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 28, 2008~~March 29, 2009
		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 (State or other jurisdiction of incorporation or organization)		41-1913991 (I.R.S. Employer Identification No.)

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

(952) 449-9092

(Registrant’s telephone number, including area code)

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 has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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


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 3, 2008,~~May 5, 2009, there were ~~26,080,219~~26,328,045 shares of Common Stock, $0.01 par value per share, outstanding.

Part I.
Financial Information

ITEM 1. FINANCIAL STATEMENTS

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

~~Condensed~~ Consolidated Balance Sheets


		September 28,						March 29,
		2008			December 30,			2009			December 28,
		(Unaudited)			2007			(Unaudited)			2008
		(In thousands)						(In thousands)

ASSETS	ASSETS						ASSETS
Current assets:
Cash and cash equivalents								$	9,866		$	6,170
(balances include $5.2 million and $3.9 million of WPT Enterprises, Inc.)		$	12,057		$	9,248
Investments in securities
(balances include $3.9 million and $23.0 million of WPT Enterprises, Inc.)			3,883			53,546
Accounts receivable			5,143			3,570			3,588			2,407
Prepaid advertising			7,578			—
Current portion of notes receivable from Indian tribes									7,070			9,151
Deferred tax asset									557			—
Other current assets			3,114			3,028			742			1,232

Total current assets			31,775			69,392			21,823			18,960

Property and equipment, net			16,583			16,633			10,913			10,985

Long-term assets related to Indian casino projects:
Notes receivable from Indian tribes			82,190			78,795
Notes receivable, net of current portion									56,032			54,705
Intangible assets, net of accumulated amortization of $12.1 million and $9.7 million									45,163			47,586
Land held for development			7,663			7,631			1,810			1,810
Intangible assets, net of accumulated amortization of $7.9 million and $2.8 million			62,728			65,910
Other			5,084			5,176			4,677			4,781

Total long-term assets related to Indian casino projects			157,665			157,512			107,682			108,882

Other assets:
Investments in securities
(balances include $11.2 million and $4.2 million of WPT Enterprises, Inc.)			35,614			4,200
Investment in unconsolidated investee			1,000			2,923
Deferred tax asset			1,906			4,878
Other long-term assets			558			563
Investments in securities, including put rights									26,599			26,544
Other									62			73

Total other assets			39,078			12,564			26,661			26,617

Total assets		$	245,101		$	256,101		$	167,079		$	165,444


LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY						LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Line of credit								$	18,018		$	18,152
Current portion of contract acquisition costs payable, net of $1.0 and $1.1 million discount									1,844			2,089
Accounts payable		$	1,249		$	1,559			659			531
Income taxes payable			15,905			16,272			16,913			16,241
Accrued payroll and related costs			2,355			2,788			2,052			1,745
Deferred revenue			1,010			2,870
Short-term debt			11,697			—
Current portion of contract acquisition costs payable, net of $1.1 million discount			2,326			1,903
Other accrued expenses			2,259			2,074			1,008			1,383

Total current liabilities			36,801			27,466			40,494			40,141

Long-term Liabilities:
Contract acquisition costs payable, net of current portion and $1.7 million and $2.5 million discount			5,598			7,342
Long-term liabilities:
Non-revolving line of credit									2,000			2,000
Contract acquisition costs payable, net of current portion and $1.2 million and $1.4 million discount									4,893			5,253

Long-term liabilities									6,893			7,253

Total liabilities			42,399			34,808			47,387			47,394

Commitments and contingencies
Minority interest in subsidiary			9,380			13,995
Shareholders’ equity:
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 December 30, 2007			—			45
Common stock, $.01 par value; authorized 200,000 shares; 26,015 and 24,516 issued and outstanding at September 28, 2008, and December 30, 2007, respectively			260			245
Common stock, $.01 par value; authorized 200,000 shares; 26,328 and 26,237 common shares issued and outstanding at March 29, 2009 and December 28, 2008									263			262
Additional paid-in capital			197,773			190,228			201,698			201,082
Retained earnings			(1,046	)		16,766
Accumulated other comprehensive earnings (loss)			(3,665	)		14
Accumulated deficit									(82,269	)		(83,294	)

Total shareholders’ equity			193,322			207,298			119,692			118,050

Total liabilities and shareholders’ equity		$	245,101		$	256,101		$	167,079		$	165,444

See notes to unaudited ~~condensed~~ consolidated financial statements

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss)

~~Condensed Consolidated Statements of Operations and Comprehensive Loss~~

Three months ended Nine months ended
September 28,
September 30,
September 28,
September 30,

2008 2007 2008 2007
(In thousands, except per share data)
(Unaudited)

Revenues:

Management, consulting and development fees $ 8,370 $ 2,580 $ 18,816 $ 3,415
License fees 1,854 2,695 8,824 12,535
Host fees, sponsorship, online gaming and other 991 1,732 4,093 4,158

Total revenues 11,215 7,007 31,733 20,108

Costs and expenses:

Selling, general and administrative 13,341 10,058 38,175 29,747
Production costs 997 1,355 6,452 6,594
Amortization of intangible assets related to Indian casino projects 1,681 1,121 5,042 1,126
Impairment losses 1,923 — 1,923 2,601
Depreciation and amortization 219 192 617 573

Total costs and expenses 18,161 12,726 52,209 40,641

Net realized and unrealized gains (losses) on notes receivable
1,842 (600 ) 984 8,503

Loss from operations
(5,104 ) (6,319 ) (19,492 ) (12,030 )

Other income (expense):

Interest income 333 981 1,657 7,613
Interest expense (350 ) (330 ) (1,064 ) (646 )
Loss on extinguishment of debt — — — (3,830 )
Other 65 50 247 (17 )

Total other income, net 48 701 840 3,120

Loss before income taxes and minority interest in net loss of subsidiary
(5,056 ) (5,618 ) (18,652 ) (8,910 )
Income taxes 2,393 453 3,512 1,142

Loss before minority interest in net loss of subsidiary
(7,449 ) (6,071 ) (22,164 ) (10,052 )
Minority interest in net loss of subsidiary 1,728 859 4,352 3,035

Net loss
(5,721 ) (5,212 ) (17,812 ) (7,017 )

Stock warrant inducement discount — — — 1,444

Net loss applicable to common shareholders
$ (5,721 ) $ (5,212 ) $ (17,812 ) $ (8,461 )

Other comprehensive earnings (loss):

Unrealized loss on securities, net of tax (903 ) 30 (3,679 ) 30
Change in estimated fair value of derivative — — — 409

Comprehensive loss
$ (6,624 ) $ (5,182 ) $ (21,491 ) $ (8,022 )

Loss applicable to common shareholders per share — basic
$ (0.23 ) $ (0.21 ) $ (0.72 ) $ (0.36 )

Weighted-average common shares outstanding — basic
25,184 24,393 24,906 23,758


	Three months ended
	March 29,			March 30,
	2009			2008
	(In thousands,
	except per share data)
	(Unaudited)

Revenues:
Management fees	$	7,266		$	4,580
License fees		12			20

Total revenues		7,278			4,600

Costs and expenses:
Selling, general and administrative		4,042			3,864
Ohio initiative costs		—			1,646
Impairment losses		569			—
Amortization of intangible assets related to Indian casino projects		2,479			1,681
Depreciation		73			88

Total costs and expenses		7,163			7,279

Net unrealized losses on notes receivable		(163	)		(1,983	)

Loss from operations		(48	)		(4,662	)

Other income (expense):
Interest income		1,862			481
Interest expense		(395	)		(365	)
Other		(8	)		52

Total other income (expense), net		1,459			168

Earnings (loss) before income taxes and discontinued operations		1,411			(4,494	)
Income taxes		386			688

Earnings (loss) before discontinued operations		1,025			(5,182	)
Discontinued operations, net of tax		—			(1,723	)

Net earnings (loss) applicable to common shareholders	$	1,025		$	(6,905	)

Other comprehensive loss:
Unrealized loss on securities, net of tax		—			(2,397	)

Other comprehensive earnings (loss)	$	1,025		$	(9,302	)

Earnings (loss) applicable to common shareholders per share — basic — continuing operations	$	0.04		$	(0.21	)

Earnings (loss) applicable to common shareholders per share — basic — discontinued operations	$	—		$	(0.07	)

Earnings (loss) applicable to common shareholders per share — basic	$	0.04		$	(0.28	)

Earnings (loss) applicable to common shareholders per share — diluted — continuing operations	$	0.04		$	(0.21	)

Earnings (loss) applicable to common shareholders per share — diluted — discontinued operations	$	—		$	(0.07	)

Earnings (loss) applicable to common shareholders per share — diluted	$	0.04		$	(0.28	)

Weighted-average common shares outstanding — basic		26,325			24,604

Dilutive effect of common stock equivalents		61			—

Weighted-average common shares outstanding — diluted		26,386			24,604

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 28,			September 30,			March 29,			March 30,
	2008			2007			2009			2008
	(In thousands)						(In thousands)
	(Unaudited)						(Unaudited)

OPERATING ACTIVITIES:
Net loss	$	(17,812	)	$	(7,017	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		808			818
Net earnings (loss)							$	1,025		$	(6,905	)
Loss from discontinued operations								—			(1,723	)

Earnings (loss) from continuing operations								1,025			(5,182	)

Adjustments to reconcile net earnings (loss) from continuing operations to net cash provided by (used in) operating activities:
Depreciation								73			88
Amortization of debt issuance costs		—			95			8			—
Amortization of debt discount		—			33
Decrease in value of warrant liability		—			(2,272	)
Accretion of contra note receivable								(714	)		—
Mark to market, trading								(1,288	)		—
Put rights loss								1,234			—
Amortization of intangible assets related to Indian casino projects		5,042			1,126			2,479			1,681
Share-based compensation		985			3,607			83			147
Loss on extinguishment of debt		—			2,783
Net impairment losses		1,923			2,601
Net realized and unrealized losses on notes receivable		(984	)		(9,565	)
Minority interest in net loss of subsidiary		(4,352	)		(3,035	)
Impairment losses								569			—
Net unrealized losses on notes receivable								163			1,983
Deferred income taxes		2,972			(85	)		(557	)		380
Changes in operating assets and liabilities:
Accounts receivable		(1,573	)		(1,501	)		(1,180	)		(2,446	)
Prepaid advertising		(7,578	)		—
Other current assets		(103	)		(666	)		493			(546	)
Income taxes payable		(367	)		601			672			(800	)
Accounts payable		(206	)		30			235			155
Deferred revenue		(1,860	)		(281	)
Accrued expenses		(246	)		(68	)		(66	)		601
Contract acquisition costs payable		(1,320	)		(227	)		(604	)		(301	)

Net cash used in operating activities		(24,671	)		(13,023	)
Net cash provided by (used in) continuing operations								2,625			(4,240	)
Net cash used in discontinued operations								—			(2,690	)

Net cash provided by (used in) operating activities								2,625			(6,930	)

INVESTING ACTIVITIES:
Purchase of securities		(13,887	)		(90,861	)		—			(2,700	)
Sale / redemption of securities		28,457			90,179			—			6,500
Proceeds from sale of land held for development		—			8,758
Collections on notes receivable		1,762			3,759			—			276
Increases in long-term assets related to Indian casino projects		(4,948	)		(15,120	)		(796	)		(2,153	)
Advances on notes receivable		(1,117	)		(3,029	)		(4	)		(1,117	)
Purchase of property and equipment		(767	)		(2,158	)		(3	)		(49	)
Proceeds from repayment of note receivable								1,476			—
Increase in other long-term assets		35			—			—			29

Net cash provided by (used in) investing activities		9,535			(8,472	)
Net cash provided by continuing operations								673			786
Net cash provided by discontinued operations								—			3,865

Net cash provided by investing activities								673			4,651

FINANCING ACTIVITIES:
Decrease in restricted cash		(18	)		12,844
Proceeds from debt		12,000			—
Repayment of long-term debt		(309	)		(105,000	)
Repayment of line of credit								(135	)		—
Cash proceeds from issuance of common and preferred stock		6,272			9,699			533			1,675
Cash proceeds from sale of notes receivable		—			102,114

Net cash provided by financing activities		17,945			19,657			398			1,675

Net increase (decrease) in cash and cash equivalents		2,809			(1,838	)
Cash and cash equivalents — beginning of period		9,248			9,759
Net increase (decrease) in cash and cash equivalents — continuing operations								3,696			(1,779	)

Cash and cash equivalents — end of period	$	12,057		$	7,921
Cash and cash equivalents — beginning of period — continuing operations								6,170			5,396

Cash and cash equivalents — end of period — continuing operations							$	9,866		$	3,617

See notes to unaudited ~~condensed~~ consolidated financial statements

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Unaudited ~~Condensed~~ Consolidated Financial Statements


1.	Basis of 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 28, 2008,~~ Lakes owned approximately 61% of the outstanding common stock of WPT Enterprises, Inc. (“WPTE”) ~~(Note 14). Accordingly,~~, a separate publicly-held media and entertainment company until November 21, 2008 when all of these shares were distributed to Lakes’ ~~unaudited condensed~~shareholders through a noncash dividend. Operations of WPTE after the date of distribution are not included in Lakes’ consolidated ~~financial statements include the unaudited~~ results of operations, and historical operating results of WPTE ~~and a portion of Lakes’ revenues for the periods reported have been derived from WPTE’s business.~~up to that date are presented as discontinued operations (see Note 2). 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 ~~30, 2007,~~28, 2008, previously filed with the SEC on March ~~12, 2008,~~13, 2009, 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.

Certain ~~minor~~ reclassifications to amounts previously reported have been made to conform to the current period presentation. ~~These reclassifications had no effect on net loss or shareholders’ equity as previously presented.~~


2.	Discontinued operations

On October 1, 2008, Lakes’ Board of Directors declared a noncash dividend consisting of all of the shares of WPTE then owned by Lakes. Lakes previously owned 12,480,000 or approximately 61% of the outstanding common stock of WPTE, a separate publicly-held media and entertainment company. The record date for the dividend was October 24, 2008, which established the shareholders of record entitled to the dividend, thereby allowing the determination of the ratio of WPTE shares to be distributed per Lakes share. The dividend ratio for shareholders of record on the record date was approximately 0.479 shares of WPTE common stock for each share of Lakes common stock. The date of distribution was November 21, 2008. Operations of WPTE after the date of distribution are not included in Lakes’ consolidated results of operations, and historical operating results of WPTE up to that date are presented as discontinued operations.

Revenues, net loss before income taxes and income taxes for the three months ended March 28, 2008, have been derived from historical financial information and reported in discontinued operations as follows (in thousands, unaudited):


Revenues	$	4,962
Net loss before income taxes	$	(1,723	)
Income taxes		—

Discontinued operations	$	(1,723	)


3.	Investments in securities

The Company’s investment portfolio is comprised of investments in auction rate securities (“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”). As a result of the liquidity issues surrounding the Company’s ARS, the Company’s ARS have been classified as long-term investments in securities. See also Note 7 for a discussion of Lakes’ credit line agreement with UBS Financial Services, Inc (“UBS”).

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements — (Continued)

In November 2008, the Company accepted an offer from UBS granting nontransferable rights (the “Rights”) to sell the Company’s ARS held by UBS at par value to UBS at any time during the period of June 30, 2010, through July 2, 2012. The Rights represent a free standing asset separate from the ARS. UBS’ obligation under the Rights are not secured by its assets and do not require UBS to obtain any financing to support its performance obligations under the Rights. UBS has disclaimed any assurance that it will have sufficient financial resources to satisfy its obligations under the Rights.

The estimated fair value of the Rights was $3.1 million and $4.3 million as of March 29, 2009 and December 28, 2008, respectively. The $1.2 million decrease in the estimated fair value of the Rights is included in interest income in the unaudited consolidated statement of earnings (loss) and comprehensive earnings (loss) for the three months ended March 29, 2009. The Rights do not meet the definition of a derivative instrument under Statement of Financial Accounting Standards (“SFAS”) SFAS 133,Accounting for Derivative Instruments and Hedging Activities. Therefore, the Company has elected to measure the Rights at estimated fair value under SFAS 159,The Fair Value Option for Financial Assets and Financial Liabilities(“SFAS 159”), which permits the Company to elect the fair value option for recognized financial assets, to match the changes in the estimated fair value of the ARS. The Company expects that future changes in the estimated fair value of the Rights will approximate fair value movements in the related ARS.

