006,~~2007, respectively. WPTE’s net ~~earnings (loss)~~losses were ~~($7.8)~~$2.8 million and ~~$8.8~~$2.3 million for the ~~nine~~three months ended ~~September~~March 30, 2008 and April 1, 2007, ~~and October 1, 2006,~~ respectively.

Liquidity and Capital Resources

~~At September~~As of March 30, ~~2007, our Unaudited Condensed Consolidated Balance Sheet included~~2008, we had $8.6 million in cash and cash equivalents, ~~and~~$8.5 million in short-term investment balances of $59.5 million, comprised of Lakes cash of $3.4 million, Lakes short-term investments of $30.2 million, WPTE cash of $4.5 million and WPTE short-term investments of $21.4 million. WPTE cash and short-term investments will not be used in Lakes’ business.

~~Lakes expects that cash, cash equivalents and~~ investments in marketable securities, and $38.8 million in long-term investments in marketable securities. Of these amounts, $3.6 million in cash and cash equivalents related to Lakes and $25.5 million in long-term investments related to Lakes. All other amounts related to WPTE. All of Lakes’ long-term investments in marketable securities and $11.3 million of WPTE’s long-term investments in marketable securities were auction rate securities (“ARS”) (See Note 3 to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report onForm 10-Q). As a result of current liquidity issues surrounding our ARS discussed below, our ARS were reclassified from short-term to long-term investments in marketable securities as of March 30, 2008. The types of ARS investments that both Lakes and WPTE own are backed by student loans, the majority of which are guaranteed under the Federal Family Education Loan Program (“FFELP”), and all had credit ratings of AAA or Aaa. Neither Lakes nor WPTE own any other type of ARS investments. None of our investments in ARS qualify, or have ever been classified in our consolidated financial statements, as cash or cash equivalents.

Historically, these types of ARS investments have been highly liquid using an auction process that resets the applicable interest rate at predetermined intervals, typically every 7 to 35 days, to provide liquidity at par. However, as a result of the recent liquidity issues experienced in the global credit and capital markets, the auctions for all of our ARS began failing in February 2008, when sell orders exceeded buy orders. The failures of these auctions do not affect the value of the collateral underlying the ARS, and we will continue to earn and receive interest on ~~hand~~our ARS at contractually set rates. However, we will not be able to liquidate our ARS until the issuer calls the security, a successful auction occurs, a buyer is found outside of the auction process or the security matures. During April of 2008, we received account statements dated March 30, 2008, from the firms managing our ARS which estimated the fair value of our ARS. We analyzed these statements and ~~generated from operations~~have concluded that a temporary decline in estimated fair value of $2.4 million related to our ARS has occurred as a result of the current lack of liquidity. This consolidated decline in fair value includes $1.3 million related to Lakes and $1.1 million related to WPTE. Since we consider the decline in the estimated fair value of our ARS to be temporary, the related unrealized loss is included in accumulated other comprehensive loss in the shareholders’ equity section of our balance sheet as of March 30, 2008.

Lakes entered into a client agreement with UBS Financial Services Inc effective April 11, 2008 for the purpose of borrowingand/or obtaining credit in a principal amount not to exceed $11.0 million (the “Margin Account Agreement”). Lakes made an initial draw under the Margin Account Agreement in the principal amount of $3.0 million to be used for working capital purposes. We will be ~~sufficient~~required to seek additional sources of financing to fund additional costs we plan to incur between August and November of this year associated with the recently announced Ohio casino resort project. These costs are dependent on various factors including polling numbers, market studies and media efforts. Lakes is currently exploring several financing alternatives and expects to be able to obtain funding as necessary. WPTE does not believe that any lack of liquidity during the next 12 months relating to its ARS will have an impact on its ability to fund its operations.

As discussed above or otherwise, we may from time to time seek additional capital to fund our ~~working capital requirements for at least~~development costs which will require us to obtain additional sources of financing. If the ~~next twelve months.~~financing is in the form of equity financing it will be dilutive to Lakes’ shareholders, and any debt financing may involve additional restrictive covenants. An inability to raise such funds when needed might require Lakes to delay, scale back or eliminate some of its expansion and development goals.

WPTE ~~also~~intends to use funds currently on hand for working capital and capital expenditures associated with the expansion of WPTE online gaming, media, and other businesses and for general corporate purposes. WPTE anticipates that sales and marketing costs will increase significantly in upcoming quarters as WPTE markets its real money online gaming website and its subscription-based online site, ClubWPT.com. In addition, WPTE intends to invest significantly in international expansion, including developing and marketing the Traktor Poker Tour. WPTE expects that cash, cash equivalents and investments in marketable securities on hand and generated from operations will be sufficient to fund WPTE’s working capital and capital expenditure requirements for at least the next ~~twelve months.~~

~~Lakes major use of cash over~~12 months even considering the ~~past three years has been pre-construction financing provided~~current liquidity issues with ARS. If these securities remain illiquid for a period greater than 12 months, then WPTE may be required to ~~our tribal partners and on-going corporate costs.~~seek additional working capital to fund its operations or

fund its expansion plans. To raise working capital, WPTE may seek to sell additional equity securities, issue debt or convertible securities, or seek to obtain credit facilities through financial institutions.

Lakes’ agreements with tribal partners require that we provide certain financing for project development in the form of ~~loans.~~loans, which has been Lakes’ major use of cash over the past three years, in addition to on-going corporate costs. These loans to our tribal partners are interest bearing; however, the loans and related interest are not due until the casino is built and has established profitable operations. In the event that the casinos are not built, our only recourse is to attempt to liquidate assets of the development, if any, excluding any land in trust.

Lakes’ cash forecast requirements do not include construction-related costs that will be incurred when projects begin construction. The construction of our pending casino projects will depend on the ability of the tribesand/or Lakes to obtain financing for the projects. If such financing cannot be obtained on acceptable terms, it may not be possible to complete these projects, which could have a material adverse effect on our results of operations and financial condition. In order to assist the tribes, we may be required to guarantee the tribes’ debt financing or otherwise provide support for the tribes’ obligations. Guarantees by us, if any, will increase our potential exposure in the event of a default by any of these tribes.

We believe that our casino development projects currently in progress will be constructed and ultimately, along with those currently operating, will achieve profitable operations; however, no assurance can be made that this will occur. If this does not occur, it is likely that we would incur substantial or complete losses on our notes receivable from Indian tribes and related intangible assets associated with the acquisition of the management, development, consulting and financing contracts. In addition, if our casino development projects currently in progress are not completed or, upon completion, fail to successfully compete in the highly competitive market for gaming activities, we may lack the funds to compete for and develop future gaming or other business opportunities and our business could be adversely affected to the extent that we may be forced to cease our operations entirely.

~~Following is a~~The following table ~~summarizing~~summarizes the remaining contractual obligations as of ~~September~~March 30, ~~2007~~2008 (in millions):


	Payment due by period										Payment due by period
			Less than						More than				Less than						More than
Contractual obligations	Total		1 year		1-3 years		3-5 years		5 years		Total		1 year		1-3 years		3-5 years		5 years
	(Unaudited)										(Unaudited)

Remaining casino development commitment(1)
Jamul Tribe(2)	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Shingle Springs Tribe(3)		—		—		—		—		—		—		—		—		—		—
Pokagon Band(4)		9.8		1.9		3.8		4.1		—		8.9		2.2		3.0		3.7		—
Iowa Tribe — Ioway Project(5)		—		—		—		—		—		—		—		—		—		—
Lakes’ operating lease(6)		0.5		0.5		—		—		—
Lakes’ FIN 48 liability(7)		4.3		4.3		—		—		—
WPTE operating leases(8)		3.3		0.8		1.8		0.7		—
WPTE purchase obligations(9)		2.7		1.4		1.3		—		—
Lakes operating lease(6)												4.0		0.4		0.8		0.8		2.0
WPTE operating leases(7)												2.9		0.9		1.8		0.2		—
WPTE purchase obligations(8)												4.3		2.8		1.5		—		—

	$	20.6	$	8.9	$	6.9	$	4.8	$	—	$	20.1	$	6.3	$	7.1	$	4.7	$	2.0


(1)		We may be required to provide a guarantee of tribal debt financing or otherwise provide support for the tribal obligations related to any of the projects (see (2), (3) and (5) below). Any guarantees by us or similar off-balance sheet liabilities will increase our potential exposure in the event of a default by any of these tribes. No such guarantees or similar off-balance sheet liabilities ~~exist~~existed at ~~September~~March 30, ~~2007.~~2008.

(2)		Effective March 30, 2006, we entered into a development financing and services agreement with the Jamul Tribe. As part of the agreement, we will use our best efforts to obtain financing of up to $350 million from which advances will be made to the Jamul Tribe ~~of up to $350 million~~ to pay for the design and construction of a casino project. ~~It has been determined that the proposed gaming facility will be reduced in size and scope.~~ The current plan is for ~~the~~a smaller scale gaming facility ~~to decrease in size and~~that will become a solely class II electronic gaming device facility which will not require a compact with the ~~state~~State of California. The agreement between Lakes and the Jamul Tribe is being modified to reflect the new economics of the revised casino plan but will not be subject to approval by the State of California or the NIGC.


(3)		The development agreement between Lakes and the Shingle Springs Tribe, as amended, ~~provides~~provided for Lakes to make certain pre-construction advances ~~Lakes may make~~ to the Shingle Springs Tribe in the form of a transition loan and land loan up to a maximum combined amount of $75.0 million. On June 28, 2007, an affiliate of the Shingle Springs Tribe closed on a $450 million ~~but it does not contractually require us~~senior note financing to ~~make such advances.~~fund the Red Hawk Casino project. The transition loan remains outstanding as of March 30, 2008. The land loan was repaid to Lakes, including accrued interest, on June 28, 2007 in connection with the close of the $450 million senior note financing.

(4)		~~We are~~Upon opening of the Four Winds Casino Resort, we became obligated to pay approximately $11 million to an unrelated third party now that the Four Winds Casino Resort is open and we are the manager of the casino. The payment is payable quarterly for five years and is only payable if we are the manager and the casino is open and operational. The payment isas part of ~~a settlement and release~~an agreement associated with our obtaining the management contract with the Pokagon Band. The payment is payable quarterly for five years. We are also obligated to pay approximately $3 million over 24 months to a separate unrelated third party on behalf of the Pokagon Band in accordance with the management contract which commenced when the casino opened. These obligations do not have a stated interest rate and have payments terms which extend beyond one fiscal year. As a result, these obligations have been recorded at their net present value, with effective interest rates of 16.7% and 14.1%, respectively, and the difference between the face amount and the net present value of the obligations is recorded as a discount, which is amortized to interest expense as the payments are made pursuant to the respective agreement. During 2006, the Lyle Berman Family Partnership purchased a portion of the first obligation discussed above from the unrelated third party. (Note 6 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report onForm 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)		~~We lease~~Lakes leases an airplane under a non-cancelable operating lease that expires on ~~May~~March 1, ~~2008.~~2018.

(7)		~~We believe it is reasonably possible that, within the next 12 months, we could be required to pay up to approximately $3.2 million plus accrued interest related to an IRS tax matter.~~


~~(8)~~		WPTE operating lease obligations include rent payments for WPTE corporate offices pursuant to two lease agreements. For the first lease, monthly lease payments ~~began at~~are approximately ~~$38,000~~$40,000 and escalate to approximately $45,000 over the ~~six-year~~remaining lease term. For the second lease, monthly lease payments ~~began at~~are approximately ~~$28,000~~$31,000 and escalate up to approximately $33,000 over the ~~five-year~~remaining lease term. The lease obligations presented also include rent payments for WPTE’s office facility in London. The amounts set forth in the table above include monthly lease payments through June 2011.

~~(9)~~(8)		WPTE purchase obligations ~~include minimum guarantees to CryptoLogic and~~includes the operational expenses associated with ~~WPTE’s online gaming division, as well as a $0.5 million annual payment~~the development of WorldPokerTour.com. These obligations relate to the ~~CLSAC for exclusive marketing~~gaming and ~~sponsorship opportunities in China (the table does not include commitments for years two through five, as~~non-gaming aspects of the ~~agreement terminates for failure of payment).~~website. Also included are operational expenses related to WPT China. Additionally, included in purchase obligations are open purchase orders of approximately ~~$0.5~~$0.6 million as of ~~September~~March 30, ~~2007. These liabilities are included in Other Accrued Expenses within~~2008; a three year base retainer with Antonio Esfandiari, who serves as WPTE’s spokesperson for both online gaming and ClubWPT.com; and minimum guaranteed revenue to CryptoLogic associated with the ~~Unaudited Condensed Consolidated Balance Sheets.~~Initial Casino of $0.5 million per year or $0.1 million per quarter. Upon launch of the Full Casino, projected to be delivered by June 2008, CryptoLogic will be entitled to a minimum revenue guarantee of $0.8 million per year or $0.2 million per quarter.