The Company classifies its ARS as trading securities pursuant to SFAS 115,Accounting for Certain Investments in Debt and Equity Securities, which reflects management’s intent to exercise its Rights during the period June 30, 2010 to July 3, 2012. As of March 29, 2009 and December 28, 2008, investments in securities with original maturity dates beyond three months consist of the following (in thousands):


			Gross			Estimated
			Unrealized			Fair
	Cost		Losses			Value
						(Note 4)

March 29, 2009 (unaudited)
Maturity considered greater than one year
Auction rate securities (trading securities)	$	26,775	$	(3,243	)	$	23,532

December 28, 2008
Maturity considered greater than one year
Auction rate securities (trading securities)	$	26,775	$	(4,532	)	$	22,243

The $1.3 million increase in the estimated fair value of the ARS is included in interest income in the unaudited consolidated statement of earnings (loss) and comprehensive earnings (loss) for the three months ended March 29, 2009.


4.	Fair ~~value measurement~~Value Measurement

On December 31, 2007 (the first day of fiscal 2008), the Company adopted the methods of estimating fair value as described in Statement of Financial Accounting Standards ~~No.~~ 157,, Fair Value Measurements(“SFAS ~~No.~~ 157”), to value certain of its financial assets. The adoption of SFAS ~~No.~~ 157 did not ~~impact~~affect net income. ~~FASB~~Financial Accounting Standards Board (“FASB”) Staff PositionFAS 157-3,Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active(“FSPFAS 157-3”),was issued in October 2008, and was retroactively effective for the quarter ended September 28, 2008. The implementation of FSPFAS 157-3 also did not have a material impact on the Company’s valuation techniques, financial position, results of operations or cash flows.

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:~~

however, none of the Company’s financial assets that are presented at their estimated fair value are measured using Level 1 ~~inputs: Unadjusted quoted prices in active markets for identical assets~~ or ~~liabilities, which prices are 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 asset or liability (~~i.e.~~~~interest rates, yield curves,~~~~etc.~~~~) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).~~

inputs. Level 3 ~~inputs: Unobservable~~inputs are unobservable inputs that reflect management’s estimates about the assumptions that market participants would use

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements — (Continued)

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~~The Company’s financial assets that are ~~measured using level 2 inputs.~~

~~LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES~~

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

~~As of September 28, 2008, the Company’s financial assets~~ carried at estimated fair value are summarized ~~below:~~below (in thousands):

Level 1 Level 3 Total
(In thousands)

Municipal Bonds(*) $ 801 $ — $ 801
Auction rate securities (“ARS”)(*) — 34,525 34,525
Corporate preferred securities(*) 3,691 — 3,691
Certificates of deposit(*) 480 — 480
Notes receivable from Indian Tribes (**) — 82,190 82,190

Total assets at estimated fair value (***) $ 4,972 $ 116,715 $ 121,687


	March 29,		December 28,
	2009		2008
	(Unaudited)

Auction rate securities (“ARS”)(*)	$	23,532	$	22,243
Put Rights()(**)		3,067		4,301
Notes receivable from Indian Tribes(**)		10,711		10,703

	$	37,310	$	37,247


(*)		See Note 3.

(**)		See Note 4.5.

(***)		The Company ~~chose not to elect~~has elected the fair value option as offered by ~~Statement of Financial Accounting Standards No.~~SFAS 159,~~The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FAS 115,~~ only for its ~~financial assets and liabilities that had not been previously carried at fair value.~~Rights. Therefore, material financial assets and liabilities not carried at fair value are still reported at carrying values.

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.

~~Due to the lack of observable market quotes on the Company’s auction rate securities (“ARS”) portfolio, the~~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 Company’s ARS portfolio is subject~~ to ~~uncertainties and evolving market conditions that are difficult to predict. Factors that may impact the estimated fair~~ value include changes to credit ratings of the ARS as well as to the assets collateralizing the securities, rates of default of the underlying assets, underlying collateral value, discount rates, and evolving market conditions affecting the liquidity of the ARS (See also Note 14 for a discussion of Lakes’ agreement with UBS Financial Services, Inc (“UBS”)).these assets.

~~In addition, due to~~The following is a list of the ~~lack of observable market quotes on~~most significant factors affecting 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, probabilities of casinos opening and the expected opening dates, projected pre- and post-opening date interest rates,~~flows and discount rates. The estimated casino opening date used in the valuations of the notes receivable related to Indian casino projects that are not yet under construction reflects the weighted-average of three scenarios: a base case (which is based on the Company’s forecasted casino opening date) and one and two years out from the base case. Once a casino project is under construction, the weighted-average scenarios are no longer used and only the planned opening date is used in the valuation. The projected pre- and post-opening 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~~estimates by 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 also considered. The probability applied to each project is based upon a weighting of various possible scenarios with one scenario assuming the casino never opens. The other scenarios assume the casino opens but apply different opening dates. The probability-weighting applied to each scenario is intended to effectively capture 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.

~~LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES~~asset type:

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


	•	ARS — Credit ratings of the ARS and collateral securities, default rates, other market and liquidity circumstances.

	•	Put Rights — Credit worthiness of UBS including its credit swap rate.

	•	Notes receivable from Indian Tribes — Probability of the casino opening based on the status of critical project milestones and the expected opening date, estimated pre- and post-opening interest rates, contractual interest rate and other terms, yield rates on US Treasury Bills and other financial instruments, the risk/return indicators of equity investments in general, specific risks associated with operating the casino and similar projects, and scenario weighting alternatives.

The following table summarizes the activity for the Company’s financial instruments that are reported at estimated fair value utilizing Level 3 inputs (in thousands):

Notes

Receivable

from

ARS Indian Tribes Total

Beginning balance — December 30, 2007 $ 38,400 $ 78,795 $ 117,195
Total realized and unrealized gains (losses):
Included in other comprehensive loss(*) (3,650 ) — (3,650 )
Included in net unrealized gains on notes receivable — 984 984
Advances, net of allocation to intangible, other — 2,411 2,411
Settlements, net of purchases and issuances (225 ) — (225 )

Ending balance — September 28, 2008 (unaudited) $ 34,525 $ 82,190 $ 116,715


						Notes
						Receivable
						from
	ARS		Rights			Indian Tribes			Total

Beginning balance — December 28, 2008	$	22,243	$	4,301		$	10,703		$	37,247
Total realized and unrealized gains (losses):
Gains (losses) included in earnings(*)		1,289		(1,234	)		—			55
Unrealized gains on notes receivable		—		—			(163	)		(163	)
Advances, net of allocation to intangible, other		—		—			171			171

Ending balance — March 29, 2009 (unaudited)	$	23,532	$	3,067		$	10,711		$	37,310


(*)		The Company considers the decline in the estimated fair value of its ARS to be temporary. Accordingly, the related unrealized loss is included in accumulated other comprehensive loss in the shareholders’ equity section of the balance sheet as of September 28, 2008.See Note 3.


3.	~~Investments in securities~~

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 are primarily AAA or Aaa rated through the date of this Quarterly Report on~~Form 10-Q.~~ As a result of the liquidity issues surrounding the Company’s ARS, the Company’s ARS have been classified as long-term investments in securities as of September 28, 2008. See also Note 14 for a discussion of Lakes’ agreement with UBS.

~~As of September 28, 2008 and December 30, 2007, investments in securities with original maturity dates beyond three months consist of the following (in thousands):~~

Gross
Estimated

Unrealized
Fair

September 28, 2008
Cost Gains (Losses) Value
(Unaudited)

Maturity dates less than one year

Corporate preferred securities $ 3,707 $ (16 ) 3,691
Certificates of deposit 192 — 192

$ 3,899 $ (16 ) $ 3,883

Final maturity dates greater than one year

Municipal bonds $ 800 $ 1 $ 801
ARS 38,175 (3,650 ) 34,525
Certificates of deposit 288 — 288

$ 39,263 $ (3,649 ) $ 35,614

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

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

Gross
Estimated

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
ARS 38,400 — 38,400
Short-term municipal bonds 1,000 1 1,001
Corporate preferred securities 12,464 9 12,473
Certificates of deposit 672 — 672

$ 53,536 $ 10 $ 53,546

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

The amount of unrealized gains (losses) previously reported as other comprehensive income that were realized and included in the unaudited condensed consolidated statements of operations and comprehensive loss were not material during the three and nine months ended September 28, 2008 and September 30, 2007, respectively.


4.5.	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 successful development and operating performance of each gaming facility. Repayment of the loans is required 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, with the remaining funds distributed to the Indian tribe.

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 (the “Pokagon Band”), Shingle Springs Band of~~

~~LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES~~

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

~~Miwok Indians (the “Shingle Springs Tribe”) and the Jamul Indian Village (the “Jamul Tribe”)~~ is summarized in the following table (in thousands):


				Shingle												Shingle
	Pokagon			Springs			Jamul									Springs			Jamul
	Band			Tribe			Tribe			Other			Total			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 of advances 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		$	53,592		$	21,406		$	3,797		$	78,795
Advances, net		—			656			1,085			161			1,902			1,880			3,452			260			5,592
Allocation of advances to intangible assets		—			(146	)		(565	)		(47	)		(758	)		(426	)		(2,116	)		(78	)		(2,620	)
Consulting contracts		—			—			—			(57	)		(57	)		—			—			(75	)		(75	)
Changes in estimated fair value(*)		—			(962	)		(975	)		(46	)		(1,983	)
Current portion of notes receivable																	(9,151	)		—			—			(9,151	)
Changes in estimated fair value(), (*)																	(1,893	)		(15,626	)		(317	)		(17,836	)

Balance, March 30, 2008		—			53,140			20,951			3,808			77,899
Advances, net		—			175			944			45			1,164
Allocation of advances to intangible assets		—			(38	)		(507	)		(13	)		(558	)
Consulting contracts		—			—			—			(19	)		(19	)
Changes in estimated fair value(*)		—			1,273			(172	)		24			1,125

Balance, June 29, 2008		—			54,550			21,216			3,845			79,611
Advances, net		—			525			721			34			1,280
Balance, December 28, 2008																	44,002			7,116			3,587			54,705
Advances																	—			659			137			796
Repayments																	(1,476	)		—			—			(1,476	)
Accretion of contra note receivable(**)																	714			—			—			714
Allocation of advances to intangible assets		—			(93	)		(441	)		(9	)		(543	)		—			(569	)		(56	)		(625	)
Changes in estimated fair value(*)		—			4,368			(2,636	)		110			1,842			—			(4	)		(159	)		(163	)
Changes in current portion of notes receivable																	2,081			—			—			2,081

Balance, September 28, 2008	$	—		$	59,350		$	18,860		$	3,980		$	82,190
Balance, March 29, 2009 (unaudited)																$	45,321		$	7,202		$	3,509		$	56,032


(*)		The changes in estimated fair value of notes receivable related to Indian casino projects under development are recorded as unrealized gains (losses) within the ~~unaudited condensed~~ consolidated ~~statements~~financial statements.

(**)		The Company estimated the fair value of ~~operations~~the notes receivable from the Shingle Springs Tribe in conjunction with the opening of the Red Hawk Casino on December 17, 2008. Pursuant to Lakes’ accounting policy (See critical accounting policy summary in Part I, Item 2 of this Quarterly Report onForm 10-Q), upon opening of the casino, the difference between the then estimated fair value of the notes receivable and ~~comprehensive loss.~~the amount contractually due under the notes began being amortized into income using the effective interest method. This difference will fully amortize over the remaining term of the note. These notes are no longer adjusted to estimated fair value on a quarterly basis, but rather they are evaluated for impairment pursuant to SFAS 114,Accounting by Creditors for Impairment of a Loan.

~~Pokagon Band.~~LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
~~Lakes developed, and has a five-year contract~~

Notes 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.Unaudited Consolidated Financial Statements — (Continued)

Shingle Springs Tribe. ~~Lakes has contracts~~The terms and assumptions used to ~~develop and subsequently manage for seven years the Red Hawk Casino, which is being built on the Rancheria of~~value Lakes’ notes receivable from the Shingle Springs Tribe at estimated fair value at December 17, 2008 are as follows (dollars in ~~El Dorado County, California, adjacent to U.S. Highway 50, approximately 30 miles east of Sacramento, California.~~thousands):


		As of December 17, 2008

Face value of note (principal and interest)		$74,372
		($49,512 principal and $24,860 interest)
Projected interest rate during the loan repayment term		6.41%
Discount rate		18.50%
Repayment terms of note		84 months
Probability rate of casino opening		100%

Jamul Tribe. The terms and assumptions used to value Lakes’ notes receivable from the Jamul Tribe at estimated fair value are as follows (dollars in thousands):


	As of March 29, 2009	As of December 28, 2008
	(Unaudited)

Face value of note (principal and interest)	$50,492	$49,171
	($34,226 principal and $16,266 interest)	($33,567 principal and $15,604 interest)
Estimated months until casino opens (weighted average of three scenarios)	64 months	64 months
Projected interest rate until casino opens	6.66%	6.45%
Projected interest rate during the loan repayment term	9.05%	8.32%
Discount rate(*)	24.50%	23.50%
Repayment terms of note	120 months	120 months
Probability rate of casino opening (weighting of four scenarios)	50%	50%


(*)		During the first quarter of 2009, Lakes increased the discount rate to 24.50% for this project, as continued issues in the credit markets and general economic uncertainties resulted in a higher required yield on the notes. The Jamul Casino project has been delayed due to various political and regulatory issues. Significant risk exists related to this project moving forward to completion, and Lakes has recorded significant impairment charges against its investment in this project. However, the Jamul Tribe has the two basic requirements to eventually build a successful project — federal recognition as an Indian Tribe and Indian land eligible for gaming and Lakes currently expects to continue its involvement with this project.

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

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

Iowa Tribe. The terms and assumptions used to value ~~the~~Lakes’ notes receivable from the Iowa Tribe at estimated fair value ~~related to the Shingle Springs Tribe~~ are as follows (dollars in thousands):


	As of September 28, 2008	As of December 30, 2007	As of March 29, 2009	As of December 28, 2008
	(Unaudited)		(Unaudited)

Face value of note (principal and interest)	$72,865	$67,585	$5,873 ($4,871 principal and $1,002 interest)	$5,660 ($4,734 principal and $926 interest)
	($48,987 principal and $23,878 interest)	($47,632 principal and $19,953 interest)
Estimated months until casino opens	3 months	12 months	24 months	20 months
Projected interest rate until casino opens	7.00%	9.12%	5.77%	5.93%
Projected interest rate during the loan repayment term	8.77%	10.16%	6.84%	6.24%
Discount rate	15%	15%
Repayment terms of note(*)	84 months	84 months
Discount rate(*)			19.50%	18.50%
Repayment terms of note			24 months	24 months
Probability rate of casino opening	99%	95%	85%	85%


(*)		~~Note is payable~~During the first quarter of 2009, Lakes increased the discount rate to 19.50% for this project, as continued issues in ~~even monthly installments over~~ the ~~seven-year term of~~credit markets and general economic uncertainties resulted in a higher required yield on the ~~management agreement subsequent to the casino opening.~~notes.

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.

On September 30, 2008 the California State legislature ratified the amended compact between the Shingle Springs Tribe and the State of California. The amended compact has been submitted to the Bureau of Indian Affairs (the “BIA”) for its review. Approval is anticipated prior to the opening of the Red Hawk Casino, which is on schedule for late fourth quarter of 2008. Since this amendment has not yet been approved by the BIA, any financial impact it may have has not yet been reflected in the Company’s unaudited condensed consolidated financial statements.

The amended compact runs through 2029 and allows for a maximum of 5,000 class III slot machines at one gaming facility. The amended compact requires the Shingle Springs Tribe to share revenues with California based on a sliding scale percentage of net win — ranging from 20% to 25% — from the operation of the slot machines. The Shingle Springs Tribe will also contribute $4.6 million per year to the Revenue Sharing Trust Fund, which pays up to $1.1 million each year to each of the non-gaming tribes in California. The amended compact also allows for the Shingle Springs Tribe to deduct up to a total of $5.2 million annually for 20 years from the payments to be made to California from the operation of slot machines.