We have incurred cumulative development and land ~~development~~ costs of approximately $6.4 million and $2.9 million, respectively, relating to the development of a Company-owned non-Indian casino in Vicksburg, Mississippi. These costs are included in property and equipment as construction in progress and land, respectively. We have received various regulatory approvals to develop our own casino near Vicksburg, Mississippi. Lakes is continuing to evaluate whether to proceed with this project, but in any event does not expect ~~to pursue~~ further development ~~of this project until 2008.~~efforts before 2009.

Critical Accounting Policies and Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our ~~unaudited condensed~~ consolidated financial statements, which have been prepared in accordance with ~~U.S.~~United States generally accepted accounting principles. The preparation of these financial statements requires us to make estimates ~~and assumptions~~ that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet date and reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, long-term assets related to Indian casino projects, deferred television costs, investments, litigation costs, income taxes, share-based compensation and

derivative financial instruments. We base our estimates and judgments on historical experience and on various other factors that are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

We believe the following critical accounting policies involve the more significant judgments and estimates used in the preparation of our ~~unaudited condensed~~ consolidated financial statements.

Revenue recognition. Revenue from the management, development, and financing of, and consulting with, Indian-owned casino gaming facilities is recognized ~~in accordance with our policy described~~as it is earned pursuant to each respective agreement. See further discussion below under the caption ~~“Accounting for long-term~~“Long-term assets related to Indian casino projects.”

Revenue from the domestic and international distribution of ~~WPTE~~WPTE’s television series is recognized as earned under the following criteria established by the American Institute of Certified Public Accountants Statement of Position ~~(SOP)~~(“SOP”)No. 00-2,Accounting by Producers or Distributors of Films(“SOP ~~00-2)~~00-2”):


	•	Persuasive evidence of an arrangement exists;

	•	The show/episode is complete, and in accordance with the terms of the arrangement, has been delivered or is available for immediate and unconditional delivery;

	•	The license period has begun and the customer can begin its exploitation, exhibition or sale;

	•	The seller’s price to the buyer is fixed and determinable; and

	•	Collectibility is reasonably assured.

In accordance with the terms of the ~~TRV Agreements,~~WPT agreements, WPTE ~~recognizes~~recognized domestic television license revenues upon the receipt and acceptance of completed ~~episodes.~~episodes by TRV and GSN. However, due to restrictions and practical limitations applicable to WPTE’s operating relationships with foreign networks, WPTE ~~currently~~ does not consider collectibility of international television license revenues to be reasonably assured, and accordingly, WPTE does not

recognize such revenue ~~until~~unless the ~~distributor~~payment has ~~received payment.~~been received. Additionally, WPTE presents certain international distribution license fee revenues net of the distributor’s fees, as the distributor is the primary obligor in the transaction with the ultimate customer pursuant to Emerging ~~Issues~~Issue Task Force (“EITF”)99-19,Reporting Revenue Gross as a Principal versus Net as an Agent(“EITF 99-19”).

Product licensing revenues are recognized when the underlying royalties from the sales of the related products are earned. WPTE recognizes minimum revenue guarantees, if any, ratably over the term of the license or as earned royalties based on actual sales of the related products, if greater. WPTE presents product licensing fees gross of licensing commissions, which are recorded as selling and administrative expenses ~~because~~as WPTE is the primary obligor in the transaction with the ultimate customer pursuant toEITF 99-19.

Online gaming revenues are recognized monthly based on detailed statements received from CryptoLogic, WPTE’s online gaming service provider for online poker and casino ~~activity during the previous month.~~activity. In accordance withEITF 99-19, WPTE presents online gaming revenues gross of ~~the~~ service provider costs (including the service provider’s management fee, royalties and credit card processing ~~fees~~ that are recorded as cost of revenues) ~~because~~as WPTE has the ability to adjust price and specifications of the online gaming site, WPTE bears the majority of the credit risk and WPTE is responsible for the sales and marketing of the gaming site. WPTE includes certain cash promotional expenses related to free bets and deposit bonuses along with customer ~~chargebacks~~charge backs as ~~deductions~~direct reductions of revenue. All other promotional expenses are generally recorded as sales and marketing expenses.

Event hosting fees are paid by host casinos for the privilege of hosting the events and are recognized as the episodes that feature the host casino are aired. Sponsorship revenues are recognized as the episodes that feature the sponsor are aired. Licensing advances and guaranteed payments collected, but not yet earned, by WPTE, as well as casino host fees and sponsorship receipts collected prior to the airing of episodes, are classified as deferred revenue in the accompanying consolidated balance sheets.

Deferred television costs. WPTE accounts for deferred television costs in accordance withSOP 00-2. Deferred television costs include ~~capitalizable~~ direct ~~costs,~~ production, overhead and development costs ~~and are~~ stated at the lower of cost or

net realizable value based on anticipated revenue. Production overhead includes incremental costs associated with the productions such as, office facilities and insurance. Shared facility costs are allocated to episodes based on headcount. Production overhead insurance costs are allocated to television costs based on number of episodes. WPTE ~~has~~does not currently ~~anticipated~~have any revenues in excess of those subject to existing contractual ~~relationships, because WPTE has insufficient operating history to enable such anticipation. Marketing, distribution and general and administrative costs are expensed as incurred.~~relationships. Capitalized television production costs for each episode are expensed as revenues are recognized upon delivery and acceptance ~~by TRV~~ of the completed episode. ~~WPTE’s~~WPTE management ~~currently~~ estimates that ~~41%~~100% of the ~~approximately $1.7~~$1.8 million in capitalized deferred television costs at ~~September~~March 30, ~~2007~~2008, are expected to be expensed in connection with episode deliveries by the end of ~~fiscal 2007.~~2008, and are therefore presented as current assets.

Share-based compensation expense. We measure share-based compensation expense pursuant to the Financial Accounting Standards Board (“FASB”) SFAS No. 123(R), which requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our Unaudited Condensed Consolidated Statement of Earnings (Loss) and Comprehensive Earnings (Loss).

We use the Black-Scholes option pricing method to establish fair value of options. Our determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility and actual and projected employee stock option exercise behaviors. Any changes in these assumptions may materially affect the estimated fair value of the share-based award.

Income taxes.We ~~include interest expense relative to uncertain~~account for income ~~tax matters in our income tax provision. In accordance with SFAS~~taxes under the provisions of Statement of Financial Accounting Standards No. 109,Accounting for Income Taxes (“SFAS No. 109”).Under this method, we ~~evaluated the ability to utilize~~determine deferred tax assets ~~arising~~and liabilities based upon the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. We assess the likelihood that deferred tax assets will be recovered from ~~net operating loss carryforwards,~~future taxable income and ~~other ordinary items and determined that~~establish a valuation allowance was appropriate at September 30, 2007 and December 31, 2006. We evaluated all evidence and determined net losses (excluding net realized and unrealized gains and losses on notes receivable) generated over the past five years outweighed the current positive evidence that we believe exists surrounding our ability to

generate significant income from our long-term assets related to Indian casino projects. Therefore, we have recorded a 100% valuation allowance against these items at September 30, 2007, and December 31, 2006.when management believes recovery is not likely.

~~We have recorded deferred tax assets related to capital losses. The realization~~In the first quarter of ~~these benefits is dependent on~~2007, we adopted the ~~generation~~provisions of capital gains during the applicable carryforward periods. We believe we will have sufficient capital gains in the foreseeable future to utilize these benefits due to significant appreciation in our investment in WPTE, which has a minimal cost basis and could be sold at a substantial gain. We own approximately 12.5 million shares of WPTE common stock valued at approximately $36 million as of September 30, 2007 based upon the closing stock price as reported by NASDAQ on September 28, 2007 of $2.88.

WPTE’s current growth plans include international expansion primarily related to WPTE’s online gaming business and activities in China, and expansion of television and product licensing businesses, and entry into new branded gaming businesses. Although WPTE anticipates that all potential strategies will be accretive to earnings, WPTE is aware of the risks involved with an aggressive growth strategy. Therefore, based on WPTE’s limited and volatile earnings history combined with WPTE’s cautious optimism, WPTE has determined that a valuation allowance is necessary to the extent that management currently believes it is more likely than not that tax assets will not be recovered in the foreseeable future.

~~A discussion of the effects of adopting~~ FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes, (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in ~~the first quarter~~income taxes recognized in financial statements in accordance with SFAS No. 109. FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Lakes records changes in accrued interest related to uncertain tax positions as a component of ~~fiscal 2007 is included in Note 8.~~income tax expense.

Long-term assets related to Indian casino projects:

Notes receivable. We have formal procedures governing our evaluation of opportunities for potential Indian-owned casino development projects that we follow before entering into agreements to provide financial support for the development of these ~~Indian owned casino~~ projects. We determine whether there is probable future economic benefit prior to recording any asset related to the Indian casino project. We initially evaluate the following factors involving critical milestones that affect the probability of developing and operating a casino:


	•	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, developmentand/or management opportunity.

We account for our notes receivable from ~~and service contracts with~~ the tribes ~~as separate assets. The estimated fair value of the advances made to the tribes are accounted for~~ as in-substance structured notes in accordance with the guidance contained in Emerging Issues Task Force ConsensusNo. 96-12,Recognition of Interest Income and ~~Balance~~balance Sheet Classification of Structured Notes(“EITFNo. 96-12”). Under their terms, the notes do not become

due and payable unless ~~and until~~ the projects are completed and ~~operational.~~operational, and distributable profits are available from the operations. However, in the event our development activity is terminated prior to completion, we generally retain the right to collect in the event of completion by another developer. Because the stated rate of the notes receivable alone is not commensurate with the risk inherent in these projects (at least prior to commencement of operations), the estimated fair value of the notes receivable is generally less than the amount advanced. ~~Costs incurred related to Indian casino projects are not considered advanced to the tribe until actually paid by us.~~ At the date of each advance, the difference between the estimated fair value of the note receivable and the actual amount advanced is recorded as an intangible ~~asset.~~asset, and the two assets are accounted for separately.

Subsequent to its initial recording at estimated fair value, the note receivable portion of the advance is adjusted to its current estimated fair value at each balance sheet date using then current assumptions including typical market discount rates, and expected repayment terms as may be affected by estimated future interest rates and opening dates, with the latter affected by changes in project-specific circumstances such as ongoing litigation, the status of regulatory ~~approvals~~approval and other factors previously noted. The notes receivable are not adjusted to a fair value estimate that exceeds the face value of the note plus accrued interest, if any. Due to uncertainties surrounding the projects, no interest income is recognized during the development period, but changes in estimated fair value of the notes receivable still held as of the balance sheet date are recorded as unrealized gains or losses in our ~~Unaudited Condensed Statement~~unaudited condensed consolidated statements of ~~Earnings (Loss)~~operations and ~~Comprehensive Earnings (Loss).~~comprehensive loss.

Upon opening of the casino, any difference between the then estimated fair value of the notes ~~receivable~~receivables and the amount contractually due under the notes will be amortized into income using the effective interest method over the remaining term of the note. Such notes would then be evaluated for impairment pursuant to ~~Statement of Financial Accounting Standards~~SFAS No. 114,Accounting by Creditors for Impairment of a Loan.

Intangible assets related to Indian casino projects. Intangible assets related to the acquisition of the management, development, consulting or financing contracts are accounted for using the guidance in SFAS No. 142,Goodwill and Other Intangible Assets(“SFAS No. 142”). Pursuant to that guidance, the assets are periodically evaluated for impairment based on the estimated cash flows from the contract on an undiscounted basis. In the event the carrying value of the intangible assets, in combination with the carrying value of land held for development and other assets associated with the Indian casino projects described below, were to exceed the undiscounted cash flow, an impairment would be recorded. Such an impairment would be measured based on the difference between the fair value and carrying value of the assets. In accordance with SFAS No. 142, we will amortize the intangible assets related to the acquisition of the management, development, consulting or financing contracts under the straight-line method over the ~~lives~~term of the contracts which will commence when the related casinos open. In addition to the intangible asset associated with the cash advances to tribes described above, these assets include actual costs incurred to acquire our interest in the projects from third parties.

Land held for development. Included in land held for development is land held for possible transfer to Indian tribes for use in certain of the future casino resort projects. In the event that this land is not transferred to the tribes, we ~~can~~have the right to sell it. We evaluate these assets for impairment in combination with intangible assets related to acquisition of management, development, consulting or financing contracts and other assets related to the Indian casino projects as discussed above.

Other. Included in this category are costs incurred related to the Indian casino projects, which have not yet been included as part of the notes receivable because of timing of the payment of these costs. When paid, these amounts are allocated between notes receivable and intangible assets related to the acquisition of management,

development, consulting or financing contracts and will be evaluated for changes in fair value or impairment, respectively, as described above. These amounts vary from period to period due to timing of payment of these costs. Also included in this category are receivables from related parties that are directly related to the development and opening of Lakes’ Indian casino projects.

In addition, we incur certain non-reimbursable costs related to the projects that are not included in notes receivable, which are expensed as incurred. These costs include salaries, travel and certain legal costs.

As of ~~September~~March 30, 2008 and December 30, 2007, ~~and December 31, 2006,~~ the ~~Unaudited Condensed Consolidated Balance Sheets~~condensed consolidated balance sheets include long-term assets related to Indian casino projects of ~~$159.4~~$155.7 million and ~~$243.8~~$157.5 million, respectively. The amounts are as follows by project (in thousands):


	September 30, 2007										March 30, 2008
			Shingle										Shingle
	Pokagon		Springs		Jamul						Pokagon		Springs		Jamul
	Band		Tribe		Tribe		Other		Total		Band		Tribe		Tribe		Other		Total
	(Unaudited)										(Unaudited)

Notes receivable, at estimated fair value	$	—	$	52,176	$	23,616	$	3,486	$	79,278	$	—	$	53,140	$	20,951	$	3,808	$	77,899
Intangible assets related to Indian casino projects												29,096		22,069		12,537		1,285		64,987
Land held for development		—		—		6,751		846		7,597		—		—		6,815		848		7,663
Intangible assets related to Indian casino projects, net		32,454		21,812		11,556		1,120		66,942
Other		60		767		1,016		3,772		5,615		60		767		1,028		3,261		5,116

	$	32,514	$	74,755	$	42,939	$	9,224	$	159,432	$	29,156	$	75,976	$	41,331	$	9,202	$	155,665


	December 31, 2006										December 30, 2007
			Shingle										Shingle
	Pokagon		Springs		Jamul						Pokagon		Springs		Jamul
	Band		Tribe		Tribe		Other		Total		Band		Tribe		Tribe		Other		Total

Notes receivable, at estimated fair value	$	100,544	$	40,912	$	20,754	$	2,098	$	164,308	$	—	$	53,592	$	21,406	$	3,797	$	78,795
Intangible assets related to Indian casino projects												30,775		21,923		11,972		1,240		65,910
Land held for development		—		8,739		6,710		1,341		16,790		—		—		6,783		848		7,631
Intangible assets related to Indian casino projects, net		23,573		20,387		9,760		559		54,279
Other		60		2,041		2,207		4,142		8,450		60		767		1,061		3,288		5,176

	$	124,177	$	72,079	$	39,431	$	8,140	$	243,827	$	30,835	$	76,282	$	41,222	$	9,173	$	157,512

The key assumptions and criteria used in the determination of the estimated fair value of the notes receivable are primarily significant unobservable level three inputs, which are estimated casino opening date, projected pre- and post-opening date interest rates, discount rates and probability of projects opening. The estimated casino opening date used in the valuation reflects the ~~weighted-average~~weighted average of three scenarios: a base case (which is based on ~~our~~the Company’s forecasted casino opening date) and one and two years out from the base case. The projected interest rates are based upon the one year U.S. Treasury Bill spot yield curve per Bloomberg and the specific assumptions on contract term, stated interest rate and casino opening date. The discount rate for the projects is based on the yields available on certain financial instruments at the valuation date, the risk level of equity investments in general, and the specific operating risks associated with open and operating gaming enterprises similar to each of the projects. In estimating this discount rate, market data of other public gaming related companies is considered. The probability applied to each project is based upon a weighting of four different scenarios with the fourth scenario assuming the casino never opens. The first three scenarios assume the casino opens but applies different opening dates as discussed above. The probability weighting applied to each scenario captures the element of risk in these projects and is based upon the status of each project, review of the critical milestones and likelihood of achieving the milestones.

The following table provides the key assumptions used to value the notes receivable at estimated fair value (dollars in thousands):

Shingle Springs Tribe:


	As of September 30, 2007	As of December 31, 2006	As of March 30, 2008	As of December 30, 2007
	(Unaudited)		(Unaudited)

Face value of note (principal and interest)	$65,460	$55,942	$69,661	$67,585
	($47,068 principal and $18,392 interest)	($42,310 principal and $13,632 interest)	($48,287 principal and $21,374 interest)	($47,632 principal and $19,953 interest)
Estimated months until casino opens (weighted-average of three scenarios)	15 months	28 months	9 months	12 months
Projected interest rate until casino opens	9.67%	9.98%	7.31%	9.12%
Projected interest rate during the loan repayment term	10.28%	9.76%	9.13%	10.16%
Discount rate	15%	15%	15%	15%
Repayment terms of note(*)	84 months	—	84 months	84 months
Projected repayment terms of note (**)	—	24 months
Probability rate of casino opening (weighting of four scenarios)	95%	85%	95%	95%


(*)		Note is payable in even monthly installments over the course of the management agreement subsequent to the casino opening.

~~(**)~~		~~Note was previously payable in varying monthly installments based on contract terms subsequent to the casino opening.~~

See also the discussion included below under “Description of each Indian casino project and evaluation of critical milestones — Shingle Springs.”

Jamul Tribe:


	As of September 30, 2007	As of December 31, 2006	As of March 30, 2008	As of December 30, 2007
	(Unaudited)		(Unaudited)

Face value of note (principal and interest)	$40,591	$32,952	$44,420	$42,426
	($29,278 principal and $11,313 interest)	($24,509 principal and $8,443 interest)
			($31,199 principal and $13,221 interest)	($30,114 principal and $12,312 interest)
Estimated months until casino opens (weighted-average of three scenarios)	29 months	29 months	29 months	29 months
Projected interest rate until casino opens	9.67%	9.98%	7.48%	9.12%
Projected interest rate during the loan repayment term	10.49%	9.76%	10.23%	10.46%
Discount rate	17.50%	15.75%	20.00%	20.00%
Projected repayment terms of note	120 months	120 months	120 months	120 months
Probability rate of casino opening (weighting of four scenarios)	85%	85%	85%	85%

See also the discussion below included under the caption “Description of each Indian casino project and evaluation of critical milestones — Jamul Tribe”.

The following table represents a sensitivity analysis prepared by usLakes of the notes receivable from the Jamul Tribe and Shingle Springs Tribe, based upon ~~a change~~changes in the probability rate of the casino opening by five percentage points and the estimated casino opening date by one ~~year (probability will not be adjusted in excess of 100%):~~year:

~~September~~March 30, ~~2007 (unaudited)~~2008


	Estimated fair		Sensitivity analysis												Estimated fair		Sensitivity analysis
	value notes		5% less		One year				5% increased		One year				value notes		5% less		One year				5% increased		One year
	receivable		probable		delay		Both		probability		sooner		Both		receivable		probable		delay		Both		probability		sooner		Both
	(In thousands)														(In thousands)

Shingle Springs	$	52,176	$	49,411	$	49,942	$	47,294	$	54,941	$	54,509	$	57,398	$	53,140	$	50,289	$	49,636	$	46,969	$	55,991	$	56,887	$	59,935
Jamul		23,616		22,231		22,135		20,837		25,001		25,196		26,675		20,951		19,699		18,777		17,653		22,203		23,372		24,767

	$	75,792	$	71,642	$	72,077	$	68,131	$	79,942	$	79,705	$	84,073	$	74,091	$	69,988	$	68,413	$	64,622	$	78,194	$	80,259	$	84,702

December ~~31, 2006~~30, 2007


	Estimated fair		Sensitivity analysis												Estimated fair		Sensitivity analysis
	value notes		5% less		One year				5% increased		One year				value notes		5% less		One year				5% increased		One year
	receivable		probable		delay		Both		probability		sooner		Both		receivable		probable		delay		Both		probability		sooner		Both
	(In thousands)														(In thousands)

Shingle Springs	$	40,912	$	38,469	$	39,269	$	36,923	$	43,355	$	42,623	$	45,166	$	53,592	$	50,732	$	50,998	$	48,275	$	56,452	$	56,316	$	59,319
Jamul		20,754		19,548		19,815		18,664		21,960		21,738		23,002	$	21,406	$	20,151	$	19,540	$	18,395	$	22,661	$	23,450	$	24,826

	$	61,666	$	58,017	$	59,084	$	55,587	$	65,315	$	64,361	$	68,168	$	74,998	$	70,883	$	70,538	$	66,670	$	79,113	$	79,766	$	84,145

The assumption changes used in the sensitivity analysis above are hypothetical. The effect of the variation in the probability assumption and estimated opening date on the estimated fair value of the notes receivable from Indian tribes was calculated without changing any other assumptions; however, in reality, changes in these factors may result in changes in another. For example, the change in probability could be associated with a change in discount rate, which might magnify or counteract the sensitivities.

The following ~~table~~ represents the nature of the advances to the tribes. The table represents the total amount of advances, which represent the principal amount of the notes receivable, as of ~~September~~March 30, ~~2007~~2008 and December ~~31, 2006.~~30, 2007. The notes receivable are carried on the ~~Unaudited Condensed Consolidated Balance Sheets~~unaudited condensed consolidated balance sheet as of ~~September~~March 30, ~~2007~~2008 and the audited consolidated balance sheet as of December ~~31, 2006~~30, 2007 at their estimated fair values of ~~$79.3~~$77.9 million and ~~$63.8~~$78.8 million, respectively.


	As of September 30, 2007								As of March 30, 2008
	Shingle								Shingle
Advances Principal Balance	Springs		Jamul		Other		Total		Springs		Jamul		Other		Total
	(Unaudited)								(Unaudited)
	(In thousands)								(In thousands)

Note receivable, pre-construction(a),(c)	$	47,068	$	28,328	$	3,031	$	78,427	$	48,287	$	30,249	$	3,650	$	82,186
Note receivable, land(b),(c)		—		950		973		1,923		—		950		986		1,936

	$	47,068	$	29,278	$	4,004	$	80,350	$	48,287	$	31,199	$	4,636	$	84,122


	As of December 31, 2006								As of December 30, 2007
	Shingle								Shingle
Advances Principal Balance	Springs		Jamul		Other		Total		Springs		Jamul		Other		Total
	(In thousands)								(In thousands)

Note receivable, pre-construction(a),(c)	$	42,310	$	23,559	$	1,386	$	67,255	$	47,632	$	29,164	$	3,490	$	80,286
Note receivable, land(b),(c)		—		950		756		1,706		—		950		986		1,936

	$	42,310	$	24,509	$	2,142	$	68,961	$	47,632	$	30,114	$	4,476	$	82,222


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


		we, in order to obtain the development agreement and management contract, agree to advance a monthly amount used by the tribe for a variety of tribal expenses.

(b)		We purchased land to be used and transferred to the tribe in connection with the casino project.

(c)		Amounts listed ~~under~~in the other column ~~represent~~represents amounts advanced under the agreements with the Iowa Tribe.