On September 30, 2008, an affiliate of the Shingle Springs Tribe closed on a $77 million furniture, furnishings and equipment financing for the Red Hawk Casino. The proceeds from the financing arrangement will be primarily used to purchase the various components of furniture, furnishings and equipment necessary to complete the Red Hawk Casino project.

~~LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES~~

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

~~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 terms and 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 28, 2008 As of December 30, 2007
(Unaudited)

Face value of note (principal and interest) $47,719 $42,426
($32,865 principal and $14,854 interest) ($30,114 principal and $12,312 interest)
Estimated months until casino opens (weighted-average of three scenarios) 36 months 29 months
Projected interest rate until casino opens 7.43% 9.12%
Projected interest rate during the loan repayment term 9.76% 10.46%
Discount rate 20.00% 20.00%
Projected repayment terms of note 120 months 120 months
Probability rate of casino opening (weighting of four scenarios) 75% 85%

The Jamul Casino project has been delayed due to issues with access from Interstate 94 to the proposed casino site. The Jamul Tribe has a driveway road leading to the Jamul Casino site. CalTrans issued a letter to the Jamul Tribe indicating that it will not currently allow the driveway road to be used to access a casino operation from Interstate 94. The Jamul Tribe’s outside counsel reviewed the letter and is of the opinion that the letter lacks legal merit.

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 (“IRR”). In September 2008, the BIA notified the Jamul Tribe that the application had been approved and the access drive was so designated. The IRR will allow the Jamul Tribe to construct a second potential access point without the need for a permit from San Diego County. The Jamul Tribe has notified Caltrans of this additional access option but Caltrans has by its lack of response indicated that it views this access point no differently than the driveway road connection to Interstate 94. The Jamul Tribe has filed a federal complaint requesting the Federal Court to provide injunctive relief to order Caltrans to cease its efforts to impede the Jamul Tribe from using its lands for economic development purposes. If the ensuing litigation is not resolved quickly, or if it is adversely decided, the further delays may cause us to reevaluate the project plans which could negatively impact the value of the Company’s assets associated with this project.

~~Lakes and the leaders of the Jamul Tribe continue to believe that the access issues will be resolved, adequate financing will be obtained and the project will be successfully completed.~~

~~LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES~~

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


5.6.	Other long-term assets related to Indian casino projects

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, 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
Allocation of advances — 38 507 13 558
Amortization(*) (1,679 ) — — (1 ) (1,680 )

Balance, June 29, 2008 (unaudited) 27,417 22,107 13,044 1,297 63,865

Allocation of advances — 93 441 9 543
Amortization(*) (1,678 ) — — (2 ) (1,680 )

Balance, September 28, 2008 (unaudited) $ 25,739 $ 22,200 $ 13,485 $ 1,304 $ 62,728


				Shingle
	Pokagon			Springs			Jamul
	Band			Tribe			Tribe			Other			Total

Balance, December 30, 2007	$	30,775		$	21,923		$	11,972		$	1,240		$	65,910
Allocation of advances		—			426			2,116			78			2,620
Amortization		(6,715	)		(133	)		—			(8	)		(6,856	)
Impairment losses		—			—			(14,088	)		—			(14,088	)

Balance, December 28, 2008		24,060			22,216			—			1,310			47,586
Allocation of advances		—			—			569			56			625
Amortization		(1,678	)		(798	)		—			(3	)		(2,479	)
Impairment losses(*)		—			—			(569	)		—			(569	)

Balance, March 29, 2009 (unaudited)	$	22,382		$	21,418		$	—		$	1,363		$	45,163


(*)		~~Amortization expense primarily relates~~Due to continued uncertainty surrounding the Jamul Casino project, Lakes recognized an impairment of $0.6 million related to the ~~Four Winds Casino Resort, which commenced upon its opening in August~~intangible assets associated with this project during the first quarter of ~~2007.~~2009.

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 ~~September 28, 2008 and December 30, 2007,~~March 29, 2009, land held for development related to Indian casino ~~projects, recorded at its cost of $7.7 million and $7.6 million, respectively, is primarily related to land near the location of the planned Jamul Casino project.~~

~~Other.~~ As of September 28, 2008 and December 30, 2007, other assets related to Indian casino projects were approximately $5.1 million and $5.2 million, respectively, and consist primarily of receivables from related parties of $4.3 million related to the development and opening of certain Lakes’ Indian casino projects. Also, included in this category are costs incurred related to Indian casino projects which have not yet been included as part of the notes receivable because of the timing of payment. 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.

1311

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

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

projects was $1.8 million. Lakes currently owns approximately 96 acres of land held for development located adjacent to the Jamul Casino project location, which is carried at $1.0 million as of March 29, 2009.

As of March 29, 2009, Lakes owns approximately 139 acres of land held for development located adjacent to the Ioway Casino Resort project location. Lakes has invested $0.8 million in land held for development, which is being held for future transfer to the Iowa Tribe.

Other. As of March 29, 2009 and December 28, 2008 these assets consist primarily of amounts due from KAR Entities that were advanced in connection with the acquisition of contracts rights related to the Red Hawk Casino and the proposed Jamul Casino. See the discussion of these arrangements below in Part I, Item 2 of this Quarterly Report onForm 10-Q, included under the captions “Description of each Indian casino project and evaluation of critical milestones — Shingle Springs Tribe” and “Description of each Indian casino project and evaluation of critical milestones — Jamul Tribe”, respectively.


6.7.	Debt

Credit Line. During 2008, Lakes entered into a client agreement (the “Credit Line”) with UBS, which is collateralized by Lakes’ ARS held at UBS (Note 3) and is due and payable on demand with interest at30-day LIBOR plus one percent. As of March 29, 2009, approximately $18.0 million was outstanding under the Credit Line.

Non-revolving line of credit. Also during 2008, Lakes closed on a two-year interest only $8.0 million non-revolving line of credit loan agreement (the “Loan Agreement”) with First State Bank. The Loan Agreement is collateralized by real property in Minnetonka, Minnesota, which is carried at approximately $6.5 million and included within property and equipment, net on the unaudited consolidated balance sheet as of March 29, 2009. Amounts borrowed under the Loan Agreement bear interest at 8.95%. As of March 29, 2009, Lakes had drawn $2 million under the Loan Agreement.


8.	Contract acquisition costs payable

~~Upon opening of the Four Winds Casino Resort, the~~The Company ~~became~~is 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 obligation 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 also became payable upon the opening of the casino. These obligations do not have stated interest rates and have payment terms which extend beyond 12 months. 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 being amortized to interest expense as the payments are made pursuant to the respective agreements.contract. As of ~~September 28, 2008 and December 30, 2007, contract acquisition costs payable~~March 29, 2009, remaining amounts owed under these agreements were ~~$7.9 million and $9.3 million, respectively.~~$6.7 million.

During 2006, the Lyle Berman Family Partnership (the “Partnership”) purchased a portion of the $11 million obligation discussed above from an unrelated third party. The Partnership receives approximately $0.3 million per year of the payment stream related to this obligation during the five-year term of the management contract of the Four Winds Casino Resort. Lyle Berman, Lakes’ Chairman and Chief Executive Officer, does not have an ownership or any other beneficial interest in the 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~~who are the partners in and sole beneficiaries of the Partnership.


7.	~~Credit line~~

~~Effective April 11, 2008, Lakes entered into a client agreement with UBS for the purpose of borrowingand/or~~ obtaining credit in a principal amount not to exceed $11.0 million (the “Margin Account Agreement”). During June 2008, the Margin Account Agreement limit was increased to $12.5 million. On October 3, 2008, Lakes entered into a new client agreement (the “Credit Line”) with UBS which supersedes the Margin Account Agreement. The Credit Line enabled Lakes to draw 75% of the market value of Lakes’ ARS and is secured by Lakes’ ARS held at UBS. Amounts borrowed under the Credit Line are due and payable on demand and bear interest at a floating annual interest rate equal to the sum of the prevailing daily~~30-day~~ LIBOR plus 100 basis points. Amounts previously drawn under the Margin Account Agreement were transferred to the Credit Line and the entire remaining amount available under the Credit Line was drawn by Lakes upon its execution. As of September 28, 2008, approximately $11.7 million was outstanding under the Margin Account Agreement, and approximately $18.2 million was outstanding under the Credit Line through the date of this Quarterly Report on~~Form 10-Q.~~

~~Effective May 16, 2008, WPTE entered into a client agreement with one of the brokers that holds WPTE’s ARS for the purpose of borrowingand/or~~ obtaining credit in a principal amount of approximately $4 million (the “WPTE Credit Line”). The WPTE Credit Line allows WPTE to draw up to 50% of the market value of WPTE’s ARS held by that broker, which is secured by the related ARS. Amounts borrowed under the WPTE Credit Line are due and payable on demand and bear interest at a floating annual interest rate of up to 3% over the prime rate, depending upon the amount drawn. WPTE has not drawn on the WPTE Credit Line.


8.9.	Share-based compensation

~~Consolidated share-based~~Share-based compensation expense, ~~related to~~which includes stock options and restricted stock units, was $0.1 million for the three months ended March 29, 2009 and ~~six months ended September 28, 2008 and September~~March 30, ~~2007, respectively, were as follows:~~2008. See Note 11 for a discussion of the income tax benefits related to share-based compensation.

Three Months Ended Nine Months Ended
September 28,
September 30,
September 28,
September 30,

2008 2007 2008 2007
(In thousands)

Total cost of share-based payment plans $ 125 $ 1,172 $ 985 $ 3,607

Stock options. The Company uses the Black Scholes option pricing model to estimate the fair value and compensation cost associated with employee incentive stock options which requires the consideration of historical

1412

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

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

For the three months and nine months ended September 28, 2008 and September 30, 2007, no income tax benefit (Note 10) was recognized in Lakes’ unaudited condensed consolidated statements of operations and comprehensive loss for share-based compensation arrangements. 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 losses and earnings volatility, the relatively short and volatile operating history of WPTE, and Lakes’ current stages of 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’~~Company’s stock ~~prices,~~price, the ~~weighted-average~~weighted average risk-free interest rate and the ~~weighted-average~~weighted average expected life of the options.

The following values represent the average ~~per-grant assumptions~~per grant for the indicated variables used to value options granted during the three months ended March 29, 2009 and ~~nine months ended September 28,~~March 30, 2008, ~~and September 30, 2007,~~ respectively. There have been no significant changes to the assumptions thus far in ~~2008~~2009 and none are expected during the remainder of ~~2008.~~2009.

~~Lakes’ stock option plans:~~


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 28,			September 30,			September 28,			September 30,			March 29,			March 30,
Key valuation assumptions:	2008			2007			2008			2007			2009			2008

Expected dividend yield		—			—	*		—			—			—			—
Risk-free interest rate		4.01	%		—	*		3.78	%		4.89	%		2.52	%		3.66	%
Expected term (in years)		8.18 years			—	*		8.18 years			8.20 years			7.69 years			8.18 years
Expected volatility		57.92	%		—	*		52.48	%		54.95	%		79.82	%		48.77	%
Forfeiture rate		—			—	*		—			—			—			—
Weighted-average grant-date fair value per share													$	2.46		$	3.35


*		~~There were no options granted during the three months ended September 30, 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 behavior of option holders during the period from September 1995 to ~~September 28, 2008.~~March 29, 2009. Management believes historical data is reasonably representative of future exercise behavior.

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

	•	Forfeiture rate — As share-based compensation expense recognized is based on awards ultimately expected to vest, expense for grants beginning upon adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123R,Share-Based Payment-Revised 2004 (“(“SFAS 123R”) will be reduced for estimated forfeitures. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company has reviewed the historical forfeitures which are minimal, and as such will amortize the grants to the end of the vesting period and will adjust for forfeitures at the end of the term.

1513

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 29, 2009 and ~~nine months ended September 28,~~March 30, 2008 ~~and September 30, 2007~~ (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

2009
Balance at December 28, 2008												2,862,964			2,498,864		343,150		$	6.60
Authorized												—			—		—			—
Granted(*)												337,000			—		(337,000	)		3.25
Forfeited/cancelled/expired												(109,423	)		—		109,423			4.29
Exercised												(91,041	)		—		—			3.80

Balance at March 29, 2009												2,999,500			2,455,700		115,573		$	6.24

2008
Balance at December 30, 2007		4,345,650			3,842,200		584,750		$	6.08		4,345,650			3,842,200		584,750		$	6.08
Authorized		—			—		—			—		—			—		—			—
Granted		196,000			—		(196,000	)		5.73		196,000			—		(196,000	)		5.73
Forfeited/cancelled/expired		—			—		—			—		—			—		—			—
Exercised		(400,000	)		—		—			4.10		(400,000	)		—		—			4.19

Balance at March 30, 2008		4,141,650			3,798,200		388,750			6.25		4,141,650			3,798,200		388,750		$	6.25
Authorized		—			—		—			—
Granted		75,000			—		(75,000	)		4.74
Forfeited/cancelled/expired		—			—		—			—
Exercised		(40,000	)		—		—			5.41

Balance at June 29, 2008		4,176,650			3,767,075		313,750			6.24
Authorized		—			—		—			—
Granted		3,000			—		(3,000	)		4.99
Forfeited/cancelled/expired		(31,000	)		—		31,000			7.30
Exercised		(1,062,500	)		—		—			4.18

Balance at September 28, 2008		3,086,150			2,701,775		341,750		$	6.94

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

Balance at April 1, 2007		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

~~LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES~~

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


(*)		Includes 140,000 of restricted stock units granted during the first quarter of 2009.

The following table summarizes significant ranges of Lakes’ outstanding and exercisable options as of ~~September 28, 2008~~March 29, 2009 (unaudited):

Options outstanding at September 28, 2008
Weighted-
Options exercisable at September 28, 2008
average
Aggregate
Aggregate

Number
remaining
Weighted-average
intrinsic
Number
Weighted-
intrinsic

Range of exercise prices
outstanding contractual life exercise price value exercisable average price value

$  (3.25 — 3.63) 276,200 2.7 years $ 3.46 $ 813,542 276,200 $ 3.46 $ 813,542
(3.64 — 5.45) 990,200 2.5 years 4.33 2,063,438 810,200 4.25 1,752,358
(5.46 — 7.26) 154,000 7.7 years 6.92 2,750 60,000 7.18 —
(7.27 — 9.08) 1,377,500 5.1 years 8.12 — 1,352,500 8.13 —
(9.09 — 10.90) 52,500 7.7 years 10.26 — 20,350 10.23 —
  (10.91 — 12.71) 70,750 2.4 years 11.52 — 63,775 11.44 —
  (12.72 — 14.53) 95,000 6.4 years 14.00 — 68,250 14.01 —
  (14.54 — 16.34) 5,000 6.3 years 16.11 — 3,000 16.11 —
  (16.35 — 18.16) 65,000 5.5 years 17.91 — 47,500 17.95 —

3,086,150 4.2 years $ 6.94 $ 2,879,730 2,701,775 $ 6.89 $ 2,565,900


	Options outstanding at March 29, 2009
			Weighted-						Options exercisable at March 29, 2009
			Average				Aggregate						Aggregate
	Number		Remaining		Weighted-average		intrinsic		Number		Weighted-average		intrinsic
Range of exercise prices	outstanding		contractual life		exercise price		value		exercisable		exercise price		value

Restricted stock units		140,000
$ (3.25 — 3.63)		744,600		3.9 years	$	3.30	$	—		547,600	$	3.32	$	—
(3.64 — 5.45)		300,300		3.4 years		4.32		—		221,925		4.34		—
(5.46 — 7.26)		174,750		7.3 years		6.50		—		89,625		6.57		—
(7.27 — 9.08)		1,353,000		4.5 years		7.54		—		1,352,625		7.54		—
(9.09 — 10.90)		109,250		3.8 years		10.04		—		89,525		10.14		—
(10.91 — 12.71)		18,000		6.8 years		11.52		—		9,600		11.56		—
(12.72 — 14.53)		89,600		5.8 years		13.04		—		85,800		13.05		—
(14.54 — 16.34)		30,000		6.0 years		16.01		—		19,000		15.96		—
(16.35 — 16.84)		40,000		4.4 years		16.84		—		40,000		16.84		—

		2,999,500		4.7 years	$	6.24	$	—		2,455,700	$	6.80	$	—

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value ~~based on Lakes’ closing stock price of $6.41 on September 26, 2008,~~ which would have been received by the option holders had all option holders exercised their options as of that date. Based on Lakes’ closing stock price of $2.17 on March 29, 2009, none of the stock options granted by Lakes have an intrinsic value. The total intrinsic value of options exercised during the three months ~~and nine months~~ ended ~~September 28, 2008 were $3.4 million. The total intrinsic value of options~~March 29, 2009 was not material. Options exercised during the three months ~~and nine months~~ ended ~~September~~March 30, ~~2007 were $0.4 million and $1.3 million, respectively.~~2008 did not have an intrinsic value. As of ~~September 28, 2008,~~March 29,

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements — (Continued)

2009, Lakes’ unrecognized share-based compensation iswas approximately $1.2 million, which is expected to be recognized over a weighted-average period of ~~2.8~~2.5 years. The weighted-average grant-date fair value of stock options granted during the three months and nine months ended September 28, 2008 were $3.27 and $3.23 per share, respectively. The weighted-average grant-date fair value of stock options granted during the three months and nine months ended September 30, 2007 were $7.73 per share.