The notes receivable pre-construction advances consist of the following principal amounts advanced to the Shingle Springs Tribe and Jamul Tribe at ~~September~~March 30, ~~2007~~2008 and December ~~31, 2006~~30, 2007 (in thousands):


	September 30,		December 31,		March 30,		December 30,
Shingle Springs Tribe	2007		2006		2008		2007
	(Unaudited)				(Unaudited)

Monthly stipend	$	9,290	$	7,690	$	10,165	$	9,640
Construction		1,922		1,657		2,022		2,141
Legal		14,193		13,790		14,193		14,193
Environmental		1,739		1,680		1,739		1,739
Design		11,230		9,554		11,474		11,225
Gaming license		3,726		3,626		3,726		3,726
Lobbyist		4,968		4,313		4,968		4,968

	$	47,068	$	42,310	$	48,287	$	47,632


	September 30,		December 31,		March 30,		December 30,
Jamul Tribe	2007		2006		2008		2007
	(Unaudited)				(Unaudited)

Monthly stipend	$	4,915	$	4,451	$	5,224	$	5,069
Construction		1,091		649		1,628		1,210
Legal		4,272		3,675		4,369		4,342
Environmental		2,272		1,985		2,289		2,288
Design		12,343		9,578		13,228		12,782
Gaming license		745		641		814		779
Lobbyist		2,690		2,580		2,697		2,694

	$	28,328	$	23,559	$	30,249	$	29,164

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

Management periodically evaluates the intangible assets, land held for development and other costs associated with each of the projects for impairment. The assets are periodically evaluated for impairment based on the estimated undiscounted cash flows from the management contract on an undiscounted basis. In the event the carrying value of the intangible assets, in combination with the carrying value of land held for development and other assets associated with the Indian casino projects were to exceed the undiscounted cash flow, an impairment would be recorded. Such impairment would be measured based on the difference between the fair value and carrying value of the assets.

The financial models prepared by management for each project are based upon the scope of each of the projects, which are supported by a feasibility study as well as a market analysis where the casino will be built. We (as predecessor to Grand Casinos Inc.) began developing Indian casino projects in 1990 and demonstrated success from the day the first Indian casino opened in 1991 through the expiration of the Coushatta management contract in 2002. Additionally, we have been managing the Cimarron Casino since 2006, as well as the Four Winds Casino Resort since August of 2007. This successful history legitimizes many of the key assumptions supporting the financial models. Projections for each applicable casino development were developed based on analysis of published information pertaining to the particular markets in which our Indian casinos will be located and are updated quarterly based on evolving events and market conditions. In addition, we have many years of casino

operations experience, which provides a basis for our revenue expectations. The projections were prepared by us not for purposes of the valuation at hand but rather for purposes of our and the tribes’ business planning.

The primary assumptions included within management’s financial model for each Indian casino project ~~are~~is as follows:

Jamul Tribe

WeLakes and the Jamul Tribe have consulted with third party advisors as to the architectural feasibility of a plan to build a casino with related amenities such as parking on the six acres of reservation land held by the Jamul Tribe and have concluded that such a project could be successfully built assuming adequate financing can be obtained. As of September 30, 2007, we have included assumptions within our financial model that reflect current discussions with the Jamul Tribe to reduce the size of the planned casino facility as a result of comments received from various state agencies including representatives from the California Governor’s office related to the Jamul Tribe’s project. The gaming facility is currently planned to be a class II electronic gaming device facility which will not require a compact. The agreement between Lakes and the Jamul Tribe will also be modified to reflect the new economics of the revised casino plan but will not be subject to approval by the State of California or the NIGC.


	September 30,		December 31,		March 30,		December 30,
	2007		2006		2008		2007
	(Unaudited)				(Unaudited)

No. of Class II electronic gaming devices		1,000		1,000		1,000		1,000
No. of Table games		20		20		20		20
No. of Poker tables		5		5		5		5
Win/Class II electronic gaming devices/day — 1st year	$	172	$	250	$	172	$	172
Win/Table game/day — 1st year	$	471	$	900	$	471	$	471
Win/Poker table/day — 1st year	$	312	$	650	$	312	$	312

The San Diego market contains other Indian-owned casinos in the surrounding area, each of which is self-managed. Because of the proprietary nature of those operations no public information is readily attainable. However, based on the apparent successful nature of their operations (large casinos which continually expand, new hotel developments, new golf courses, etc.) coupled with our knowledge of their operations, we feel that a successful operation can be built.

Shingle Springs Tribe


	September 30,	December 31,	March 30,	December 30,
	2007	2006	2008	2007
	(Unaudited)		(Unaudited)

No. of Class III slot machines	349	349	349	349
No. of Class II electronic gaming devices	1,651	1,651	1,751	1,751
No. of Table games	100	100	75	75
Win/Class II & III electronic gaming devices/slot machine/day — 1st year	$350	$350	$350	$350
Win/Table game/day — 1st year	$1,275	$1,275	$1,275	$1,275
Expected increase (decrease) in management fee cash flows			Year 2 — 17.6%	Year 2 — 17.6%
	Year 2 — 17.6%	Year 2 — 8.0%	Year 3 — 10.5%	Year 3 — 10.5%
	Year 3 — 10.5%	Year 3 — 7.5%	Year 4 — 7.9%	Year 4 — 7.9%
	Year 4 — 7.9%	Year 4 — 7.1%	Year 5 — 8.8%	Year 5 — 8.8%
	Year 5 — 8.8%	Year 5 — 6.4%	Year 6 — (4.0)%	Year 6 — (4.0)%
	Year 6 — (4.0)%	Year 6 -- (12.3)%	(management fees were	(management fees were
	(management fees were reduced in year six)	(management fees were reduced in year six)	reduced in year six)	reduced in year six)
	Year 7 — 5.0%	Year 7 — 11.7%	Year 7 — 5.0%	Year 7 — 5.0%

In the ~~Shingle Springs~~ Sacramento market, there is one other Indian casino that is managed by ~~another~~a public company. Management considered the available information related to this other Indian casino when projecting management fees from the ~~Shingle Springs Casino project.~~Red Hawk Casino. Based on the apparent successful nature of their operations coupled with our knowledge of their operations, we feel that our forecast of operations is within the revenue metrics of the market.

As of ~~September~~March 30, 2008 and December 30, 2007 ~~and December 31, 2006, we are not aware of any~~no impairment ~~indicators related to the recorded long-term assets related to~~was recognized on the Shingle Springs or Jamul projects.

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

Pokagon Band

Business arrangement. On August 2, 2007, the Four Winds Casino Resort in New Buffalo, Michigan opened to the public. We receive approximately 24% of net income up to a certain level and 19% of ~~the~~ net income over that level, as a management fee. The term of the management contract ~~as amended,~~ is ~~currently planned for~~ five years, which began on August 2, 2007. Payment of our management fee is subordinated to the Pokagon Gaming Authority’s senior indebtedness relating to the Four Winds Casino Resort. The Pokagon Band may also buy out the management contract ~~provisions~~ after two years from the opening date. The ~~buyout~~buy out amount is calculated based upon the previous 12 months of management fees earned multiplied by the remaining number of years under the management contract, discounted back to the present value at the time the ~~buyout~~buy out occurs. The NIGC approved the management contract in March 2006.

Shingle Springs Tribe

Business arrangement. Plans for the ~~Shingle Springs~~Red Hawk Casino project include an approximately 278,000 square-foot facility (including approximately 88,000 square feet of gaming space) to be located adjacent to the planned Shingle Springs Rancheria exit, approximately 35 miles east of downtown Sacramento, on U.S. Highway 50. The ~~Shingle Springs~~Red Hawk Casino ~~project~~ is currently planned to feature approximately ~~2,000~~2,100 gaming devices and approximately ~~100~~75 table games, a high stakes gaming room, as well as restaurants, enclosed parking and other facilities.

We acquired our initial interest in the development and management contracts for the ~~Shingle Springs~~Red Hawk Casino ~~project~~ from ~~Kean Argovitz Resorts- Shingle Springs, LLC (“~~KAR — Shingle ~~Springs”)~~Springs in 1999 and formed a joint venture, in which the contracts were held, between us and KAR — Shingle Springs. On January 30, 2003, we purchased the remaining KAR — Shingle Springs’ partnership interest in the joint venture. In connection with the purchase transaction, we entered into separate agreements with the two individual owners of KAR — Shingle Springs (Kevin M. Kean and Jerry A. Argovitz). Under the agreement with Mr. Kean, he may elect to serve as a consultant to us during the term of the casino management contract if he is found suitable by relevant gaming regulatory authorities. In such event, Mr. Kean will be entitled to receive annual consulting fees equal to 15% of the management fees received by us from the ~~Shingle Springs~~Red Hawk Casino ~~project~~ operations, less certain costs of these operations. If Mr. Kean is not found suitable by relevant gaming regulatory authorities or otherwise elects not to serve as a consultant, he will be entitled to receive annual payments of $1 million from the ~~Shingle Springs~~Red Hawk Casino project during the term of the respective casino management contract (but not during any renewal term of such management contract).

Under the agreement with Mr. Argovitz, if he is found suitable by relevant gaming regulatory authorities he may elect to re-purchase his respective original equity interest in our subsidiary and then be entitled to obtain a 15% equity interest in our entity that holds the rights to the management contract with the ~~Shingle Springs~~Red Hawk Casino project. If he is not found suitable or does not elect to purchase equity interests in our subsidiary, Mr. Argovitz would receive annual payments of $1 million from the ~~Shingle Springs~~Red Hawk Casino project from the date of election through the term of the respective casino management contract (but not during any renewal term of such management contract).

The development agreement, as amended, ~~provides~~provided for us to make certain pre-construction advances to the Shingle Springs Tribe in the form of a transition loan and land loan up to a maximum combined amount of $75.0 million. On June 28, 2007 an affiliate of the Shingle Springs Tribe closed on a $450 million senior note financing to fund the ~~Foothill Oaks~~Red Hawk Casino project. The principal balance of the transition loan as of March 30, 2008 was approximately $48.3 million. The land loan was repaid to Lakes, including accrued interest, on June 28, 2007 in connection with the close of the $450 million senior note financing.

The amended development agreement provides for us to assist in the design, development and construction of the facility as well as manage the pre-opening, opening and continued operations of the casino and related amenities for a period of seven ~~years.~~years from the date the casino opens. As compensation for our management services, we will receive a management fee between 21%

and 30% of net income (as that term is defined by the management contract) of the operations annually for the first five years with a declining percentage in years six and seven.

Payment of our management fee is subordinated to the repayment of $450 million senior note financing of the affiliate of the Shingle Springs Tribe and a minimum priority payment to the Shingle Springs Tribe. The Shingle Springs Tribe ~~may~~has the right to terminate the agreement after five years from the opening of the casino if any of certain required elements of the project have not been developed. The management contract also includes provisions that allow the Shingle Springs Tribe to buy out the management contract after four years from the opening date. The ~~buyout~~buy out amount is calculated based upon the previous ~~twelve~~12 months of management fees earned multiplied by the remaining number of years under the contract, discounted back to the present value at the time the ~~buyout~~buy out occurs.

Our evaluation of the critical milestones. The following table outlines the status of each of the following primary milestones necessary to complete the ~~Shingle Springs~~Red Hawk Casino project as of ~~the end of the third quarter of fiscal~~March 30, 2008, December 30, 2007 ~~fiscal 2006~~ and ~~fiscal 2005.~~December 31, 2006. Both the positive and negative evidence was reviewed during our evaluation of the critical milestones.

Critical milestone

~~September~~March 30, 2008

December 30, 2007

December 31, 2006

~~January 1, 2006~~

Federal recognition of the tribe

Yes

Possession of usable land corresponding with needs based on Lakes’ project plan

Yes

Usable land placed in trust by Federal government

Not necessary, as land is reservation land.

Usable county agreement, if applicable

Yes

~~N/A~~Yes

Usable state compact that allows for gaming consistent with that outlined in Lakes’ project plan

Yes

NIGC approval of management contract in current and desired form

Yes

Yes — approval received in 2004.

Resolution of all litigation and legal obstacles

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

No ~~Federal and state litigation regarding approval of highway interchange, environmental issues and other issues.~~ — See below.

Financing for construction

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

~~No, however~~Yes. On June 28, 2007 an affiliate of the Shingle Springs Tribe ~~has engaged investment banks~~closed on a $450 million senior note financing to ~~assist~~fund the Red Hawk Casino project in Shingle Springs, California. The Shingle Springs Tribe intends to seek commitments to fund approximately $65 million under secured furniture, furnishings and equipment financing to finance costs associated with ~~obtaining financing.~~equipping and furnishing the Red Hawk Casino.

No, however the Shingle Springs Tribe has engaged investment banks to assist with obtaining financing.