~~WPTE stock option plan:~~

Three months ended Nine months ended
September 28,
September 30,
September 28,
September 30,

Key valuation assumptions:
2008 2007 2008 2007

Expected dividend yield — * — — —
Risk-free interest rate — * 4.07 % 3.38 % 4.46 %
Expected term (in years) — * 6 years 6 years 6 years
Expected volatility — * 69.89 % 69.95 % 71.98 %
Forfeiture rate — * 16.71 % 20.58 % 16.71 %


*		~~There were no options granted during the three months ended September 28, 2008.~~


	•	~~Expected dividend yield — As WPTE 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) — 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 Bulletins 107 and 110.

~~LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES~~

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


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

	•	Forfeiture rate — As share-based compensation expense recognized is based on awards ultimately expected to vest, expense for grants beginning upon adoption of SFAS 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 and nine months ended September 28, 2008 and September 30, 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
Authorized — — — —
Granted 52,000 — (52,000 ) 1.26
Forfeited/cancelled/expired (33,950 ) — 33,950 4.66
Exercised — — — —

Balance at June 29, 2008
2,855,307 1,466,040 332,700 5.63
Authorized — — — —
Granted — — — —
Forfeited/cancelled/expired (425,536 ) — 425,536 4.37
Exercised — — — —

Balance at September 28, 2008
2,429,771 1,491,706 758,236 $ 5.85

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

~~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 28, 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 3.41 $ 0.0049 $ 97,434 111,340 $ 0.0049 $ 97,434
$ 1.26 — 4.80 906,165 8.80 3.21 — 171,400 4.48 —
$ 5.18 — 9.92 1,289,266 6.21 7.58 — 1,117,966 7.83 —
$11.95 — 14.51 117,000 6.86 12.23 — 85,000 12.35 —
$15.05 — 19.50 6,000 6.81 15.79 — 6,000 15.79 —

2,429,771 7.08 $ 5.85 $ 97,434 1,491,706 $ 7.15 $ 97,434

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on WPTE’s closing stock price of $0.88 on September 26, 2008, which would have been received by the option holders had all option holders exercised their options as of that date. No options were exercised during the three and nine months ended September 28, 2008. The total intrinsic value of options exercised during the three and nine months ended September 30, 2007 was $0.5 million. As of September 28, 2008, WPTE’s unrecognized share-based compensation was approximately $1.0 million, which is expected to be recognized over a weighted-average period of 2.3 years. There were no stock options granted during the three months ended September 28, 2008. The weighted-average grant-date fair value of stock options granted during the nine months ended September 28, 2008 was $0.82 per share. The weighted-average grant-date fair value of stock options granted during the three months and nine months ended September 30, 2007 were $2.29 and $2.87 per share, respectively.

~~Both~~ Lakes ~~and WPTE issue~~issues new shares of common stock upon the exercise of options.


9.	~~Loss per share~~

For all periods, basic loss applicable to common shareholders per share is calculated by dividing net loss applicable to common shareholders by the weighted-average number of common shares outstanding. Potentially dilutiveRestricted stock ~~options of 3,086,150 and 4,410,900 were not included in the computation of diluted loss applicable to common shareholders per share for~~units. The following table summarizes Lakes’ restricted stock unit activity during the three months ~~and nine~~ended March 29, 2009 (unaudited):


			Weighted-average
	Restricted		grant-
	stock units		date fair value

Non-vested shares at December 28, 2008		—	$	—
Granted		140,000		3.25
Vested		—		—
Forfeited		—		—

Non-vested shares at March 29, 2009		140,000	$	3.25

As of March 29, 2009, Lakes’ unrecognized share-based compensation was approximately $0.4 million related to non-vested shares, which is expected to be recognized over a weighted-average of 2.8 years. No restricted stock units vested during the three months ended ~~September 28, 2008, and September 30, 2007, respectively, because the effects would have been anti-dilutive for those periods due to net losses.~~March 29, 2009.


10.	~~Income taxes~~Earnings (Loss) per share

For all periods, basic earnings (loss) applicable to common shareholders per share (“EPS”) is calculated by dividing net earnings (loss) applicable to common shareholders by the weighted-average common shares outstanding. Diluted EPS in profitable years reflects the effect of all potentially dilutive common shares outstanding by dividing net earnings (loss) applicable to common shareholders by the weighted-average of all common and potentially dilutive shares outstanding. Potentially dilutive stock options applicable to common shareholders of 631,908 shares for the three months ended March 30, 2008, were not used to compute diluted loss per share applicable to common shareholders because the effects would have been anti-dilutive.


11.	Income Taxes

At December 28, 2008, the Company had recorded a 100% valuation allowance against the remaining deferred tax assets arising from net operating loss carryforwards and capital loss carryforwards. Management has evaluated all evidence and has determined that ~~historical~~cumulative net losses ~~(excluding net realized and unrealized gains on notes receivable)~~ generated over the past ~~five~~three years outweigh the current positive evidence that the Company believes exists surrounding its ability to generate significant income from its long-term assets related to Indian casino projects. ~~Therefore, at September 28, 2008, and December 30, 2007,~~However, the Company ~~continues~~expects to maintain a 100% valuation allowance against deferred tax assets arising from net operating loss carryforwards and other ordinary items, since management has concluded that is it more likely than not that the tax benefits will not be realized in the foreseeable future.

~~The Company also has~~release $3.3 million of deferred tax assets related to capital losses of approximately $7.3 million as of September 28, 2008. The realization of these benefits is dependent on the generation of capital gains during the applicable carryforward periods. On October 1, 2008, Lakes’ Board of Directors declared a dividend of all of the Company’s shares in WPTE (Note 14). Lakes currently owns approximately 12.5 million shares of the outstanding common stock of WPTE. As a result, the Company expects to have a taxable capital gain and be able to utilize a portion of its capitalnet operating loss carryforwards ~~during 2008. The record date for the dividend was October 24, 2008 (the “Record Date”). The date~~that will offset current book income, of ~~distribution~~which approximately $1.1 million will be ~~November 21, 2008 (the “Distribution Date”). Accordingly,~~credited to additional paid-in capital relating to the

~~LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES~~

~~Notes~~ release of valuation allowances against tax windfall benefits related to ~~Unaudited Condensed Consolidated Financial Statements — (Continued)~~

Company has adjusted its deferred tax assets to $1.9 million as of September 28, 2008, which is an estimate based on the taxable gain expected to be realized through the dividend of WPTE shares. The estimated taxable gain was calculated using a market capitalization approach to value the Company’s shares of WPTE, using the closing stock price of WPTE as of the Record Date as reported by the NASDAQ Global Market. Any difference between this estimate and the actual capital gain as calculated on the Distribution Date will be recognized in the fourth quarter.share-based compensation from prior years.

The Company ~~has~~ recorded ~~a valuation allowance against the portion~~$0.2 million of ~~the capital losses that are not expected to be offset against the capital gain generated from the dividend of WPTE shares during 2008. As of September 28, 2008, the valuation allowance~~interest related to the ~~capital loss items was $5.4 million, resulting in a net deferred~~uncertain tax ~~asset related~~positions to ~~capital losses of $1.9 million.~~

~~See also Note 11 regarding a Louisiana Department of Revenue litigation~~income tax ~~matter.~~expense for the three months ended March 29, 2009.


~~11.~~12.	~~Legal proceedings~~Contingencies

Louisiana Department of Revenue 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

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements — (Continued)

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. However, Lakes may be required to pay ~~an assessment of~~ up to the $8.6 million assessment plus interest if itLakes is not successful in this matter. ~~Lakes’ management~~Lakes has ~~determined that it is more likely than not that it will be able to support its position~~recorded an estimated liability related to this ~~tax matter. A liability has been recorded for an estimated settlement~~examination including accrued interest and fees, which is included as part of income taxes payable on the accompanying ~~condensed~~ consolidated balance sheets. ~~Interest expense related~~

Red Hawk Casino. Lakes may be required to pay Kevin Kean and Jerry Argovitz under their respective agreements with Lakes resulting from the opening of the Red Hawk Casino on December 17, 2008. See the discussion in Part I, Item 2 of this ~~uncertain tax position is recorded as a component~~Quarterly Report onForm 10-Q below included under the caption “Description of ~~income tax expense.~~each Indian casino project and evaluation of critical milestones — Shingle Springs Tribe”.

Miscellaneous legal matters. Lakes and its subsidiaries ~~(including WPTE)~~ are involved in various other inquiries, administrative proceedings, and 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 the likelihood of an unfavorable outcome is ~~remote. Accordingly, no provision for loss has been recorded in connection therewith.~~


~~12.~~	~~Impairment losses~~

~~WPTE owns approximately 8% of Cecure Gaming~~remote, and ~~does~~is not likely to have ~~the ability to exercise significant influence over Cecure Gaming. As such, WPTE accounts for this investment under the cost method, periodically evaluating the carrying value for impairment.~~

In the third quarter of 2008, WPTE performed an impairment analysis of its investment in Cecure Gaming due to difficulties Cecure Gaming is having in obtaining working capital to finance their business development over the next several years. Cecure Gaming also recently had a significant reduction in staffing. This investment was measured by WPTE at implied fair value resulting in an other-than-temporary impairment charge. The implied fair value measurement was calculated by WPTE usingmaterial adverse effect upon Lakes’ unaudited consolidated financial metrics and ratios of comparable public companies and was measured using Level 3 inputs, as WPTE used unobservable inputs and significant management judgment to value this investment due to the absence of quoted market prices, inherent lack of liquidity, and the long-term nature of this investment. WPTE recorded a $1.9 million impairment charge in the third quarter of 2008 related to this investment.

~~LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES~~

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


13.	~~Segment information~~Subsequent Events

~~Lakes’ principal business is the development, financing and management of gaming-related properties. Additionally,~~On April 1, 2009, the Company issubmitted an application to the ~~majority owner of WPTE. All of Lakes’~~Kansas Lottery Commission for a Gaming Facility Manager license to develop and ~~primarily all of WPTE’s operations to date are conducted~~operate a casino in the ~~United States. Episodes of the World Poker Tour~~^® television series are distributed internationally. 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’ investments in securities, deferred tax assets, Lakes’ corporate office building and development and land costs related to a Company-owned non-Indian 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 September 28, 2008 $ 163.5 $ 27.0 $ — $ 54.6 $ 245.1
Total assets as of December 30, 2007 $ 158.2 $ 41.7 $ — $ 56.2 $ 256.1
For the three months ended September 28, 2008
Revenue $ 8.4 $ 2.0 $ 0.8 $ — $ 11.2
Earnings (loss) from operations 7.0 (4.6 ) — (7.5 ) (5.1 )
Depreciation and amortization — 0.1 — 0.1 0.2
Impairment losses — 1.9 — — 1.9
Amortization of intangible assets related to Indian casino projects 1.7 — — — 1.7
For the three months ended September 30, 2007
Revenue $ 2.6 $ 3.1 $ 1.3 $ — $ 7.0
Earnings (loss) from operations 0.1 (2.6 ) — (3.8 ) (6.3 )
Depreciation and amortization — 0.1 — 0.1 0.2
For the nine months ended September 28, 2008
Revenue $ 18.8 $ 9.1 $ 3.8 $ — $ 31.7
Earnings (loss) from operations 12.6 (11.9 ) — (20.2 ) (19.5 )
Depreciation and amortization — 0.4 — 0.2 0.6
Impairment losses — 1.9 — — 1.9
Amortization of intangible assets related to Indian casino projects 5.0 — — — 5.0
For the nine months ended September 30, 2007
Revenue $ 3.4 $ 13.2 $ 3.4 $ 0.1 $ 20.1
Impairment losses 0.3 — — — 0.3
Earnings (loss) from operations 10.1 (9.1 ) — (13.0 ) (12.0 )
Depreciation and amortization — 0.3 — 0.3 0.6
Loss on abandonment of online gaming assets — 2.3 — — 2.3

~~LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES~~

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


~~14.~~	~~Subsequent events~~

~~Dividend of WPTE stock owned by Lakes.~~ On October 1, 2008, Lakes’ Board of Directors declared a dividend of all of the Company’s shares of WPTE. Lakes owns approximately 12.5 million shares, or approximately 61%, of the outstanding common stock of WPTE. The record date for the dividend was October 24, 2008, which established the shareholders of record entitled to the dividend and determined the ratio of WPTE shares to be distributed per Lakes share. The date of distribution will be November 21, 2008. Lakes will adjust the exercise prices in the fourth quarter of 2008 for the outstanding stock options in connection with the WPTE distribution to preserve the intrinsic value of the options after the dividend as compared to the value before the dividend. See Note 10 for a discussion of the tax impact this dividend is expected to have on Lakes’ financial position and results of operations. Lakes is continuing to evaluate other potential effects this dividend will have on its financial position and results of operations during the fourth quarter of 2008. After the date of distribution future operations of WPTE will not be included in Lakes consolidated results of operations, and historical amounts up to that date will be included as discontinued operations.

~~The table below reflects summarized pro-forma financial information as if the dividend of WPTE stock owned by Lakes had occurred as of September 28, 2008 (in millions, except per share data).~~

As presented Pro-forma

As of September 28, 2008

Current assets $ 31.8 $ 19.0
Long-term assets related to Indian casino projects 157.7 157.7
Other long-term assets 55.6 41.3

Total assets $ 245.1 $ 218.0

Current liabilities $ 36.8 $ 33.6
Long-term liabilities 5.6 5.6

Total liabilities 42.4 39.2
Shareholders’ equity 202.7 178.8

Total liabilities and shareholders’ equity $ 245.1 $ 218.0

Three months ended
September 28, 2008 September 30, 2007
As presented Pro-forma As presented Pro-forma

Revenue $ 11.2 $ 8.4 $ 7.0 $ 2.6
Loss from continuing operations (5.1 ) (0.5 ) (6.3 ) (3.7 )
Loss from discontinued operations — (4.6 ) — (2.6 )
Loss per share from continuing operations — basic (0.23 ) (0.12 ) (0.21 ) (0.16 )
Loss per share from discontinued operations — basic — (0.11 ) — (0.05 )

Nine months ended
September 28, 2008 September 30, 2007
As presented Pro-forma As presented Pro-forma

Revenue $ 31.7 $ 18.8 $ 20.1 $ 3.5
Loss from continuing operations (19.5 ) (7.6 ) (12.0 ) (2.9 )
Loss from discontinued operations — (11.9 ) — (9.1 )
Loss per share from continuing operations — basic (0.72 ) (0.44 ) (0.36 ) (0.15 )
Loss per share from discontinued operations — basic — (0.28 ) — (0.21 )

~~LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES~~

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

~~WPTE termination of online gaming software licensing agreement.~~ On October 15, 2008, WPTE notified CryptoLogic Inc. and its wholly-owned subsidiary WagerLogic Limited (collectively “CryptoLogic”) of the termination of its software license and support agreement with CryptoLogic dated August 24, 2007, as amended. WPTE will no longer operate the World Poker Tour branded online gaming website on the CryptoLogic network after November 14, 2008. WPTE will continue to operate two international corporate websites that provide links to the WPT-branded online gaming website.

~~Non-revolving line of credit loan agreement.~~ On October 28, 2008, Lakes closed on a two-year interest only $8.0 million non-revolving line of credit loan agreement (the “Loan Agreement”) with First State Bank. The Loan Agreement is collateralized primarily by all of Lakes’ interest in the real property it owns in Minnetonka, Minnesota. Amounts borrowed under the Loan Agreement bear interest at 8.95%. Lakes’ Chief Executive Officer, Lyle Berman, has personally guaranteed the Loan Agreement on behalf of Lakes.South Central Kansas Gaming Zone. Lakes has ~~drawn $2 million from the Loan Agreement through the date of~~not yet been notified whether or not it will receive this ~~Quarterly Report onForm 10-Q.~~

~~Penn National Gaming, Inc. (“Penn”)~~ On October 24, 2008, Blue Water Joint Venture, LLC, (“Blue Water”) an entity owned 80% by Lakes, filed a Complaint against Penn and No on 6 Committee (“No on 6”) with the Court of Common Pleas in the county of Franklin, Ohio, claiming that several of their advertisements pertaining to the casino referendum in Ohio were false, misleading, deceptive, defamatory and violated other state laws. On October 28, 2008, Penn, No on 6 and Indiana Gaming Company, L.P. d/b/a Argosy Casino Lawrenceburg (the “Defendants”) filed a counterclaim against Blue Water and added Lakes, Lakes’ Chief Executive Officer, Lyle Berman, Ricky Lertzman and Brad Pressman claiming that Blue Water’s advertisements pertaining to the casino referendum were false, misleading, deceptive, defamatory and violated other state laws. Management believes the Defendants’ claims are without merit and that the likelihood of an unfavorable outcome is remote. Accordingly, no provision for loss has been recorded in connection therewith.

~~UBS agreement.~~ On November 3, 2008, Lakes accepted an offer from UBS giving Lakes nontransferable rights to sell its ARS, held by UBS at par value to UBS at any time during the period of June 30, 2010, through July 2, 2012. The par value of Lakes’ ARS (all of which are held by UBS) is approximately $26.8 million.

~~Ohio referendum.~~ Lakes formed a joint venture with Myohionow.com, LLC for the purpose of developing a $600 million casino resort in Clinton County, Ohio. However, on November 4, 2008, the referendum to amend the Ohio constitution to permit the proposed casino did not pass. Lakes had funded approximately $18 million as of September 28, 2008 for this casino resort initiative effort, of which $10.4 million was expensed in the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 28, 2008. Through the date of this Quarterly Report on~~Form 10-Q~~ Lakes had funded an additional $10 million for the effort, and anticipates an additional $1 million will be incurred during the remainder of the fourth quarter of 2008. Lakes does not expect to recover these amounts.license.

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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 four separate tribes for casino operations in Michigan, California, and Oklahoma for a total of five separate casino projects as follows:


	•	We developed, and 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. We began managing the Four Winds Casino Resort when it opened to the public on August 2, 2007. The Four Winds Casino Resort is located near the first Interstate 94 exit in southwestern Michigan and approximately 75 miles east of Chicago. The facility features approximately 3,000 slot machines, ~~and approximately 85~~72 table games, ~~as well as multiple~~a 12-table poker room, a 165-room hotel, five restaurants, ~~and~~three bars, a child care facility and arcade, retail space and a parking ~~garage, a hotel and other facilities.~~garage.

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

	•	~~We have contracts~~ to ~~develop and subsequently~~ manage, ~~for seven years~~ the Red Hawk Casino ~~which is being~~that was built on the Rancheria of the Shingle Springs ~~Band of Miwok Indians (the “Shingle Springs Tribe”)~~Tribe in El Dorado County, California, adjacent to U.S. Highway 50, approximately 30 miles east of Sacramento, California. We began managing the Red Hawk Casino when it opened to the public on December 17, 2008. The Red Hawk Casino ~~is planned~~features approximately 2,100 electronic gaming devices, 75 table games, six restaurants, six bars, retail space, a parking garage, a child care facility and arcade. To provide direct freeway access to ~~open~~the Red Hawk Casino, an affiliate of the Shingle Springs Tribe constructed a dedicated inter-change on U.S. Highway 50.

	•	We are managing the Cimarron Casino for the Iowa Tribe in ~~late 2008.~~Perkins, Oklahoma, under a seven-year management contract, which commenced in 2006. The Cimarron Casino features approximately 375 electronic gaming machines.

	•	We have contracts to develop and finance a casino to be built on the reservation of the Jamul Indian Village (the “Jamul Tribe”) located on ~~Interstate~~State Highway 94, approximately 20 miles east of San Diego, California (the “Jamul Casino”). ~~The Jamul Casino~~This project has been significantly delayed due to ~~issues with access from Interstate 94~~various political and regulatory issues. Significant risk exists related to this project moving forward to completion, and we have recorded significant impairment charges against our investment in this project. However, the ~~proposed Jamul Casino site. The~~ Jamul Tribe has the two basic requirements to eventually build a ~~driveway road leading~~successful project — federal recognition as an Indian Tribe and Indian land eligible for gaming and we currently expect to the Jamul Casino site. CalTrans issued a letter to the Jamul Tribe indicating that it will not currently allow the driveway road to be used to access a casino operation from Interstate 94. The Jamul Tribe’s outside counsel reviewed the letter and is of the opinion that the letter lacks legal merit.continue our involvement with this project.

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 (“IRR”). In September 2008, the BIA notified the Jamul Tribe that the application had been approved and the access drive was so designated. The IRR will allow the Jamul Tribe to construct a second potential access point without the need for a permit from San Diego County. The Jamul Tribe has notified Caltrans of this additional access option but Caltrans has by its lack of response indicated that it views this access point no differently than the driveway road connection to Interstate 94. The Jamul Tribe has filed a federal complaint requesting the Federal Court to provide injunctive relief to order Caltrans to cease its efforts to impede the Jamul Tribe from using its lands for economic development purposes. If the ensuing litigation is not resolved quickly, or if it is adversely decided, the further delays may cause us to reevaluate the project plans which could negatively impact the value of Lakes’ assets associated with this project. We and the leaders of the Jamul Tribe continue to believe that the access issues will be resolved, 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~~a casino resort which is planned to be built near Route 66 and approximately 25 miles northeast of Oklahoma City, ~~Oklahoma.~~Oklahoma (the “Ioway Casino Resort”). The Iowa Tribe is currently leasing and acquiring land from tribal members, which is held in trust for the individual tribal members by the United States Government. ~~These~~In January 2009, the BIA granted approval on the purchase of a60-acre allotment. The remaining transactions ~~need to be approved by~~for the ~~BIA.~~final 14 acres still require BIA approval. Lakes submitted its management contract with the Iowa Tribe for the Ioway Casino Resort to the ~~National Indian Gaming Commission (the “NIGC”)~~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.

Lakes formed a joint venture with Myohionow.com, LLC for the purpose of developing a $600 million casino resort in Clinton County, Ohio. However, on November 4, 2008, the referendum to amend the Ohio constitution to permit the proposed casino did not pass. Lakes had funded approximately $18 million as of September 28, 2008 for this casino resort initiative effort, of which $10.4 million was expensed in the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 28, 2008. Through the date of this Quarterly Report on~~Form 10-Q~~ Lakes had funded an additional $10 million for the effort, and anticipates an additional $1 million will be incurred during the remainder of the fourth quarter of 2008. Lakes does not expect to recover these amounts.

We have also explored, and continue to explore, other development projects with Indian tribes. We ~~are~~ also ~~involved in~~explore other non-Indian casino development projects and other business activities, including potential development of a non-Indian casino in Mississippi, and the development of new table games for licensing to both Tribal and non-Tribal casinos. In addition, as of September 28, 2008, we owned approximately 61% of WPTE, a separate publicly-held company principally engaged in the creation of internationally branded entertainment and 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 consolidated financial statements include the results of operations of WPTE. However, onactivities.

On October 1, 2008, Lakes’ Board of Directors declared a noncash dividend consisting of all of ~~Lakes’~~the shares of ~~WPTE.~~WPTE then owned by Lakes. Lakes previously owned 12,480,000 or approximately 61% of the outstanding common stock of WPTE, a separate publicly-held media and entertainment company. The record date for the dividend was October 24, 2008, which established the shareholders of record entitled to the dividend, ~~and determined~~thereby allowing the determination of the ratio of WPTE shares to be distributed per Lakes share. The date of distribution ~~will be~~was November 21, 2008. ~~After this~~Operations of WPTE after the date ~~Lakes will no longer include WPTE’s~~of distribution are not included in Lakes’ consolidated results of operations, ~~in its consolidated financial statements.~~

and historical operating results of WPTE creates internationally branded entertainment and consumer products driven by the development, production and marketing of televised programming based on gaming themes. WPTE created the World Poker Tour^® ~~, or WPT, a television show based on a series of high-stakes poker tournaments~~up to that currently airs on the Game Show Network (“GSN”) and the Travel Channel (“TRV”) in the United States, and has been licensed for broadcast globally. In January 2008, WPTE launched ClubWPT.com, an innovative subscription-based online poker club targeted to the estimated 60 million poker players in the United States, which is currently offered in 38 states. WPTE currently offers a real-money online gaming website, which prohibits wagers from players in the United States and other restricted jurisdictions. WPTE recently announced this website will be shut down in November 2008. WPTE also licenses its brand to companies in the business of poker equipment and instruction, apparel, publishing, electronic and wireless entertainment, DVD/home entertainment, casino games and giftware and is also engaged in the sale of corporate sponsorships. In addition, WPTE also has operations in mainland China, pursuant to its agreement with the China Leisure Sports Administrative Center (the “CLSAC”), where WPTE is developing and marketing online and mobile games supporting the WPT China National Traktor Poker Tour^tm ~~(the “Traktor Poker Tour”).~~

~~WPTE has four business segments:~~

~~WPT Studios~~, is WPTE’s multi-media entertainment division, generates revenue from the domestic and international licensing of television broadcasts, international television sponsorship revenue and casino host fees. Since WPTE’s inception, the WPT Studios division has been responsible for 73% of total revenue. WPTE licensed Season One through Season Five of the WPT series to TRV for telecast in the United States under an exclusive license agreement (the “TRV Agreement”). Prior to 2007, WPTE also licensed Season One of the Professional Poker Tour^(tm) (“PPT”) television series to TRV. On April 2, 2007, WPTE entered into an agreement (the “GSN Agreement”) with GSN, pursuant to which GSN agreed to license Season Six of the WPT for a $300,000 license fee per episode. For Season Five, WPTE received an average of $477,000 per episode under the TRV Agreement. WPTE also has license and sponsor agreements for the distribution of WPT and PPT episodes into international territories, for which WPTE receives license and sponsor fees. WPTE also collects annual host fees from member casinos that host WPT events.

Since WPTE’s inception, domestic television distribution fees from the TRV Agreement, a separate agreement with TRV relating to the PPT series and the GSN Agreement have been responsible for approximately 54% of WPTE’s total revenue. For each season covered by the TRV Agreement and related options, TRV has exclusive rights to exhibit the episodes in that season an unlimited number of times on its television network in the United States for four years, or three years in the case of Season One of the WPT.date are presented as discontinued operations.

2517

Under both the TRV and GSN Agreements, TRV and GSN paid fixed license fees for each episode WPTE produced, which were payable at various times during the pre-production, production and post-production process and were not recognized until receipt and acceptance of the completed episode was confirmed. Television production costs related to WPT episodes are generally capitalized and charged to cost of revenues as the related revenues are recognized. Therefore, the timing and number of episodes involved in the various seasons of the series affect the timing of the revenues and expenses of the WPT Studios business.

On June 7, 2008, GSN did not exercise its option to broadcast Season Seven of the WPT series. On July 17, 2008, WPTE announced a broadcast license agreement with Fox Sports Network (“FSN”), pursuant to which FSN will broadcast Season Seven of the WPT television series. FSN received exclusive rights to air 26~~one-hour~~ WPT episodes in the United States across its national sports cable network. Unlike past seasons, FSN’s exclusivity only applies to the episodes it produces for the network. Consequently, WPTE is free to produce other Season Seven episodes on other networks if another deal arises. Unlike WPTE’s historical broadcast license agreements with TRV and GSN, WPTE will not receive per-episode license fees from FSN. However, similar to many sports leagues and entertainment properties, WPTE have been afforded certain integration and advertising rights in and around the program which will allow WPTE to seek sponsorship revenues for Season Seven of the WPT, domestically and internationally. Accordingly, WPTE is currently in discussions with several potential sponsors.

From 2004 until December 2006, WPTE licensed its shows internationally through an exclusive agreement with 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, and WPTE began utilizing its internal staff and resources to distribute its shows into the international marketplace. During 2007, WPTE came to an arrangement with Alfred Haber whereby they provide non-exclusive assistance on international licensing matters on a~~case-by-case~~ ~~basis, with substantially the same terms as WPTE’s previous relationship with them.~~

As international television license fees continue to decline, WPTE is pursuing international sponsorship revenues. In December 2006, WPTE signed a multi-year international sponsorship agreement with PartyGaming Plc (“PartyGaming”), owner of PartyPoker.com, pursuant to which they will sponsor certain international television broadcasts of the WPT and PPT. PartyGaming pays WPTE fixed fees for entering into broadcast sponsorship arrangements that meet certain requirements, with maximum payment levels for each of the covered seasons of each series. For the nine months ended September 28, 2008 and September 30, 2007, WPTE recognized revenues of $1.6 million and $0.7 million, respectively, from PartyGaming. WPTE expects to recognize additional international sponsorship revenues from PartyGaming during the fourth quarter of 2008 related to the distribution of Seasons Four and Six of the WPT.

~~WPT Online~~includes the international real money gaming website linked to WorldPokerTour.com and content website at WorldPokerTour.com, which includes poker tournament coverage and live updates thereof, statistics, poker player information, an online merchandise store, and ClubWPT.com which WPTE launched in January 2008.

In 2006, WPTE decided to commission the development of its own software for WPTE’s online poker room. WPTE licensed a software platform from CyberArts Licensing, LLC, and hired approximately 30 employees in Israel to develop the software and support infrastructure. However, 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 “Agreement”) with CryptoLogic, Inc., and its wholly-owned subsidiary WagerLogic Limited (collectively “CryptoLogic”). As a result of the decision to utilize CryptoLogic and move away from the internally-developed online gaming platform based on CyberArts software, WPTE wrote off $2.3 million of property and equipment and related capitalized costs during the second quarter of 2007. In addition to the write-off of assets, WPTE curtailed its Israel operations and closed one of its two offices there during the second quarter of 2007 and in the fourth quarter of 2007, WPTE closed the remaining office in Israel.

CryptoLogic operates an online gaming site for WPTE featuring a poker room and casino games utilizing its proprietary software, in exchange for 20% of the net gaming revenues generated from the site. 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 branded gaming site on the Network.

In June 2007, CryptoLogic delivered the poker software to WPTE and the online poker room became operational on June 28, 2007. On July 26, 2007, CryptoLogic delivered 10 casino games and effective March 5, 2008, WPTE executed an amendment to the Agreement, exercising its option for a full suite of casino games with an annual minimum guarantee payable to CryptoLogic from WPTE of approximately $0.8 million. WPTE also exercised its option to have CryptoLogic develop two additional poker language rooms in Spanish and German for $0.1 million.

On October 15, 2008, WPTE notified CryptoLogic of WPTE’s intent to terminate its agreements with them. Effective November 14, 2008, WPTE will no longer operate the WPT-branded online gaming website on the CryptoLogic Network. WPTE paid CryptoLogic approximately $0.4 million in September 2008 for the option to terminate WPTE’s agreement with CryptoLogic and WPTE will have no payment obligations to CryptoLogic after November 14, 2008. WPTE will continue to operate two international corporate websites that provide links to the WPT-branded online gaming website.

The non-gaming website linked to WorldPokerTour.com includes poker tournament coverage and live updates thereof, statistics, poker player information, an online merchandise store and ClubWPT.com. 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 blackjack 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. Accordingly, 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, Centaurus Games, LLC (“Centaurus”), to operate its subscription-based online service for ClubWPT.com, which includes supporting the software, technical operations and customer service. In return for Centaurus’ services, Centaurus earns a percentage of net revenues which is calculated as subscriber fees less certain costs including chargebacks, prize pool, club content, financial charges and compliance fees. Centaurus acquired the operating assets of Ultimate Blackjack Tour, LLC in the third quarter of 2008.