~~Critical milestone~~	~~September 30, 2007~~	~~December 31, 2006~~	~~January 1, 2006~~
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: The Shingle Springs Tribe is a federally recognized tribe, has a compact with the State of California and owns approximately 160 acres of reservation land on which the casino ~~can be~~is being built. During July 2004, we received notification from the NIGC

that the development and management contract between the Shingle Springs Tribe and us, allowing us to manage a Class II and Class III casino, was approved by the NIGC.

The ~~Shingle Springs~~Red Hawk Casino ~~project~~ is currently planned to open with 349 Class III slot machines and approximately ~~1,650~~1,751 Class II electronic gaming devices. Under the form of tribal-state compact first signed by the State of California with the Shingle Springs Tribe in 1999, the Shingle Springs Tribe is allowed to operate up to 350 Class III slot machines without licenses from the state. This form of compact allows California tribes to operate additional Class II electronic gaming devices. Under these tribal-state compacts, there is a state-wide limitation on the aggregate number of Class III slot machine licenses that are available. Tribes who have entered into new tribal-state compacts or amendments to the 1999 form of tribal-state compact in general are allowed to operate an unlimited number of Class II electronic gaming devices without the need for obtaining additional licenses, subject to the payment of additional fees to the state, including, in recent cases, fees based on a percentage of slot “net win.” Currently, the Shingle Springs Tribe has not amended its tribal-state compact. If the compact is not renegotiated and amended, the ~~Shingle Springs Tribe~~tribe could operate under its existing compact which allows for up to 350 Class III ~~gaming devices~~slot machines and an unlimited number of Class II electronic gaming devices. Management believes that this number of gaming devices is adequate to equip the planned development, and therefore, the availability of additional slot licenses is not an issue that could prevent the project from progressing.

El Dorado County and Voices for Rural Living (“VRL”) commenced litigation in 2003 against the California regulatory agencies attempting to block the approval of the interchange. The litigation has resulted in various decisions in favor of the California regulatory agencies to proceed with the interchange and subsequent appeals by El Dorado County and VRL of those decisions over the next several years. ForOn April 30, 2007, a ~~more complete discussion of the history of this litigation see Item 3 of our Annual Report onForm 10-K,~~ ~~as amended, for the fiscal year ended December 31, 2006.~~

A construction permit was issued for the U.S. Highway 50 interchange project, which ~~will provide~~provides direct access to the Shingle Springs Rancheria on which the ~~Shingle Springs~~Red Hawk Casino project ~~will be~~is being built, ~~was issued on April 30, 2007~~ and construction began on the U.S. Highway 50 interchange on May 7, 2007. On March 25, 2008, the California Third District Court of Appeal in Sacramento rejected the challenge of Voices for Rural Living in two appeals claiming deficiencies in the environmental impact report (“EIR”) prepared for the U.S. Highway 50 interchange. The court upheld the EIR in all respects, rejecting all of the arguments advanced by Voices for Rural Living.

~~Due~~On June 28, 2007 an affiliate of the Shingle Springs Tribe closed on a $450 million senior note financing to fund the Red Hawk Casino project. Construction of the Red Hawk Casino also began during June of 2007. The close of the $450 million senior note financing, ~~and~~the construction progress made on the U.S. Highway 50 interchange, and the commencement of construction ofon the ~~Foothill Oaks casino~~Red Hawk Casino project ~~commenced during June of fiscal 2007 and also~~ increased the estimated probability of opening the casino development project from 85% at the end of 2006 to 95% ~~in the second quarter~~as of ~~2007.~~March 30, 2008.

As a result of achieving the critical milestones as described above, the casino is planned to open in late 2008.

Jamul Tribe

Business arrangement. The Jamul Tribe has an approximatesix-acre reservation on which the casino project is currently planned to be built. The reservation is located near San Diego, California. Under the current compact that the Jamul Tribe has with the State of California (the “State”) and based upon requirements in other compacts approved by the State in 2004, the Jamul Tribe completed a Tribal Environmental Impact Statement/Report that was approved by the Jamul Tribe’s General Council with a record of decision issued by the Jamul Tribe on December 16, 2006. Since that time, the Jamul Tribe has received comments from various state agencies including the representative from the California Governor’s office. The Jamul Tribe and the State have met on several occasions in an attempt to address the State’s comments related to compact requirements. Throughout 2007, Lakes and the Jamul Tribe were evaluating the Jamul Tribe’s alternatives of pursuing a new compact, complying with certain requirements in their existing compact or building and operating a casino based solely on class II electronic gaming devices. The proposed gaming facility has been reduced in size and scope because the State’s comments on the Jamul Tribe’s existing compact or a proposed new compact is expected to take more time than is currently acceptable to the Jamul Tribe. 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. The agreement between Lakes and the Jamul Tribe (discussed below) will also be modified to reflect the new economics of the revised casino plan but will not be subject to approval by the State or the NIGC.

development financing and services agreement, Lakes is entitled to receive a flat fee of $15 million for its development design services, and a flat fee of $15 million for its construction oversight services, payable evenly over the first five years after the opening date of the Jamul Casino. In connection with Lakes’ financing of the Jamul Casino, the Jamul Tribe is required to pay interest over a ten-year period on sums advanced by Lakes equal to the rate charged to Lakes for obtaining the necessary funds plus five percent. Amounts previously advanced by Lakes to the Jamul Tribe in connection with the Jamul Tribe’s proposed casino resort are included in the development financing and services agreement financing amount. However, as discussed above, this agreement will be modified and there can be no assurance that third party financing will be available with acceptable terms. If Lakes is unable to obtain the appropriate amount of financing for this project, the project may not be completed as planned.

Lakes acquired its initial interest in the development agreement and management contract for the Jamul casino from ~~Kean Argovitz Resorts-Jamul, LLC (“~~KAR — ~~Jamul”)~~Jamul in 1999 and formed a joint venture in which the contracts were held between Lakes and KAR — Jamul. This development agreement and a management contract

have been submitted to the NIGC for approval. On January 30, 2003, Lakes purchased the remaining KAR — Jamul’s partnership interest in the joint venture. In connection with the purchase transaction, Lakes entered into separate agreements with the two individual owners of KAR — Jamul (Mr. Kean and Mr. Argovitz). The term of the contract is expected to be five or seven years. Under the current agreement with Mr. Kean, ~~Mr. Kean~~he may elect to serve as a consultant to Lakes during the term of the casino agreement if he is found suitable by relevant gaming regulatory authorities. In such event, Mr. Kean will be entitled to receive annual consulting fees equal to 20% of the management fees received by Lakes from the Jamul Casino operations, less certain costs of these operations. If Mr. Kean is not found suitable by relevant gaming regulatory authorities or otherwise elects not to serve as a consultant, he will be entitled to receive annual payments of $1 million from the Jamul Casino project during the term of the respective casino agreement (but not during any renewal term of such agreement).

Under the current agreement with Mr. Argovitz, if he is found suitable by relevant gaming regulatory authorities he may elect to ~~re-purchase~~re- purchase his respective original equity interest in the ~~Lakes~~Lakes’ subsidiary and then be entitled to obtain a 20% equity interest in the ~~Lakes~~Lakes’ entity that holds the rights to the development ~~agreement~~financing and ~~management contract~~services agreement with the Jamul Tribe. If he is not found suitable or does not elect to purchase equity interests in the Lakes subsidiary, Mr. Argovitz may elect to receive annual payments of $1 million from the Jamul Casino project from the date of election through the term of the respective casino agreement (but not during any renewal term of such agreement).

Effective March 30, 2006, Lakes entered into a development financing and services agreement with the Jamul Tribe to assist the Jamul Tribe in developing the Jamul Casino which the Jamul Tribe will manage. As part of the current agreement, Lakes will use its best efforts to obtain financing from which advances will be made to the Jamul Tribe of up to $350 million to pay for the design and construction of the Jamul Casino. There can be no assurance that third party financing will be available with acceptable terms, and if Lakes is unable to obtain the appropriate amount of financing for this project, the project may not be completed as planned.

Under the current development financing and services agreement, Lakes is entitled to receive a flat fee of $15 million for its development design services, and a flat fee of $15 million for its construction oversight services, payable evenly over the first five years after the opening date of the Jamul Casino. In connection with Lakes’ financing of the Jamul Casino, the Jamul Tribe is required to pay interest over a ten-year period on sums advanced by Lakes equal to the rate charged to Lakes for obtaining the necessary funds plus 5%. Amounts previously advanced by Lakes to the Jamul Tribe in connection with the Jamul Tribe’s proposed casino resort are included in the development financing and services agreement financing amount.

Under the current compact that the Jamul Tribe has with the State of California (the “State”) and based upon requirements in other compacts approved by the State in 2004, the Jamul Tribe completed a Tribal Environmental Impact Statement/Report that was approved by the Jamul Tribe’s General Council with a record of decision issued by the Jamul Tribe on December 16, 2006. Since that time, the Jamul Tribe has received comments from various state agencies including the representative from the California Governor’s office. The Jamul Tribe and the State met on several occasions in an attempt to address the State’s comments related to compact requirements. Based on the most recent meeting with the State, Lakes and the Jamul Tribe evaluated the Jamul Tribe’s alternatives of pursuing a new compact, complying with certain requirements in their existing compact or building and operating a casino based solely on class II electronic gaming devices. Since resolution of any requests by the State related to the Jamul Tribe’s existing compact or a proposed new compact may take more time than is acceptable to the Jamul Tribe, it was determined that the proposed gaming facility should be reduced in size and scope. The current plan is for the gaming facility to decrease in size and become a solely class II electronic gaming device facility which will not require a compact. The agreement between Lakes and the Jamul Tribe will also be modified to reflect the new economics of the revised casino plan but will not be subject to approval by the State of California or the NIGC.

~~Lakes’~~Our evaluation of the critical milestones. The following table outlines the status of each of the following primary milestones necessary to complete the Jamul project as of ~~the end of the third quarter of fiscal~~March 30, 2008, December 30, 2007 ~~fiscal 2006~~ and ~~fiscal 2005.~~

December 31, 2006. Both the positive and negative evidence was reviewed during ~~Lakes’~~our evaluation of the critical milestones.

Critical milestone

~~September~~March 30, 2008

December 30, 2007

December 31, 2006

~~January 1, 2006~~

Federal recognition of the tribe

Yes

Possession of usable land corresponding with needs based on Lakes’ project plan

Yes

Usable land placed in trust by Federal government

Not necessary, as the land ~~to be used for the project~~ is reservation land.

Not necessary, as land is reservation land.

~~Yes, six acres~~Not necessary, as land is reservation land held by the Jamul Tribe on which the casino will be built. There is an additional 82 acres contiguous to the reservation land pending BIA approval to be placed into trust that could be used for additional development of the project. The Jamul Tribe and Lakes prepared an EIS and trust application, which has been submitted to, reviewed and recommended for approval by the regional office of the BIA. The Washington, D.C. office of the BIA is currently reviewing the submission.land.

Usable county agreement, if applicable

N/A

Usable state compact that allows for gaming consistent with that outlined in Lakes’ project plan

~~Yes~~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.

Yes

NIGC approval of management contract in current and desired form

N/A as the Jamul ~~Tribe and Lakes entered into~~Tribe’s current plan is to operate a ~~development financing and services agreement in March 2006,~~solely class II electronic gaming device facility, which does not need to be approved by the NIGC.

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

N/A as the Jamul Tribe and Lakes entered into a development financing and services agreement in March 2006, which does not need to be approved by the NIGC.

No, submitted for approval by the NIGC in 2000. We are in communication with the NIGC and have responded to initial comments. Approval is not expected until the process to place land in trust by the BIA is complete.

~~Critical milestone~~

~~September 30, 2007~~

~~December 31, 2006~~

~~January 1, 2006~~

Resolution of all litigation and legal obstacles

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

N/A, there has been some local opposition regarding the ~~project, although no formal legal action has been taken.~~project.

Financing for construction

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

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

Yes. The current plan is for the gaming facility to be a solely class II electronic gaming device facility. The agreement between Lakes and the Jamul Tribe ~~and~~will also be modified to reflect the new economics of the revised casino plan but will not be subject to approval by the State of California ~~have had~~or the NIGC. See below for a ~~series of meetings~~discussion relating to ~~discuss what requirements~~road access to the ~~State has to either allow~~proposed Jamul Casino site.