On July 31, 2008, WPTE announced an additional agreement with FSN to jointly create a new poker program focused on building awareness and driving traffic to ClubWPT.com. WPTE and FSN have agreed to the production and distribution of an initial run of 13~~one-hour~~ television programs (“the Initial Programming”). The ClubWPT show debuted on October 5, 2008. Subsequent to the delivery of the Initial Programming, FSN will have an option to broadcast future episodes, and the number of future episodes to be broadcast will depend upon the number of shows WPTE delivers, up to 40 hours per year. FSN may also terminate the relationship upon 30 days written notice.

WPTE is obligated to: 1) manage all aspects of ClubWPT.com including running all tournaments and identifying winners that will participate in the television program, 2) ensure that television participants are brought to the television studio and are set up to play in the event, and 3) pay FSN a percentage of net profits and pay for the costs of television production (production costs of the Initial Programming are recoupable against net profits). In addition to providing the distribution channel, discussed above, FSN is obligated to promote ClubWPT.com through in-show title sponsorship, in-show billboards, audio mentions, website logos on poker tables, commercial inventory and website presence on the main page of FSN’s website, FoxSports.com.

~~WPT Global Marketing~~includes branded consumer products, sponsorship and partnerships, and event management. WPTE’s branded consumer products generate revenue principally from royalties from the licensing of WPTE’s brand to companies seeking to use the WPT brand and logo in the retail sales of their consumer products.

WPTE domestic sponsorship and event management generate revenue from corporate sponsorship and management of televised and live events. During 2007, WPTE signed a three-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 pays approximately $0.2 million per season. WPTE also signed an agreement with Southwest Airlines to be the official airline of the WPT for Season Six.

~~In February 2006, WPTE launched an events division offering help in designing special programs for corporations, meeting planners and charitable organizations for entertainment purposes only.~~

~~WPT China.~~ On August 6, 2007, WPTE entered into a cooperation agreement (the “Cooperation Agreement”) with the 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.” WPTE has the right to brand and exploit 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, the right to exploit films and other content generated in conjunction with the Traktor Poker Tour in all media, and the right to obtain online and mobile subscription revenues. 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 to promote the Traktor Poker Tour. In exchange, WPTE pays a yearly fee to the CLSAC, which started at approximately $0.5 million for the first year and increases by 10% 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% fee due for the fifth year of the term.

On October 12, 2007, WPTE launched the inaugural season of the Traktor Poker Tour in Lanzhou, Gansu. After 15 regional tournaments, Season One culminated at the grand finals held in Nanjing, Jiangsu on June~~22-25,~~ 2008 where the first ever national championship team was crowned. Season Two of the Traktor Poker Tour began in Luoyang, Henan on October 11, 2008 and the Grand Finals are expected to be held in Beijing on June~~12-14,~~ ~~2009 after completion of the 15 regional tournaments.~~

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 28, 2008.~~March 29, 2009.

Three months ended ~~September 28, 2008~~March 29, 2009 compared to the three months ended ~~September~~March 30, ~~2007~~2008

Revenues. ~~Consolidated~~Total revenues were $7.3 million for the ~~third~~first quarter of ~~2008 were $11.2~~2009 compared to $4.6 million ~~a 60% increase from~~for the ~~prior-year period.~~first quarter of 2008. Lakes’ revenue ~~increased $5.8~~increase of $2.7 million was primarily due to improved results from the Four Winds Casino Resort during the first quarter of 2009, as well as a full quarter of contribution of management fees from the ~~Four Winds~~Red Hawk Casino, ~~Resort,~~ which ~~is owned by the Pokagon Band and~~ opened to the public in August 2007. Also contributing to the increase in Lakes’ third quarter 2008 revenues was an adjustment resulting from an approved compact amendment between the Pokagon Band and the State of Michigan that reduced the Four Winds Casino Resort gaming tax. This amendment caused a one-time addition of revenue of approximately $1.8 million to Lakes. Revenue related to WPTE decreased to $2.8 million for the thirdon December 17, 2008. The first quarter of 2009 and 2008 ~~from $4.4 million in the prior-year period. This decrease was caused by a decline in domestic television license fee income~~also included full quarter contributions from the ~~WPT, which was due to lower per episode license fees under the GSN Agreement in effect during the 2008 period, as compared to the TRV Agreement which was in effect during the 2007 period.~~Cimarron Casino.

Selling, general and administrative expenses. Consolidated selling, general and administrative expenses increased $3.3 million from the prior-year period to $13.3 million due to development costs associated with the proposed Ohio casino resort initiative. For the third quarter of 2008, Lakes’ selling,Selling, general and administrative expenses were ~~$8.9~~$4.0 million ~~and consisted primarily~~in the first quarter of ~~development costs associated with~~2009 compared to $3.9 million for the ~~Ohio casino resort initiative~~first quarter of ~~$4.7 million, payroll and related expenses~~2008. For the first quarter of $2.5 million (including share-based compensation), travel expenses of $0.8 million and professional fees of $0.5 million. WPTE’s selling, general and administrative expenses decreased $1.2 million from the prior-year period. WPTE’s2009, Lakes’ selling, general and administrative expenses consisted primarily of payroll and related expenses of ~~$1.5~~$2.2 million, including share-based compensation, ~~promotional costs~~travel expenses of ~~$0.6~~$0.9 million, and professional fees of $0.6 ~~million, rent~~million. For the first quarter of 2008, Lakes’ selling, general and administrative expenses consisted primarily of payroll and related expenses of ~~$0.5~~$2.2 million, ~~costs to terminate WPTE’s agreements with CryptoLogic of $0.4 million, website/computer infrastructure costs of $0.3 million, and~~including share-based compensation, travel expenses of ~~$0.1~~$0.6 million, and professional fees of $0.6 million.

~~Production~~Ohio initiative costs. ~~WPTE’s production~~Development costs ~~decreased by approximately $0.4~~associated with the Ohio casino resort initiative, which was terminated after the November 2008 election, were $1.6 million during the first quarter of 2008.

Impairment losses. Impairment losses were $0.6 million in the ~~third~~first quarter of ~~2008 compared~~2009. There were no impairment losses during the first quarter of 2008. Due to continued uncertainty surrounding the ~~2007 period. The decrease was primarily due to a $0.3 million reduction of previously recorded Season Six WPT production costs.~~

~~Gross margins.~~ ~~WPTE’s gross margins were 65%~~Jamul Casino project associated with delays in progress as well as ongoing issues in the ~~third~~credit markets and general economic uncertainties, we recognized an impairment during the first quarter of 2008 compared to 69% in the 2007 period. The decrease was primarily due to a $0.3 million reduction of previously estimated Season Six production costs and lower license fees per episode under the GSN contract.2009.

Amortization of intangible assets related to Indian casino projects. Amortization of intangible assets related to Indian casino projects for the first quarter of 2009 was $2.5 million compared to $1.7 million for the ~~third~~first quarter of ~~2008, compared~~2008. The increase of $0.8 million related to ~~$1.1 million in~~ the ~~prior year period. This~~ amortization of intangible assets associated with the Red Hawk Casino, which began when it opened to the public on December 17, 2008. Amortization for the first quarter of 2008 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.~~

Net unrealized ~~gains~~losses on notes receivable. Net unrealized ~~gains~~losses on notes receivable relate primarily to our notes receivable from Indian tribes, which are adjusted to estimated fair value, based upon the current status of the related tribal casino projects and evolving market conditions. In the ~~third~~first quarter of ~~2008,~~2009, we reported net unrealized ~~gains~~losses on notes receivable ~~were $1.8~~of $0.2 million, compared to net unrealized losses of ~~$0.6~~$2.0 million in the prior-year period. ~~The~~Net unrealized ~~gains~~losses in the ~~third~~first quarter of 2009 were related to the Jamul Casino project with the Jamul Tribe and Iowa Tribe’s Ioway Casino project due primarily to ongoing issues in the credit markets and general economic uncertainties. Net unrealized losses in the first quarter of 2008 were due primarily ~~due~~to a decrease in projected interest rates related to the ~~recognition of a gain associated with the continued progress toward a fourth quarter opening of~~notes receivable related to the Red Hawk Casino ~~partially offset by unrealized losses associated~~project with ~~a decrease in probability of opening of~~the Shingle Springs Tribe and the notes receivable related to the Jamul Casino ~~due~~project with the Jamul Tribe.

Other income (expense), net. Other income (expense), net for the first quarter of 2009 was $1.5 million compared to ~~issues~~$0.2 million for the first quarter of 2008. Other income (expense), net in the first quarter of 2009 is primarily associated with ~~site access (See Note 4 to~~interest earned on the ~~unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report onForm 10-Q).~~notes receivable from the Shingle Springs Tribe.

Income ~~taxes.~~Taxes. The income tax provision was ~~$2.4~~$0.4 million and $0.7 million for the three months ended ~~September 28,~~March 29, 2009 and March 30, 2008, ~~and $0.5 million for the three months ended September 30, 2007.~~respectively. Our effective tax rates were ~~42%~~27% and 8%15% for the ~~third~~first quarter of ~~2008~~2009 and the corresponding ~~2007~~2008 period, respectively. Lakes’ income tax provision in the current year period consists primarily of ~~an adjustment~~current income tax, and approximately $0.2 million of interest on a Louisiana tax audit matter (Note 12 to the ~~valuation allowance against deferred tax assets related to capital losses for the portion that are not expected to be realized (See Note 10 and Note 14 to the~~ 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 was primarily related to ~~interest on the Louisiana tax audit matter and the IRS tax matter.~~

~~Minority interest.~~ The minority interest in WPTE’s loss was approximately $1.7 million and $0.9 million for the three months ended September 28, 2008 and September 30, 2007, respectively. WPTE’s net losses were $4.4 million and $2.2 million for the three months ended September 28, 2008 and September 30, 2007, respectively.

~~Nine months ended September 28, 2008 compared to the nine months ended September 30, 2007~~

~~Revenues.~~ Consolidated revenues for the nine-month period ended September 28, 2008 were $31.7 million, up 57.8% from the prior-year period. Lakes’ revenue increased $15.4 million, over the nine-month period ended September 30, 2007, primarily due to a full nine months of contribution of management fees from the Four Winds Casino Resort, which opened to the public on August 2, 2007. Also contributing to the increase in Lakes’ 2008 revenues was a $1.8 million addition to management fees due to the compact amendment between the Pokagon Band and the State of Michigan that reduced the Four Winds Casino Resort gaming tax. Revenue related to WPTE declined to $12.9 million for the nine months ended September 28, 2008, from $16.6 million in the prior-year period. This decrease was caused by a decline in domestic television license fee income from the WPT, which was due to lower per episode license fees under the GSN Agreement in effect during the 2008 period, as compared to the TRV Agreement which was in effect during the 2007 period.

~~Selling, general and administrative expenses.~~ Consolidated selling, general and administrative expenses for the nine-month period ended September 28, 2008 were up $8.4 million from the prior-year period to $38.2 million due to development costs associated with the proposed Ohio casino resort initiative. For the nine months ended September 28, 2008, Lakes’ selling, general and administrative expenses were $22.1 million and consisted primarily of development costs associated with the Ohio casino resort initiative of $10.4 million, payroll and related expenses of $6.8 million (including share-based compensation), travel expenses of $2.1 million and professional fees of $1.6 million. WPTE’s selling, general and administrative expenses decreased $0.5 million fromvaluation allowance

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the prior-year period. WPTE’s selling, general and administrative expenses consisted primarily of payroll and related expenses of $5.7 million, including share-based compensation, promotional costs of $4.0 million, professional fees of $2.2 million, website/computer infrastructure costs of $1.3 million, rent expenses of $0.8 million, travel expenses of $0.5 million, and costs to terminate WPTE’s agreements with CryptoLogic of $0.4 million.

~~Production costs.~~ WPTE’s production costs decreased by approximately $0.1 million for the nine months ended September 28, 2008 compared to the 2007 period. WPTE recorded a $0.3 million reduction of previously recorded Season Six WPT production costs in the first six months of 2008. Excluding this adjustment, cost of revenues increased in the nine months ended September 28, 2008 due to higher costs related to international sponsorship revenues.

~~Gross margins.~~ WPTE’s gross margins were 50% for the nine months ended September 28, 2008 compared to 60% in the 2007 period. Domestic television licensing margins were 16% for the nine months ended September 28, 2008 compared to 41% in the 2007 period. The decrease was primarily due to a $0.3 million reduction of previously estimated Season Six production costs and lower license fees per episode under the GSN contract.

~~Amortization of intangible assets related to Indian casino projects.~~ Amortization of intangible assets related to Indian casino projects was $5.0 million for the nine months ended September 28, 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. Amortization of intangible assets related to the Indian casino projects for the first nine months of 2007 was $1.1 million.

~~Impairment losses.~~ During the third quarter of 2008, WPTE recorded a $1.9 million impairment charge related to its investment in Cecure Gaming (See Note 12 to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on~~Form 10-Q).~~ During the second quarter of 2007, WPTE wrote off $2.3 million of on-line gaming assets as a result of ceasing the development of a stand-alone online gaming business and joining a third-party online gaming network.

~~Net realized and unrealized gains on notes receivable.~~ For the nine months ended September 28, 2008, net unrealized gains on notes receivable were $1.0 million, compared to net realized and unrealized gains of $8.5 million in the prior-year period. Net unrealized gains in the nine-month period ended September 28, 2008 were primarily due to the recognition of a gain associated with the continued progress toward a fourth quarter opening of the Red Hawk Casino partially offset by unrealized losses associated with a decrease in probability of opening the Jamul Casino due to issues associated with site access (See Note 4 to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on~~Form 10-Q).~~ The prior-year period unrealized gains were primarily due to the closing on a $450 million senior note financing to fund the Red Hawk Casino project, which increased the probability of the casino opening.

~~Other income.~~ Other income for the nine months ended September 28, 2008 was $0.8 million compared to $3.1 million for the prior year period. Other income for the nine months ended September 28, 2008 represented interest income earned on cash balances, which was partially offset by interest expense, primarily incurred on Lakes’ contract acquisition costs payable (see Note 6 to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on~~Form 10-Q).~~

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 the second quarter 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 was repaid 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 the first quarter of 2007.

~~Income taxes.~~ ~~The income tax provision was $3.5 million and $1.1 million for the nine months ended September 28, 2008 and September 30, 2007, respectively. Our effective tax rates were 18% and 13% for the nine~~

~~months ended September 28, 2008 and the corresponding 2007 period, respectively. Lakes’ income tax provision in the current year period consists of an adjustment to the valuation allowance~~ against deferred tax assets related to capital losses for the portion that ~~are~~were not expected to be realized, ~~(See Note 10~~ and ~~Note 14 to the unaudited condensed consolidated financial statements included in Part I, Item 1~~approximately $0.3 million of ~~this Quarterly Report onForm 10-Q).~~ ~~In the prior year period, the income tax provision was primarily related to~~ interest on ~~the~~a Louisiana tax audit ~~matter and the IRS tax~~ matter.

~~Minority interest.~~ The minority interest in WPTE’s loss was approximately $4.4 million and $3.0 million for the nine months ended September 28, 2008 and September 30, 2007, respectively. WPTE’s net losses were $11.1 million and $7.8 million for the nine months ended September 28, 2008 and September 30, 2007, respectively.

~~Outlook.~~ In prior years, Lakes’ revenues have primarily come from WPTE. During 2008, Lakes has recognized significant revenues from the management of Indian casino properties, including the Four Winds Casino Resort, and going forward Lakes expects this trend to continue. However, due to the relatively short operating history of the casinos we currently manage, we do not plan to provide revenue guidance for the remainder of 2008 for Lakes.

~~We believe our selling, general and administrative expenses, excluding WPTE, will remain relatively flat for the remainder of 2008 as compared to the previous year.~~

On October 1, 2008, Lakes’ Board of Directors declared a dividend of all of Lakes’ shares of WPTE. Lakes owns approximately 12.5 million shares, or approximately 61%, of the outstanding common stock of WPTE. The record date for the dividend was October 24, 2008, which established the shareholders of record entitled to the dividend and determined the ratio of WPTE shares to be distributed per Lakes share. The date of distribution will be November 21, 2008. After this date, Lakes will no longer include WPTE’s results of operations in its consolidated financial statements. Lakes anticipates adjusting the exercise prices for the outstanding stock options in connection with the WPTE distribution to preserve the intrinsic value of the options after the dividend as compared to the value before the dividend. See Note 10 to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on~~Form 10-Q~~ for a discussion of the tax impact this dividend is expected to have on Lakes’ financial position and results of operations. Lakes is continuing to evaluate other potential effects this dividend will have on its financial position and results of operations during the fourth quarter of 2008.

~~Lakes estimates that it will incur transaction costs in connection with the dividend, but through the date of this Quarterly Report onForm 10-Q,~~ it is unable in good faith to make a determination of the estimate. Lakes is currently evaluating the potential effect this dividend will have on its financial position and results of operations during the fourth quarter of 2008.

Liquidity and Capital Resources

As of ~~September 28, 2008,~~March 29, 2009, we had ~~$12.1 million in cash and cash equivalents, $3.9 million in short-term investments in marketable securities, and $35.6 million in long-term investments in securities. Of these amounts, $6.9~~$9.9 million in cash and cash equivalents and ~~$24.4~~$23.5 million ~~in long-term investments related to Lakes. All other amounts related to WPTE. All~~ of ~~Lakes’~~ long-term investments in securities recorded at estimated fair value. We currently believe that our cash and ~~$10.2 million~~cash equivalents balance, our cash flows from operations and the financing sources discussed below will be sufficient to meet our working capital requirements during the next 12 months. However, our operating results and performance depend significantly on the current economic conditions and their impact on consumer spending in the casinos we manage. Declines in consumer spending may cause our revenue generated from the management of ~~WPTE’s long-term~~Indian casinos to be adversely impacted. Current economic conditions and issues in the credit markets may impact our ability to finance projects under development.

On October 1, 2008, Lakes’ Board of Directors declared a noncash dividend consisting of all of the shares of WPTE then owned by Lakes. The date of distribution was November 21, 2008. WPTE cash and investments have not been used in our business. The exclusion of WPTE from our consolidated financial statements does not have an impact on Lakes’ cash position.

All of our investments in securities are ~~comprised~~ARS, held by UBS and are classified as trading securities as of ~~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).~~March 29, 2009. As a result of liquidity issues surrounding our ARS, ~~discussed below and other economic undertainties, the~~our ARS are classified as long-term investments in ~~securities as of September 28, 2008.~~securities. The types of ARS investments that ~~both Lakes and WPTE~~we own are backed by student loans, the majority of which are guaranteed under the Federal Family Education Loan Program (“FFELP”)~~, and are primarily AAA or Aaa rated through the date of this Quarterly Report onForm 10-Q.~~ ~~Neither Lakes nor WPTE own any other type of ARS.~~. None of our investments in ARS qualify, or have ever been classified in our consolidated financial statements, as cash or cash equivalents.

and both Lakes and WPTE continue to earn and receive interest on the ARS at contractually set rates. However, it will not be possible to liquidate the ARS until the issuer calls the security, a successful auction occurs, the ARS are sold back to the firms managing the ARS, a buyer is found outside of the auction process or the security matures. During OctoberIn November 2008, Lakes and WPTE received account statements for September 2008, from the firms managing the ARS, which estimated the fair value of the ARS. Lakes and WPTE analyzed these statements and have concluded that a temporary decline in the estimated fair value of $3.7 million related to the ARS has occurred primarily as a result of the current lack of liquidity. This consolidated decline in estimated fair value includes $2.5 million related to Lakes and $1.2 million related to WPTE. Since we consider the decline in the estimated fair value 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 September 28, 2008.

~~Effective April 11, 2008, Lakes entered into a client agreement with UBS Financial Services, Inc. (“UBS”) for the purpose of borrowingand/or~~ obtaining credit in a principal amount not to exceed $11.0 million (the “Margin Account Agreement”). During June 2008, the Margin Account Agreement limit was increased to $12.5 million. On October 3, 2008, Lakes entered into a new client agreement (the “Credit Line”) with UBS which supersedes the Margin Account Agreement. The Credit Line has enabled Lakes to draw 75% of the market value of Lakes’ ARS and is secured by Lakes’ ARS held at UBS. Amounts borrowed under the Credit Line are due and payable on demand and bear interest at a floating interest rate equal to the sum of the prevailing daily~~30-day~~ LIBOR plus 100 basis points. Amounts previously drawn under the Margin Account Agreement were transferred to the Credit Line and the entire remaining amount available under the Credit Line was drawn by Lakes upon its execution. As of September 28, 2008, approximately $11.7 million was outstanding under the Margin Account Agreement, and approximately $18.2 million was outstanding under the Credit Line through the date of this Quarterly Report on~~Form 10-Q.~~

On October 28, 2008, Lakes closed on a two-year interest only $8.0 million non-revolving line of credit loan agreement (the “Loan Agreement”) with First State Bank. The Loan Agreement is collateralized by primarily all of Lakes’ interest in real property it owns in Minnetonka, Minnesota. Amounts borrowed under the Loan Agreement bear interest at 8.95%. Our Chief Executive Officer, Lyle Berman, has personally guaranteed the Loan Agreement on our behalf. Lakes has drawn $2 million from the Loan Agreement through the date of this Quarterly Report on~~Form 10-Q.~~

~~On November 3, 2008, Lakes~~ accepted an offer from UBS ~~giving Lakes~~granting us nontransferable rights (the “Rights”) to sell ~~its~~our ARS held by UBS at par value to UBS at any time during the period of June 30, 2010, through July 2, 2012. ~~The par value of Lakes’~~We expect to sell our ARS ~~(all of which~~under the Rights. However, if the Rights are ~~held~~not exercised before July 2, 2012 they will expire and UBS will have no further rights or obligation to buy our ARS. UBS’s obligation under the Rights are not secured by ~~UBS) is approximately $26.8 million.~~its assets and do not require UBS to obtain any financing to support its performance obligations under the Rights. UBS has disclaimed any assurance that it will have sufficient financial resources to satisfy its obligations under the Rights.

During 2008, we entered into a credit agreement with UBS (the “Credit Line”) which is due and payable on demand with interest at30-day LIBOR plus one percent. As of March 29, 2009, approximately $18.0 million was outstanding under the Credit Line.

Also during 2008, we closed on a two-year interest only $8.0 million non-revolving line of credit loan agreement (the “Loan Agreement”) with First State Bank. Amounts borrowed under the Loan Agreement bear interest at 8.95%. As of March 29, 2009, Lakes has drawn $2 million under the Loan Agreement.

During the first quarter of 2009, Lakes has recognized significant revenues from the management of Indian casino properties, ~~including the Four Winds Casino Resort,~~ and going forward Lakes expects this trend to ~~continue.~~continue as Lakes is managing the Cimarron Casino, the Four Winds Casino Resort and the Red Hawk Casino. However, because of the relatively short operating history of the casinos we manage, and the uncertainty in the economic environment, no assurance can be given that this will occur. Lakes’ agreements with tribal partners require that we provide certain financing for project development in the form of loans, which has been ~~Lakes’~~a major use of cash over the past three years, in addition to on-going corporate ~~costs.~~costs and costs incurred during 2008 for the Ohio casino resort initiative. 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’~~Our cash forecast requirements do not include construction-related costs that will be incurred when pending and future development projects begin construction. The construction of our pending casino projects will depend on the ability of the tribesand/or Lakes to obtain additional financing for the projects, which based on ~~recent~~the general economic ~~developments,~~environment, is subject to considerable ~~and increasing~~ uncertainty. 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 future results of operations, cash flows and financial condition. In order to assist the tribes, we may be required to ~~guarantee the tribes’ debt~~

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guarantee the tribes’ debt financing or otherwise provide support for the tribes’ obligations. Guarantees by us, if any, will increase our potential exposure to losses and other adverse consequences in the event of a default by any of these tribes.

~~We believe that~~If our casino development projects ~~currently in progress will be~~with the Iowa Tribe and the Jamul Tribe are not constructed ~~and ultimately, will~~or if constructed, do not achieve profitable ~~operations; however, no assurance can be made that this will occur. If this does not occur,~~operations in the highly competitive market for gaming activities, it is likely that we would incur substantial or complete losses on our related notes receivable ~~from Indian tribes~~ and ~~related~~ intangible assets associated with ~~the acquisition of the management, development, consulting and financing contracts.~~those projects. 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.

We have received various regulatory approvals to develop our own casino near Vicksburg, Mississippi. However, uncertainty exists surrounding the development of this project due primarily to changes in the economic environment and credit markets. As a result, the assets associated with the Vicksburg project are recorded at their estimated fair value of $5.4 million as of March 29, 2009.

The following table summarizes the remaining contractual obligations as of ~~September 28, 2008~~March 29, 2009 (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)		7.9		2.3		3.3		2.3		—		6.7		1.8		3.7		1.2		—
Iowa Tribe — Ioway Project(5)		—		—		—		—		—
Lakes operating lease(6)		3.8		0.4		0.8		0.8		1.8
WPTE operating leases(7)		2.4		0.9		1.5		—		—
WPTE purchase obligations(8)		1.8		1.5		0.3		—		—
Iowa Tribe — Ioway Casino project(5)												—		—		—		—		—
Non-revolving line of credit(6)												2.0		—		2.0		—		—
Lakes operating lease(7)												4.5		0.4		0.9		0.9		2.3

	$	15.9	$	5.1	$	5.9	$	3.1	$	1.8	$	13.2	$	2.2	$	6.6	$	2.1	$	2.3


(1)		We may be required to provide a guarantee of tribal debt financing or otherwise provide support for the tribal obligations related to any of the projects (see ~~also~~ (2)~~, (3)~~ and (5) below). Any guarantees by us or similar off-balance sheet liabilities will increase our potential exposure in the event of a default by any of these tribes. No such guarantees or similar off-balance sheet liabilities existed at ~~September 28, 2008.~~March 29, 2009.

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

(3)		~~The development agreement between~~We may be required to pay Mr. Kean and Mr. Argovitz under their respective agreements with Lakes ~~and~~resulting from the ~~Shingle Springs Tribe, as amended, provided for Lakes to make certain pre-construction advances to the Shingle Springs Tribe in the form~~opening 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 Red Hawk Casino ~~project. The transition loan remains outstanding as~~on December 17, 2008. See also the discussion below included under the caption “Description of ~~September 28, 2008. On June 28, 2007, the land loan was repaid to Lakes, including accrued interest, in connection with the close~~each Indian casino project and evaluation of ~~the $450 million senior note financing.~~critical milestones — Shingle Springs Tribe”.

(4)		~~Upon opening of the Four Winds Casino Resort, we became~~We are obligated to pay approximately $11 million to an unrelated third party as part of an agreement associated with ~~our~~us obtaining the management contract with the Pokagon Band, payable in quarterly installments over five years. We are also obligated to pay approximately $3 million over 24 months to a separate, unrelated third party on behalf of the Pokagon Band in accordance with the management ~~contract, which also became payable upon the opening of the casino. (See Note 6~~contract. (Note 8 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

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		the Ioway project budget. We have also agreed to use reasonable efforts to assist the Iowa Tribe in obtaining permanent financing for any projects developed under the Iowa consulting agreement.

(6)		During 2008, Lakes closed on a two-year interest only $8.0 million non-revolving line of credit (the “Loan Agreement”) with First State Bank. Amounts borrowed under the Loan Agreement bear interest at 8.95%. See Note 7 to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report onForm 10-Q).

(7)		Lakes leases an airplane under a non-cancelable operating lease that expires on March 1, ~~2018.~~

~~(7)~~		~~WPTE~~2018 and has certain other operating lease obligations include rent payments for WPTE corporate offices pursuant to two lease agreements. For the first lease, monthly lease payments are approximately $40,000 and escalate to approximately $45,000 over the remaining lease term. For the second lease, monthly lease payments are approximately $31,000 and escalate to approximately $33,000 over the remaining lease term. The amounts set forth in the table above include monthly lease payments through June 2011.

~~(8)~~		WPTE purchase obligations include the operational expenses associated with the development of WorldPokerTour.com. These obligations relate to the gaming and non-gaming aspects of the website. Also included are operational expenses related to WPT China. Additionally, included in purchase obligations are open purchase orders of approximately $0.2 million as of September 28, 2008, and a three year base retainer with Antonio Esfandiari, who serves as WPTE’s spokesperson for ClubWPT.com.leases.

Lakes has incurred cumulative development and land costs of approximately $6.4 million and $3.0 million, respectively, relating to the development of a Company-owned non-Indian casino project 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 further development efforts before 2009.

WPTE expects that cash, cash equivalents, investments in securities and the WPTE Credit Line will be sufficient to fund WPTE’s working capital and capital expenditure requirements for the next 12 months even considering the current liquidity issues with ARS. If these securities remain illiquid for a period greater than 12 months, then WPTE will likely be required to seek additional working capital to fund its operations. General economic and capital market conditions are rapidly changing, are unpredictable and the impact on WPTE’s business is not within its control. To raise working capital, WPTE may need to seek to sell additional equity securities, issue debt or convertible securities, or seek to obtain credit facilities through financial institutions, the availability of which is highly uncertain.

On August 14, 2008, the Nasdaq Stock Market (“Nasdaq”) notified WPTE that it was not in compliance with the minimum stock listing price requirements of Nasdaq Marketplace Rule 4450(a)(5) as a result of the closing bid price for WPTE’s common stock being below $1.00 for 30 consecutive business days. This notification has no effect on the listing of WPTE’s common stock at this time. The Nasdaq Marketplace Rules provide WPTE with 180 calendar days to regain compliance, which will require the bid price of WPTE’s common stock to remain above $1.00 for a minimum of 10 consecutive business days.

On October 16, 2008, Nasdaq announced the suspension of the enforcement of the rules requiring a minimum $1.00 closing bid price. The suspension will remain in effect through January 19, 2009. On October 22, 2008, Nasdaq notified WPTE that as a result of the decision to suspend enforcement of the rules requiring a minimum $1.00 closing bid price through January 19, 2009, that Nasdaq has granted WPTE an extension until May 18, 2009 to become in compliance with Nasdaq Marketplace Rule 4450(a)(5). WPTE will continue to execute its business plan to provide an opportunity to demonstrate value to the investment community and regain Nasdaq compliance.

Critical Accounting Policies and Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires us to make estimates 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, share-based compensation, income taxes, and long-term assets related to Indian casino ~~projects, deferred television costs, investments, litigation costs, income taxes, and share-based compensation.~~projects. 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 consolidated financial statements.

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

Revenue from the domestic and international distribution of 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”)~~No. 00-2,~~~~Accounting by Producers or Distributors of Films~~~~(“SOP 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 WPT agreements, WPTE recognized domestic television license revenues upon the receipt and acceptance of completed episodes by TRV and GSN. However, due to restrictions and practical limitations applicable to WPTE’s operating relationships with foreign networks, WPTE does not consider collectibility of international television license revenues to be reasonably assured, and accordingly, WPTE does not recognize such revenue unless the payment has 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 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 since WPTE is the primary obligor in the transaction with the ultimate customer pursuant to~~EITF 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. In accordance withEITF 99-19,~~ WPTE presents online gaming revenues gross of service provider costs (including the service provider’s management fee, royalties and credit card processing that are recorded as cost of revenues) 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 charge backs as direct reductions of revenue. All other promotional expenses are generally recorded as sales and marketing expenses.

~~Subscription revenues are recognized monthly based on statements received from Centaurus, WPTE’s subscription-based online service provider. In accordance withEITF 99-19,~~ WPTE presents subscription revenues gross of service provider costs (including the service provider’s management fee, content fees and credit card processing fees that are recorded as cost of revenues) as WPTE has the ability to adjust specifications of the game

site, WPTE bears the majority of the credit risk and WPTE is responsible for the sales and marketing of the gaming site. 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 as well as casino host fees and sponsorship fees 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 direct production, overhead and development costs 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. Capitalized television production costs for each episode are expensed as revenues are recognized upon delivery and acceptance of the completed episode using the individual-film-forecast-computation method for each season produced. WPTE management estimates that all deferred television costs at September 28, 2008 are expected to be expensed in connection with domestic episode deliveries and foreign sponsor license arrangements over the next 12 months and are, therefore, presented as current assets.