Yes. The current plan is for the ~~project~~gaming facility to be ~~built as currently planned or to enter into~~ a ~~new compact similar to those approved in 2004 for other tribes in the State. The Jamul Tribe has decided to move forward with building a casino based~~ solely on class II electronic gaming ~~devices. This plan~~device facility. The agreement between Lakes and the Jamul Tribe will ~~decrease~~also be modified to reflect the ~~size and scope~~new economics of the ~~project,~~revised casino plan but will ~~allow it~~not be subject to ~~move forward.~~approval by the State of California or the NIGC.

Yes. The Jamul Tribe and the State of California have had a series of recent meetings to discuss what requirements the State has to either allow the project to be built as currently planned or to enter into a new compact similar to those approved in 2004 for other tribes in the State. Based on these discussions, the Jamul Tribe is evaluating which of any of these requirements are acceptable or in lieu of a compact, building a casino based solely on class II electronic gaming devices.

~~No others known at this time by Lakes.~~

~~Lakes’~~Our evaluation and conclusion regarding the above critical milestones and progress. WeAs discussed above, we entered into a development financing and services agreement with the Jamul Tribe in March 2006, ~~as discussed above~~ which eliminated the need for land contiguous to the reservation land ~~being~~to be taken into trust. There is no requirement that the NIGC approve the development financing and services agreement. The Jamul Casino is planned to be built on the Jamul Tribe’s existing six acres of reservation land. Reservation land qualifies for gaming without going through a ~~land in trust~~land-in-trust process.

Under the form of tribal-state compact first signed by the State of California with the Jamul Tribe in 1999, the Jamul Tribe is allowed to operate up to 350 Class III slot machines without licenses from the state. This form of compact also allows California tribes to operate additional Class II electronic gaming devices. Under these tribal-state compacts, there is a state-wide limitation on the aggregate number of Class III slot machine licenses that are available to tribes. Certain tribes have entered into new tribal-state compacts or amendments to the 1999 form of tribal-state compact that allow them to operate an unlimited number of Class II electronic gaming devices without the need for obtaining additional licenses, subject to the payment of additional fees to the state, including in recent cases, fees based on a percentage of slot “net win.” Currently, the Jamul Tribe has not amended its tribal-state compact. If the compact is not renegotiated and amended, the Jamul Tribe believes it could operate under its existing compact which allow for up to 350 Class III gaming devices and an unlimited number of Class II electronic gaming devices, or the Jamul Tribe could choose to operate only Class II gaming devices without a compact and currently plans to do so. We believe this number of gaming devices is adequate under either approach to equip the

~~planned development and therefore, we believe the availability of additional slot licenses should not prevent the project from progressing.~~

The process of getting the land contiguous to the reservation placed into trust has been slow. Therefore, during August of 2005, we and the Jamul Tribe formally announced plans to build the casino on the approximately six acres of reservation land held by the Jamul Tribe. The design of the project was changed significantly from a complex of lower-level buildings spread out over a larger area to a multi-level resort built on a smaller parcel of land.

We have consulted with third-party advisors as to the architectural feasibility of the alternative plan and have been assured that the project can be successfully built on the reservation land. ~~We have also~~Lakes has completed economic models for ~~various alternatives~~the proposed facility and concluded that ~~each alternative~~it would result in a successful operation assuming that adequate financing can be obtained. ~~Therefore, we believe this~~The Jamul Casino project has been delayed due to issues with road access to the proposed Jamul Casino site. The Jamul Tribe has submitted an encroachment permit application to CalTrans, which will ~~be successfully completed.~~

result in a project study report to determine the optimal access point for traffic to the Jamul Casino without disruption of traffic on the state highway. The Jamul Tribe has continued construction on their reservation of the driveway road leading to the Jamul Casino site. In addition to its work with CalTrans, the Jamul Tribe has submitted an application to the BIA for recognition of an access drive across its land to create a second means of access to the site over an Indian reservation road.

We and the leaders of the Jamul Tribe are currently evaluating plans for the ~~casino~~Jamul Casino facility to determine when construction of the facility will start and when casino operations will begin. We continue to believe that adequate financing will be obtained and the project will be successfully completed.

Iowa Tribe

Business arrangement. On March 15, 2005, Lakes, through its wholly-owned subsidiaries, entered into consulting agreements and management contracts with the Iowa Tribe. The agreements ~~are~~became effective as of January 27, 2005. Lakes will ~~provide consulting services to assist~~consult on development of the ~~Iowa Tribe in developing~~Ioway Casino Resort, a new first class casino ~~and~~with ancillary amenities and facilities to be located on Indian land approximately 25 miles northeast of Oklahoma City along Route 66 ~~(the “Ioway Casino”);~~until regulatory approvals are received for the management contract for the Ioway Casino Resort; and currently manages operations at the Cimarron Casino, located in Perkins Oklahoma. ~~Lakes will also provide management services for the Tribe’s casino operations at the planned Ioway Casino project subject to regulatory approval.~~

Each of the projects has a gaming consulting agreement (“Iowa Consulting Agreement”) and a management contract (“Iowa Management Contract”), independent of the other project. Key terms relating to the agreements for the projects are as follows:

Ioway ~~Casino.~~Casino Resort. For its gaming development consulting services under the Iowa Consulting Agreement related to the Ioway Casino Resort, Lakes will receive a development fee of $4 million paid upon the opening of the Ioway Casino Resort, and a flat monthly fee of $500,000 for 120 months commencing upon the opening of the project.

Lakes has also agreed to make advances to the Iowa Tribe, ~~pursuant~~subject to a project budget to be agreed upon by Lakes and the Iowa Tribe and certain other conditions. The development loan will be for preliminary development costs under the Ioway Casino Resort budget. Lakes has also agreed to use reasonable efforts to assist the Iowa Tribe in obtaining permanent financing for any projects developed under the Iowa Consulting Agreement.

The Iowa Management Contract for the Ioway Casino Resort is subject to the approval of the NIGC and certain other conditions. For its performance under the Iowa Management Contract, Lakes will be entitled to receive management fees of approximately 30% of net income, as defined in the agreement, for each month during the term of the Iowa Management Contract. The Iowa Management Contract term is seven years from the first day that Lakes is able to commence management of the Ioway Casino Resort gaming operations under all legal and regulatory requirements (the “Commencement Date”), provided that the Iowa Tribe has the right to buy out the remaining term of the Iowa Management Contract after the Ioway Casino Resort has been in continuous operation for four years, for an amount based on the then present value of estimated future management fees. If the Iowa Tribe elects to buy-out the contract, all outstanding amounts owed to Lakes become immediately due and payable if not already paid. Subject to certain conditions, Lakes agreed to make advances for the Ioway ~~Casino’s~~Casino Resort’s working capital requirements, if needed, during the first month after the Commencement Date. The advances are to be repaid through an operating note payable from revenues generated by future operations of the Ioway Casino Resort bearing interest at two percent over the prime rate. Lakes also agrees to fund any shortfall in certain minimum monthly Ioway Casino Resort payments to the Iowa Tribe by means of non-interest bearing advances under the same operating note.

Cimarron Casino. Lakes has entered into a separate gaming consulting agreement ~~(“Cimarron~~(the “Cimarron Consulting Agreement”) and management contract ~~(“Cimarron~~(the “Cimarron Management Contract”) with the Iowa Tribe with respect to the Cimarron Casino. Lakes has been operating under the Cimarron Management Contract since mid-2006 after it was approved by the NIGC. Prior to that time, Lakes operated under the Cimarron Consulting ~~agreement until the NIGC approved the seven~~

~~year Cimarron Management Contract on May 1, 2006,~~Agreement and ~~Lakes is currently managing the Cimarron Casino under that agreement.~~earned a flat monthly fee of $50,000. The annual fee under the Cimarron Management Contract is 30% of net income in excess of $4 million. ~~The fee under the Cimarron Consulting agreement consisted entirely of a limited flat monthly fee of $50,000.~~

Arrangement with ~~consultant.~~Consultant. Lakes has an agreement with Kevin Kean that will compensate him for his consulting services (relating to the Iowa Tribe) rendered to Lakes. Under this arrangement, subject to Mr. Kean obtaining certain regulatory approvals, Mr. Kean will receive 20% of Lakes’ fee compensation that is received under the Iowa

Consulting Agreement, Iowa Management Contract and Cimarron Management Contract with the Iowa Tribe (i.e., six percent of the incremental total net income or 20% of Lakes’ 30% share). This agreement provides that payments will be due to Mr. Kean when Lakes is paid by the Iowa Tribe, ~~and after Mr. Kean~~assuming he has been found suitable by the NIGC.

~~Lakes’~~Our evaluation of the Ioway ~~casino project.~~Casino Resort. The following table outlines the status of each of the following primary milestones necessary to complete the Ioway Casino ~~project~~Resort as of ~~the end of the third quarter of fiscal~~March 30, 2008, December 30, 2007 ~~fiscal 2006~~ and ~~fiscal 2005.~~December 31, 2006. Both the positive and negative evidence was reviewed during ~~Lakes’~~our evaluation of the critical milestones:

Critical milestone

~~September~~March 30, 2008

December 30, 2007

December 31, 2006

~~January 1, 2006~~

Federal recognition of the tribe

Yes

Possession of usable land corresponding with needs based on Lakes’ project plan

Yes, the Iowa Tribe has ~~Tribal~~ 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 ~~purchased~~optioned to provide the necessary site area for the beginning of the ~~project.~~project before the casino resort development can begin.

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

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

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

Usable land placed in trust by Federal government

Usable county agreement, if applicable

N/A


~~Critical milestone~~	~~September 30, 2007~~	~~December 31, 2006~~	~~January 1, 2006~~
Usable state compact that allows for gaming consistent with that outlined in Lakes’ project plan	Yes	Yes	Yes

NIGC approval of management contract in current and desired form	No, submitted to the NIGC for review on April 22, 2005. An EA 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 ~~provided their final comments~~stated that it is waiting for the BIA to ~~the Iowa Tribe~~approve all land leases before it will issue an opinion on the management ~~contract~~contract. There have been no comments on the consulting agreement from the NIGC and ~~the Iowa Tribe has approved the revisions and returned the contract~~is therefore considered operative.	No, submitted to the NIGC for ~~final action.~~review on April 22, 2005. An EA was prepared and on September 12, 2007, the NIGC issued their notice of approval of a FONSI for the EA. The 30 day public comment period for the FONSI ended on November 2, 2007 without any comment from the public. The expiration of the comment period now allows the NIGC to approve the management contract. The NIGC has stated that it is waiting for the BIA to approve all land leases before it will issue an opinion on the management contract. There have been no comments on the consulting agreement from the NIGC and is therefore considered operative.	No, submitted to the NIGC for review on April 22, 2005. An EA is currently being prepared and is necessary for the management contract to be approved. Completion of the EA is expected by Spring 2007. There have been no comments on the consulting agreement from the NIGC and is therefore considered operative.

	~~No, submitted to the NIGC for review on April 22, 2005. An EA will be prepared in order for the management contract to be approved.~~
Critical milestone		March 30, 2008	December 30, 2007	December 31, 2006
Resolution of all litigation and legal obstacles		None at this time.	None at this time.	None at this time.

Financing for construction		~~No. Preliminary~~No, however, preliminary discussions with lending institutions ~~have~~has occurred.	~~No. Preliminary~~No, however, preliminary discussions with lending institutions ~~have~~has occurred.	~~No. Preliminary~~No, however, preliminary discussions with lending institutions ~~have~~has occurred.

Any other significant project milestones or contingencies, the outcome of which could have a material affect on the probability of project completion as planned		No others known at this time by Lakes.	No others known at this time by Lakes.	No others known at this time by Lakes.

~~Lakes’~~Our evaluation and conclusion regarding the above critical milestones and progress. Long-term assets have been recorded as it is considered probable that the Ioway Casino ~~project~~Resort will result in economic benefit to us sufficient to recover our investment. Based upon the above status of all primary milestones and the projected fees to be earned under the consulting agreements and management contracts, no impairment has been recorded.

The Iowa Tribe is currently leasing and acquiring land from tribal members, which is held in trust for the individual tribal members by the United States Government. These transactions need to be approved by the BIA. Lakes submitted its management contract with the Iowa Tribe for the Ioway Casino Resort to the 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. The Ioway Casino Resort could open asin early ~~as July 2009.~~

~~Pawnee Nation of Oklahoma~~

~~Business arrangement.~~ ~~In January 2005, we entered into three gaming development and consulting agreements and three separate management contracts with three wholly-owned subsidiaries of~~2010, pending the ~~Pawnee Nation in connection with assisting the Pawnee Nation in developing, equipping and managing three separate casino destinations.~~

On December 1, 2006, we announced that the Pawnee Business Council declined to approve a proposed updated tribal agreement with our subsidiary relating to the Pawnee Trading Post Casino. The consulting agreement

and management contract were originally entered into in January 2005, and since then several new members have been appointed to the Pawnee Business Council which has resulted in a substantial change in the Pawnee Business Council’s membership. We, the Pawnee TDC and its gaming subsidiaries (the tribal entities that own and operate the tribal casinos), which support approving the updated tribal agreement and our involvement in the projects, are evaluating how to proceed with the current project agreements given this action, including perhaps terminating the project agreements.necessary regulatory approvals.

Recently issued accounting pronouncements

In ~~September 2006, the FASB issued SFAS No. 157,~~~~Fair Value Measurements~~~~, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. In February~~December 2007, the FASB issued SFAS No. ~~159,~~160,~~The Fair Value Option for~~Noncontrolling Interests in Consolidated Financial ~~Assets and Financial Liabilities — Including an~~Statements-an amendment of ~~FASB Statement~~ARB No. ~~115~~~~, which will permit the option of choosing to measure certain eligible items at fair value at specified election dates and report unrealized gains and losses in earnings.~~ 51 (“SFAS No. ~~157~~160”),which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. ~~159 will both become~~160 is effective for ~~our~~fiscal years beginning after December 15, 2008, ~~fiscal year~~ and weearly adoption is prohibited. We are currently evaluating the effect ~~if any,~~ that ~~they~~SFAS No. 160 will have on our financial position, results of operations and operating cash flows.

Seasonality

We believe that the operations of all casinos to be managed by us will be affected by seasonal factors, including holidays, weather and travel conditions. WPTE’s license revenues are affected by the timetable for delivery of episodes to TRV.

Regulation and taxes

We and ~~the casinos to be managed by us~~our casino projects are subject to extensive regulation by state gaming authorities. We will also be subject to regulation, which may or may not be similar to current state regulations, by the appropriate authorities in any jurisdiction where we may conduct gaming activities in the future. Changes in applicable laws or regulations could have an adverse effect on us.

The gaming industry represents a significant source of tax revenues to regulators. From time to time, various federal legislators and officials have proposed changes in tax law, or in the administration of such law, affecting the gaming industry. It is not possible to determine the likelihood of possible changes in tax law or in the administration of such law. Such changes, if adopted, could have a material adverse effect on our future financial position, results of operations and cash flows.

Off-balance sheet arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity,

capital expenditures or capital resources that is material to investors, except for the financing commitments previously discussed.

Private Securities Litigation Reform Act

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information included in this ~~Annual~~Quarterly Report onForm ~~10-K~~10-Q and other materials filed or to be filed by Lakes with the United States Securities and Exchange Commission (“SEC”) as well as information included in oral statements or other written statements made or to be made by Lakes contain statements that are forward-looking, such as plans for future expansion and other business development activities as well as other statements regarding capital spending, financing sources and the effects of regulation (including gaming and tax regulation) and competition.

Such forward looking information involves important risks and uncertainties that could significantly affect the anticipated results in the future and, accordingly, actual results may differ materially from those expressed in any forward-looking statements made by or on behalf of Lakes.

These risks and uncertainties include, but are not limited to, obtaining a sufficient number of signatures to place the Ohio casino resort project on the November 4, 2008 Ohio statewide election ballot or if the referendum is placed on that ballot, that the referendum will pass or if the referendum passes, that it will not subsequently be challenged or that other developments will not prevent or delay the project; need for current financing to meet Lakes’ ~~future~~ operational and development needs; those relating to the inability to complete or possible delays in completion of Lakes’ casino projects, including various regulatory approvals and numerous other conditions which must be satisfied before completion of these projects; possible termination or adverse modification of management or development contracts; Lakes operates in a highly competitive industry; possible changes in regulations; reliance on continued positive relationships with Indian tribes and repayment of amounts owed to Lakes by Indian tribes; ~~continued contracts with the Pawnee Nation as a result of the change in its business council membership;~~ possible need for future financing to meet Lakes’ expansion goals; risks of entry into new businesses; reliance on Lakes’ management; and the fact that the WPT Enterprises, Inc. (NASDAQ: WPTE) (“WPTE”) shares held by Lakes are currently not liquid assets, and there is no assurance that Lakes will be able to realize value from these holdings equal to the current or future market value of WPTE common stock. There are also risks and uncertainties relating to WPTE that may have a material effect on Lakes’ consolidated results of operations or the market value of the WPTE shares held by Lakes, including WPTE’s significant dependence on ~~The Travel Channel, L.L.C.~~the GSN as a current ~~source of revenue and GSN as a future~~ source of revenue, and the risk that GSN will not exercise its options to air seasons of the WPT series beyond Season Six; ~~the potential that WPTE’s television programming will fail to maintain a sufficient audience;~~ difficulty of predicting the growth of WPTE’s online casino business, which is a relatively new industry with an increasing number of market entrants; reliance on the efforts of CryptoLogic to develop and maintain the online gaming website in compliance with WPTE’s business model and applicable gaming laws; the potential that WPTE’s television programming will fail to maintain a sufficient audience; the risk that WPTE may not be able to protect its entertainment concepts, current and future brands and other intellectual property rights; the risk that competitors with greater financial resources or marketplace presence might develop television programming that would directly compete with WPTE’s television programming; risks associated with future expansion into new or complementary businesses; the termination or impairment of WPTE’s relationships with key licensing and strategic partners; and WPTE’s dependence on its senior management team. For more information, review Lakes’ filings with the Securities and Exchange Commission. For further information regarding the risks and uncertainties, see the “Risk Factors” section in Item 1A of our Annual Report onForm 10-K, ~~as amended,~~ for the ~~fiscal~~ year ended December ~~31, 2006.~~30, 2007.


ITEM 3.	*QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK*

Our financial instruments include cash and cash equivalents and marketable securities. Our main investment objectives are the preservation of investment capital and the maximization of after-tax returns on our investment portfolio. Consequently, we invest with only high-credit-quality issuers and limit the amount of credit exposure to any one issuer.

Our cash and cash equivalents are not subject to significant interest rate risk due to the short maturities of these instruments. As of ~~September~~March 30, ~~2007,~~2008, the carrying value of our cash and cash equivalents approximates fair value. We also hold short-term investments consisting of marketable debt securities (principally consisting of commercial

paper, corporate bonds, and government securities) having a weighted-average duration of one year or less. Consequently, such securities are not subject to significant interest rate risk. We also hold long-term investments in marketable securities which consist of ARS. The types of ARS investments that we own are backed by student loans, the majority of which are guaranteed under the FFELP, and all have credit ratings of AAA or Aaa.

Historically, these types of ARS investments have been highly liquid using an auction process that resets the applicable interest rate at predetermined intervals, typically every 7 to 35 days, to provide liquidity at par. However, as a result of the recent liquidity issues experienced in the global credit and capital markets, the auctions for all of our ARS failed beginning in February 2008 when sell orders exceeded buy orders. The failures of these auctions do not affect the value of the collateral underlying the ARS, and we will continue to earn and receive interest on our ARS at contractually set rates. However, we will not be able to liquidate our ARS until the issuer calls the security, a successful auction occurs, a buyer is found outside of the auction process or the security matures. During April 2008, we received account statements dated March 30, 2008, from the firms managing our ARS which estimated the fair value of our ARS. We analyzed these statements and have concluded that a decrease of $2.4 million in the estimated fair value of the ARS we hold has occurred as a result of the current lack of liquidity. We consider declines in the estimated fair value of our ARS due to lack of liquidity to be temporary impairments that have been recorded as an unrealized loss in the shareholders’ equity section of our balance sheet as of March 30, 2008.

Our primary exposure to market risk associated with changes in interest rates involves our long-term assets related to Indian casino projects in the form of notes receivable due from our tribal partners for the development and construction of Indian-owned casinos. The loans earn interest based upon a defined reference rate. The floating interest rate will generate more or less interest income if interest rates rise or fall. Our notes receivable from Indian tribes related to properties under development bear interest generally at prime plus one percent or two percent, however, the interest is only payable if the casino is successfully opened and distributable profits are available from casino operations. We record our notes receivable at estimated fair value, and subsequent changes in estimated fair value are recorded as unrealized gains or losses in our ~~Unaudited Condensed Consolidated Statement~~consolidated statement of ~~Earnings (Loss)~~operations and ~~Comprehensive Earnings (Loss).~~comprehensive loss. As of ~~September~~March 30, ~~2007,~~2008, we had ~~$79.3~~$77.9 million of notes receivable, at fair value with a floating interest rate (principal amount of ~~$80.3~~$84.1 million). Based on the applicable current reference rates and assuming all other factors remain constant, interest income for a 12 month period would be approximately ~~$7.8~~$6.1 million. A reference rate increase of 100 basis points

would result in an increase in interest income of $0.8 million. A 100 basis point decrease in the reference rate would result in a decrease of $0.8 million in interest income over the same 12 month period.


ITEM 4.	*CONTROLS AND PROCEDURES*

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined underRules 13a-15(e) and Rule 15d — 15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this quarterly report. Based on their evaluation, our chief executive officer and chief financial officer concluded that Lakes Entertainment, Inc.’s disclosure controls and procedures are effective.

There have been no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal control over financial reporting during the three months ended ~~September~~March 30, ~~2007~~2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II.
Other Information


ITEM 1.	*LEGAL PROCEEDINGS*

WPTE litigation.

~~On July 19,~~In 2006, a legal action was commenced against WPTE by seven poker players that alleged, ~~that WPTE engaged in,~~ among other things, an unfair ~~anti-competitive~~ business ~~practices.~~practice of WPTE. On ~~March 14, 2007, the plaintiffs filed~~April 18, 2008, WPTE settled this lawsuit without cost by agreeing to implement a ~~motion for summary judgment~~new standard player release form to be provided to all players at all future WPT tournaments and ~~on April 12, 2007 WPTE filed its opposition to the motion. On May 22, 2007, the court denied the plaintiffs’ motion for summary judgment. A trial date has been set for April 1, 2008.~~events.

Miscellaneous legal matters.

We and our subsidiaries (including WPTE) are involved in various other inquiries, administrative proceedings, and ~~pending or threatened~~ litigation relating to contracts and other matters arising in the normal course of business. While any proceeding or litigation has an element of uncertainty, management currently believes that ~~an unfavorable outcome in these matters is not probable. Furthermore, even in~~ the ~~event~~likelihood of an unfavorable outcome ~~in one or all of these matters, the estimated effect on the unaudited condensed consolidated financial statements would not likely be material.~~is remote. Accordingly, no provision for loss has been recorded in connection therewith.


ITEM 1A.	*RISK FACTORS*

There have been no material changes to our risk factors identified in the “Risk Factors” section in Item 1A of our Annual Report onForm 10-K, ~~as amended,~~ for the ~~fiscal~~ year ended December ~~31, 2006~~30, 2007 except for the following, which ~~have~~has been updated in ~~their~~its entirety:

~~In May 2006, the NIGC issued proposed regulations concerning classification~~If we are unable to liquidate our investments in ARS to provide liquidity when and as needed, and we are unable to obtain additional financing in order to satisfy our cash requirements, we may be forced to delay, scale back or eliminate some of ~~gaming devices which could negatively affect projected management/consulting fees to be received from the Shingle Springs~~our expansion and ~~Jamul Casino projects.~~development goals, or cease our operations entirely.

~~In May 2006,~~Lakes entered into a client agreement with UBS effective April 11, 2008 for the purpose of borrowingand/or obtaining credit in ~~response to the Department of Justice decision~~a principal amount not to ~~proceed~~exceed $11.0 million (the “Margin Account Agreement”). Lakes has made an initial draw under the Margin Account Agreement in the principal amount of $3.0 million to be used for working capital purposes. Lakes will be required to seek additional sources of financing to fund additional costs it plans to incur between August and November of this year associated with the recently announced Ohio casino resort project. These costs are dependent on various factors including polling numbers, market studies and media efforts. Lakes is currently exploring several financing alternatives and expects to be able to obtain funding as necessary. WPTE does not believe that any lack of liquidity during the next 12 months relating to its ~~proposed legislation~~ARS will have an impact on its ability to fund its operations.

If additional financing is in the form of equity financing it will be dilutive to our shareholders, and any debt financing may involve additional restrictive covenants. We may raise additional capital through either public or private financings or the sale of some or all of our shares of WPTE. An inability to raise such funds when needed might require us to delay, scale back or eliminate some of our expansion and development goals.

In addition, we have the following new risk factors:

If the referendum to amend the ~~Johnson Act,~~Ohio constitution to permit casino gaming fails to get put on the ~~NIGC proposed new regulations concerning~~November 4, 2008 Ohio statewide election ballot, or if the ~~classification of~~referendum is put on the ballot but it is not passed by the Ohio voters, or if the referendum passes but it is subsequently challenged or other events prevent the Ohio project, it is unlikely we will be repaid amounts loaned to the joint venture.

We plan to loan the joint venture with Myohinow.com, LLC approximately $8 million through August and an additional amount from August to the November election depending on various factors to fund the efforts to place the referendum to amend the Ohio constitution to permit casino gaming ~~devices. These proposed regulations, if adopted, could restrict~~on the ~~types of gaming devices permitted as Class II games under IGRA,~~November 4, 2008 Ohio statewide election ballot and ~~such restrictions could limit~~to ensure that the ~~type of gaming devices planned to be used at~~referendum is passed by the ~~Shingle Springs and Jamul Casinos.~~Ohio voters. If the ~~NIGC~~ proposed ~~regulations were adopted as published, there~~Ohio casino resort project does not proceed because the referendum is no assurance that substitute allowable Class II gaming devices would result in the same projected operating results as the Class II gaming devices currently planned to be used by the above-mentioned projects. If this were to occur it could have a material adverse effect on our results of operations and financial conditions. In February 2007, after receiving numerous negative comments to the proposed regulations from tribes and industry companies, the NIGC withdrew its proposed rules and indicated it would attempt to review and modify the proposed regulations and publish a new version at a later date.

On October 24, 2007, the NIGC published its revised proposed rules concerning the classification of games and companion proposed rules related to technical standards for Class II gaming devices, revised definitions for determining Class III gaming devices and minimum internal control standards for Class II gaming. Together, these proposed rules, if implemented and enforced, could materially adversely affect the appeal and operating results of Class II gaming devices currently planned to be used in the above-mentioned projects. The comment periodnot placed on the ~~revised proposed regulations is currently scheduled to expire in December 2007, but may be extended until sometime during~~ballot, or the first quarter of 2008. The revised proposed regulations have already received substantial criticism from tribes and industry companies and lawsuits challenging the revised proposed regulations are likelyreferendum doesn’t pass if final regulations substantially similar to the proposed regulations are adopted; this could delay the implementation of the proposed regulations for some time or completely if the lawsuits are successful.placed

4947

on the ballot or if the referendum passes but it is subsequently challenged or other events prevent the Ohio project, it is unlikely we will be repaid the amounts loaned to the joint venture.

We ~~cannot guarantee the financial results of the expansion of the World Poker Tour business, which~~ may ~~negatively impact~~be adversely impacted by economic factors beyond our ~~financial results.~~control and may incur additional impairment charges to our investment portfolio.

As of ~~December 31, 2006,~~March 30, 2008, we ~~through~~had $39.2 million of principal invested in auction rate securities (“ARS”). The types of ARS investments that we own are backed by student loans, the majority of which are guaranteed under the Federal Family Education Loan Program (“FFELP”), and all have credit ratings of AAA or Aaa. We do not own any other type of ARS investments. The estimated fair value of our ~~subsidiary Lakes Poker Tour, LLC, owned approximately 61%~~ARS holdings at March 30, 2008, was $36.8 million, which reflects a $2.4 million adjustment to the principal value of $39.2 million. We recorded an unrealized pre-tax loss of $2.4 million in other comprehensive loss as a reduction in shareholders’ equity, reflecting an impairment to our ARS holdings that we have concluded as a temporary decline in value.

The credit and capital markets have continued to deteriorate since the ~~outstanding common stock~~first quarter of ~~WPT Enterprises, Inc., referred~~2008. If uncertainties in these markets continue, these markets deteriorate further or we experience any ratings downgrades on any ARS investments in our portfolio, we may incur additional impairments to ~~as WPTE. As a result,~~ our ~~consolidated results included WPTE operations. We cannot guarantee the financial results of the expansion of the World Poker Tour business,~~ARS investment portfolio, which ~~may~~could negatively ~~impact~~affect our financial ~~results. We can provide no assurance that WPTE will achieve its forecasted revenues, that WPTE will be able to expand its business,~~ condition, cash flowand/or that WPTE’s operations will positively impact our financial results because WPTE’s business is subject to many risks and uncertainties. These risks include, but are not limited to, WPTE’s significant dependence on the Travel Channel as a current source of revenue and GSN as a future source of revenue, and the risk that GSN will not exercise its options to air seasons of the WPT series beyond Season Six; difficulty of predicting the growth of WPTE’s online gaming business, which is a relatively new industry with an increasing number of market entrants; reliance on the efforts of CryptoLogic to develop and maintain WPTE’s online gaming website in compliance with WPTE’s business model and applicable gaming laws; the potential that WPTE’s television programming will fail to maintain a sufficient audience; the risk that competitors with greater financial resources or marketplace presence might develop television programming that would directly compete with WPTE’s television programming; the risk that WPTE may not be able to protect its entertainment concepts, current and future brands and other intellectual property rights; risks associated with future expansion into new or complementary businesses; the termination or impairment of WPTE’s relationships with key licensing and strategic partners; WPTE’s dependence on its senior management team; and WPTE is highly dependent on third-parties for the success of the WPT Traktor Poker Tour in China and there is no guarantee that it will be able to monetize its rights in China. The Unlawful Internet Gambling Enforcement Act of 2006 prohibits online gambling in the United States of America. Congress passing of the Unlawful Internet Gambling Enforcement Act or future government regulation of online gaming in the United States may restrict the activities or affect the financial results of WPTE’s online gaming venture currently operating and WPTE’s new online gaming venture in development.

TRV had until April 1, 2007 to exercise its option to broadcast Season Six of the WPT television series. TRV did not exercise this option. On April 2, 2007, WPTE entered into an agreement with the GSN, pursuant to which GSN agreed to license Season Six for $300,000 per episode. The agreement also provides GSN options for Seasons Seven and Eight.

~~In addition to the risks related to WPTE’s business listed above, WPTE has updated its risk factors on the following matters:~~


	•	On April 23, 2007, WPTE entered into an agreement with CryptoLogic pursuant to which CryptoLogic operates and manages WPTE’s branded real-money gaming website, WorldPokerTour.com, solely in jurisdictions where online gaming is not restricted. WPTE cannot be assured that CryptoLogic’s operation of the site going forward will meet WPTE’s business expectations, the failure of which would have a material adverse impact on WPTE’s online gaming business.

	•	WPTE is currently reliant on CryptoLogic for WPTE’s gaming website compliance with all applicable regulations, including the initial verification that players who wish to wager are actually from non-restricted countries. In addition, WPTE relies on CryptoLogic and third party vendors to assure that players cannot place improper wagers on an on-going basis. If CryptoLogic’s compliance or verification is inadequate or WPTE’s third party verification tools fail, regulators in the U.S. or other jurisdictions may impose fines or other sanctions or threaten or take other actions that could adversely affect WPTE’s reputation and the revenues WPTE derives from the license of rights to CryptoLogic. Additionally, certain territories and foreign networks may restrict WPTE from incorporating marketing elements related to WPTE’s online site into WPTE’s international telecasts and certain laws or regulations may restrict the type of advertising in general in those territories. If these restrictions occur, WPTE’s costs of customer acquisition may be substantially higher than anticipated.

	•	WPTE has developed relationships with key strategic partners in many areas of WPTE’s business, including poker tournament event sponsorship, merchandise licensing, corporate sponsorship, Internet gaming and international distribution. If WPTE was to fail to manage its existing licensing relationships, this failure


		could have a material adverse effect on WPTE’s financial condition and results of operations. WPTE relies on a limited number of contracts under which third parties provide WPTE with services vital to WPTE’s business. If WPTE’s relationship with any third party was to be interrupted, or the services provided by any third party were to be delayed or deteriorate for any reason without being adequately replaced, WPTE business could be materially adversely affected. If WPTE is forced to find a replacement for any strategic partner, this could create disruption in WPTE’s business and may result in reduced revenues, increased costs or diversion of management’s attention and resources. In addition, while WPTE has significant control over its licensed products and advertising, WPTE does not have operational and financial control over third parties, and WPTE has limited influence with respect to the manner in which they conduct their businesses. If any strategic partner experiences a significant downturn in its business or were otherwise unable to honor its obligations to WPTE, WPTE’s business could be materially disrupted.


	•	WPTE intends to further expand business in foreign markets, including continued international distribution of WPTE’s U.S. telecasts, creating additional poker tours in foreign countries and distributing branded merchandise in foreign countries. WPTE’s international operations could be adversely affected by changes in political and economic conditions, trade protection measures and the status of regulatory requirements that may restrict the sales of WPTE products, increase costs of foreign production or other costs that prohibit Internet gaming activities in international jurisdictions. Also, changes in exchange rates between the U.S. dollar and other currencies could potentially result in significant increases in WPTE costs or decreases in earnings.

	•	The success of WPTE’s initiative in China will greatly depend upon WPTE’s ability to expand the brand and to monetize WPTE’s rights throughout the territory. WPTE is highly dependent upon third-parties for the organization of events, acquisition and use of certain business licenses throughout China, the marketing of the WPT Traktor Poker Tour and the licensing of WPTE’s trademark and intellectual property rights. If these~~third-parties~~ fail to perform as anticipated, business operations in China could be severely affected. Furthermore, there is no guarantee that WPTE will be able to successfully enforce its rights in China against any infringers of WPTE trademarks or other rights granted to WPTE.

WPTE is highly dependent upon the CLSAC’s performance of its obligations under its contract, which include organizing WPT Traktor Poker Tour events, securing placement of the championship finals on a major Chinese Television station, and promoting the tour. Failure of the CLSAC to properly support the tour could severely impact WPTE’s ability to generate revenue in China. Moreover, even if the tournaments attract a large number of participants, WPTE cannot guarantee that this will translate into significant revenue for WPTE.

~~For a complete listing of WPTE’s risk factors, see its Annual Report onForm 10-K,~~ ~~as amended, for the year ended December 31, 2006, and its Quarterly Reports onForm 10-Q~~ ~~for the quarters ended April 1, 2007, as amended, July 1, 2007, as amended, and September 30, 2007.~~reported earnings.


ITEM 6.	*EXHIBITS*


Exhibits			Description

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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report onForm 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

LAKES ENTERTAINMENT, INC.
Registrant


		~~/s/~~ ~~LYLE BERMAN~~ /s/ LYLE BERMAN

Lyle Berman

Chairman of the Board and

Chief Executive Officer

(Principal Executive Officer)

/s/ TIMOTHY J. COPE

Timothy J. Cope

President and Chief Financial Officer

(Principal Financial and Accounting Officer)

Dated: ~~November~~May 9, ~~2007~~2008

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		Page of
		Form 10-Q

PART I. FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	Condensed Consolidated Balance Sheets as of ~~September~~March 30, ~~2007~~2008 (unaudited) and December ~~31, 2006~~30, 2007		3
	Unaudited Condensed Consolidated Statements of ~~Earnings (Loss)~~Operations and Comprehensive ~~Earnings (Loss)~~Loss for the three months ended March 30, 2008 and ~~nine months ended September 30,~~April 1, 2007 ~~and October 1, 2006~~		4
	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September~~March 30, ~~2007~~2008 and ~~October~~April 1, ~~2006~~2007		5
	Notes to Unaudited Condensed Consolidated Financial Statements		6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		2021
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		4745
ITEM 4.	CONTROLS AND PROCEDURES		4846

PART II. OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS		4947
ITEM 1A.	RISK FACTORS		4947
ITEM 6.	EXHIBITS		5148
302 Certification of CEO
302 Certification of CFO
Section 906 Certification of CEO and CFO