Share-based compensation expense. 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. We determine the estimated fair value per share of restricted stock units as the closing stock price on the date of grant, as reported by the Nasdaq Global Market.

Income taxes. We account for income taxes under the provisions of ~~Statement of Financial Accounting Standards No.~~SFAS 109,Accounting for Income ~~Taxes (“SFAS No. 109”).~~Taxes.~~Under this method, we determine deferred~~ The determination of our income tax-related account balances requires the exercise of significant judgment by management. Accordingly, in estimating the annual effective income tax ~~assets and liabilities based upon the difference between the~~rate for interim 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~~reporting purposes, we assess the likelihood that deferred tax assets will be recovered from future taxable income and establish aan appropriate valuation allowance when management believes recovery it is not ~~likely.~~more likely than not.

We also account for ~~uncertainty in~~ income ~~taxes recognized in financial statements~~tax uncertainties under the provisions of ~~FASB~~Financial Accounting Standards Board (“FASB”) Interpretation ~~No.~~ 48,Accounting for Uncertainty in Income Taxes~~, (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109. Lakes records~~and record estimated penalties and interest related to income tax matters, including uncertain tax positions, as a component of income tax expense.

~~Investments in securities.~~ ~~We account for our long-term investments in securities in accordance with SFAS No. 115,~~~~Accounting for Certain Investments in Debt and Equity Securities~~. Our investment portfolio includes primarily investments in 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 are primarily AAA or Aaa rated through the date of this Quarterly Report on~~Form 10-Q.~~ ~~As a result of the liquidity issues surrounding our ARS, they have been classified as long-term investments in securities as of September 28, 2008.~~

Due to the lack of observable market quotes on our ARS portfolio, we utilize valuation models 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 our ARS portfolio is subject to uncertainties and evolving market conditions that are difficult to predict. Factors that may impact the estimated fair value include changes to credit ratings of the ARS as well as to the assets collateralizing the securities, rates of default of the underlying assets, underlying collateral value, discount rates, and evolving market conditions affecting the liquidity of the ARS.

If uncertainties in the capital and credit 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 our ARS investment portfolio, which could adversely affect our future financial condition, cash flow~~and/or~~ ~~operating results.~~

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 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 the tribes as in-substance structured notes in accordance with the guidance contained in ~~EITF~~Emerging Issues Task Force~~No.~~ 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 the projects are completed and 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. 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, 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 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~~ consolidated ~~statements~~statement of ~~operations~~earnings (loss) and comprehensive ~~loss.~~earnings (loss).

Upon opening of the casino, any difference between the then estimated fair value of the notes receivables and the amount contractually due under the notes ~~will be~~is 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 SFAS ~~No.~~ 114Accounting by Creditors for Impairment of a ~~Loan.~~Loan (“SFAS 114”).

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”) and FASB Staff Position142-3,Determination of the Useful Life of Intangible Assets(“FSP 142-3”). Pursuant to ~~that guidance,~~SFAS 142, 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,~~FSP 142-3, 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 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 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 ~~certain~~ 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 28, 2008 and December 30, 2007, the condensed~~The consolidated balance sheets ~~included~~as of March 29, 2009 and December 28, 2008 include long-term assets related to Indian casino projects of ~~$157.7~~$107.7 million and ~~$157.5~~$108.9 million, respectively. The amounts are as follows by project (in thousands):


	September 28, 2008										March 29, 2009
			Shingle										Shingle
	Pokagon		Springs		Jamul						Pokagon		Springs		Jamul		Iowa
	Band		Tribe		Tribe		Other		Total		Band		Tribe		Tribe		Tribe		Other		Total
	(Unaudited)										(Unaudited)

Notes receivable, at estimated fair value	$	—	$	59,350	$	18,860	$	3,980	$	82,190
Notes receivable(*)											$	—	$	45,321	$	7,202	$	3,509	$	—	$	56,032
Intangible assets related to Indian casino projects		25,739		22,200		13,485		1,304		62,728		22,382		21,418		—		1,363		—		45,163
Land held for development		—		—		6,815		848		7,663		—		—		960		850		—		1,810
Other		60		767		913		3,344		5,084		60		767		761		370		2,719		4,677

	$	25,799	$	82,317	$	40,073	$	9,476	$	157,665	$	22,442	$	67,506	$	8,923	$	6,092	$	2,719	$	107,682


	December 28, 2008
			Shingle
	Pokagon		Springs		Jamul		Iowa
	Band		Tribe		Tribe		Tribe		Other		Total

Notes receivable(*)	$	—	$	44,002	$	7,116	$	3,587	$	—	$	54,705
Intangible assets related to Indian casino projects		24,060		22,216		—		1,310		—		47,586
Land held for development		—		—		960		850		—		1,810
Other		60		767		847		388		2,719		4,781

	$	24,120	$	66,985	$	8,923	$	6,135	$	2,719	$	108,882


(*)		In conjunction with the opening of the Red Hawk Casino on December 17, 2008 and pursuant to Lakes’ accounting policy, the notes receivable from the Shingle Springs Tribe are no longer adjusted to estimated fair value on a quarterly basis, but rather they are evaluated for impairment pursuant to SFAS 114. Approximately $7.1 million and $9.2 million of the notes receivable from the Shingle Springs Tribe are due within the next

3823

December 30, 2007
Shingle

Pokagon
Springs
Jamul

Band Tribe Tribe Other Total

Notes receivable, at estimated fair value $ — $ 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 — — 6,783 848 7,631
Other 60 767 1,061 3,288 5,176

$ 30,835 $ 76,282 $ 41,222 $ 9,173 $ 157,512


		fiscal year and have been classified as a current asset in the unaudited consolidated balance sheet as of March 29, 2009 and December 28, 2008, respectively.

The key assumptions, estimates and criteria used in the determination of the estimated fair value of the notes receivable are primarily unobservable level three inputs, which are casino opening dates, pre- and post-opening date interest rates, discount rates and probabilities of projects opening. The estimated casino opening dates used in the valuations of the notes receivable related to Indian casino projects that are not yet under construction reflect the weighted-average of three scenarios: a base case (which is based on ~~the Company’s~~our forecasted casino opening date) and one and two years out from the base case. Once a casino project is under construction, the weighted-average scenarios are no longer used and only the planned opening date is used in the valuation. The 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 various possible scenarios with one scenario assuming the casino never opens. The other scenarios assume the casino opens but apply different opening dates. The probability-weighting applied to each scenario is intended to effectively capture 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~~Jamul Tribe:

As of September 28, 2008 As of December 30, 2007
(Unaudited)

Face value of note (principal and interest) $72,865 $67,585
($48,987 principal and $23,878 interest) ($47,632 principal and $19,953 interest)
Estimated months until casino opens 3 months 12 months
Projected interest rate until casino opens 7.00% 9.12%
Projected interest rate during the loan repayment term 8.77% 10.16%
Discount rate 15% 15%
Repayment terms of note(*) 84 months 84 months
Probability rate of casino opening 99% 95%


	As of March 29, 2009	As of December 28, 2008
	(Unaudited)

Face value of note (principal and interest)	$50,492	$49,171
	($34,226 principal and $16,266 interest)	($33,567 principal and $15,604 interest)
Estimated months until casino opens (weighted-average of three scenarios)	64 months	64 months
Projected interest rate until casino opens	6.66%	6.45%
Projected interest rate during the loan repayment term	9.05%	8.32%
Discount rate(*)	24.50%	23.50%
Repayment terms of note	120 months	120 months
Probability rate of casino opening (weighting off our scenarios)	50%	50%


(*)		~~Note is payable~~During the first quarter of 2009, Lakes increased the discount rate to 24.50% for this project, as continued issues in ~~even monthly installments over~~ the ~~course~~credit markets and general economic uncertainties resulted in a higher required yield on the notes. See also the discussion below included under the caption “Description of ~~the management agreement subsequent to the~~each Indian casino ~~opening.~~project and evaluation of critical milestones — Jamul Tribe”.

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

39
24

~~Jamul~~Iowa Tribe:


	As of March 29, 2009	As of December 28, 2008
	(Unaudited)

Face value of note (principal and interest)	$5,873	$5,660
	($4,871 principal and $1,002 interest)	($4,734 principal and $926 interest)
Estimated months until casino opens	24 months	20 months
Projected interest rate until casino opens	5.77%	5.93%
Projected interest rate during the loan repayment term	6.84%	6.24%
Discount rate(*)	19.50%	18.50%
Repayment terms of note	24 months	24 months
Probability rate of casino opening	85%	85%

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


(*)		During the first quarter of 2009, Lakes increased the discount rate to 19.50% for this project, as continued issues in the credit markets and general economic uncertainties resulted in a higher required yield on the notes. See also the discussion below included under the caption “Description of each Indian casino project and evaluation of critical milestones — Iowa Tribe”.

The following table represents a sensitivity analysis prepared by Lakes as of March 29, 2009 on the notes receivable from the Jamul Tribe and ~~Shingle Springs Tribe is~~Iowa Tribe’s Ioway Casino, based upon changes in the probability rate of the casino opening by five percentage points and the estimated casino opening date by one year:

~~September 28, 2008~~

Estimated fair
Sensitivity analysis
value notes
5% less
One year
5% increased
One year

receivable probable delay Both probability sooner Both
(In thousands)

Shingle Springs $ 59,350 $ 56,304 $ 55,274 $ 52,434 $ —* $ —* $ —*
Jamul 18,860 17,624 16,959 15,850 20,096 20,979 22,356

$ 78,210 $ 73,928 $ 72,233 $ 68,284 $ 20,096 $ 20,979 $ 22,356


*		These hypothetical scenarios are no longer applicable for Lakes’ notes receivable from the Shingle Springs Tribe as the probability of opening the casino is estimated at 99% and the estimated casino opening date is within three months of September 28, 2008.

~~December 30, 2007~~

Estimated fair
Sensitivity analysis
value notes
5% less
One year
5% increased
One year

receivable probable delay Both probability sooner Both
(In thousands)

Shingle Springs $ 53,592 $ 50,732 $ 50,998 $ 48,275 $ 56,452 $ 56,316 $ 59,319
Jamul $ 21,406 $ 20,151 $ 19,540 $ 18,395 $ 22,661 $ 23,450 $ 24,826

$ 74,998 $ 70,883 $ 70,538 $ 66,670 $ 79,113 $ 79,766 $ 84,145


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

Jamul Tribe	$	7,202	$	6,514	$	6,228	$	5,638	$	7,890	$	8,336	$	9,137
Iowa Tribe		3,509		3,307		3,115		2,932		3,721		3,964		4,197

	$	10,711	$	9,821	$	9,343	$	8,570	$	11,611	$	12,300	$	13,335

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 represents the nature of the advances to the ~~Indian tribes. The table represents~~tribes for projects under development (the Jamul Tribe and the ~~total amount of advances,~~Iowa Tribe), which represent the principal amount of the notes receivable, as of ~~September~~March 29, 2009 and December 28, 2008 and December 30, 2007. The notes receivable are carried at their estimated fair values on the accompanying balance sheets. These estimated fair values were $82.2 million and $78.8 million on September 28, 2008 and December 30, 2007, respectively.(in thousands).


	As of September 28, 2008								As of March 29, 2009
	Shingle								Jamul		Iowa
Advances Principal Balance	Springs		Jamul		Other(c)		Total		Tribe		Tribe		Total
	(Unaudited)
	(In thousands)								(Unaudited)

Note receivable, pre-construction(a)	$	48,987	$	31,915	$	3,729	$	84,631	$	33,276	$	3,769	$	37,045
Note receivable, land(b)		—		950		986		1,936		950		1,102		2,052

	$	48,987	$	32,865	$	4,715	$	86,567	$	34,226	$	4,871	$	39,097

As of December 30, 2007
Shingle

Advances Principal Balance
Springs Jamul Other(c) Total
(In thousands)

Note receivable, pre-construction(a) $ 47,632 $ 29,164 $ 3,490 $ 80,286
Note receivable, land(b) — 950 986 1,936

$ 47,632 $ 30,114 $ 4,476 $ 82,222


	As of December 28, 2008
	Jamul		Iowa
Advances Principal Balance	Tribe		Tribe		Total

Note receivable, pre-construction(a)	$	32,617	$	3,746	$	36,363
Note receivable, land(b)		950		988		1,938

	$	33,567	$	4,734	$	38,301


(a)		We fund certain costs incurred to develop the casino ~~projects.~~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 ~~tribes~~tribe for a variety of tribal expenses.

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

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

The notes receivable pre-construction advances consist of the following principal amounts advanced to the ~~Shingle Springs~~Jamul Tribe and ~~Jamul~~Iowa Tribe at ~~September~~March 29, 2009 and December 28, 2008 ~~and December 30, 2007~~ (in thousands):


	September 28,		December 30,		March 29,		December 28,
Shingle Springs Tribe	2008		2007
Jamul Tribe					2009		2008
	(Unaudited)				(Unaudited)

Monthly stipend	$	11,215	$	9,640	$	5,842	$	5,687
Construction		1,922		2,141		2,213		2,102
Legal		14,193		14,193		4,672		4,598
Environmental		1,739		1,739		2,292		2,292
Design		11,224		11,225		14,608		14,324
Gaming license		3,726		3,726		952		917
Lobbyist		4,968		4,968		2,697		2,697

	$	48,987	$	47,632	$	33,276	$	32,617


	September 28,		December 30,		March 29,		December 28,
Jamul Tribe	2008		2007
Iowa Tribe					2009		2008
	(Unaudited)				(Unaudited)

Monthly stipend	$	5,533	$	5,069
Construction		1,996		1,210	$	253	$	253
Legal		4,487		4,342		256		252
Environmental		2,292		2,288
Design		14,027		12,782		3,235		3,216
Gaming license		883		779		25		25
Lobbyist		2,697		2,694

	$	31,915	$	29,164	$	3,769	$	3,746

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

Management periodically evaluates the intangible assets, land held for development and other costs associated with each of the projects for impairment based on the estimated undiscounted cash flows from the applicable 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 loss would be recorded, based on the difference between the estimated 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 Lakes 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.~~2007, and the Red Hawk Casino since December of 2008. Our successful history legitimizes many of the key assumptions supporting the financial models. Forecasts 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 an additional resource on which to base our revenue expectations. The forecasts 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~~the Jamul Casino project and the Ioway Casino project are as follows:

Jamul Tribe

Lakes 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. 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~~is not ~~be subject~~currently believed to require approval by the State ~~of California~~ or the NIGC.


	September 28,		December 30,		March 28,		December 28,
	2008		2007		2009		2008
	(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	$	172	$	172	$	172
Win/Table game/day — 1st year	$	471	$	471	$	471	$	471
Win/Poker table/day — 1st year	$	312	$	312	$	312	$	312

The ~~San Diego market contains other Indian-owned casinos~~Jamul Casino project has been significantly delayed due to various political and regulatory issues. Significant risk exists related to this project moving forward to completion, and we have recorded significant impairment charges against our investment in this project. However, the ~~surrounding area, each of which is self-managed. Because of~~Jamul Tribe has 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 thattwo basic requirements to eventually build a successful ~~operation can be built.~~project — federal recognition as an Indian Tribe and Indian land eligible for gaming and Lakes currently expects to continue its involvement with this project.

~~Shingle Springs~~Iowa Tribe


	March 28,		December 28,
	2009		2008
	(Unaudited)

No. of Class II electronic gaming devices		1,000		1,200
No. of Table games		25		20
No. of Poker tables		—		5
Win/Class II electronic gaming devices/day — 1st year	$	160	$	232
Win/Table game/day — 1st year	$	450	$	1,171
Win/Poker table/day — 1st year	$	—	$	529

~~2008. Since this amendment has not yet been approved by the BIA, any financial impact it may have has not yet been reflected in Lakes’ unaudited condensed consolidated financial statements.~~

September 28,
December 30,
2008 2007
(Unaudited)

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

In the Sacramento market, there is one other Indian casino that is managed by a separate casino management company. Management considered the available information related to this other Indian casino when projecting management fees from the 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 28, 2008 and December 30, 2007 no impairment 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 net income over that level, as a management fee. The term of the management contract is 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 after two years from the opening date. The 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 ~~buy out~~buy-out occurs. The NIGC approved the management contract in March 2006.

Shingle Springs Tribe

Business arrangement. ~~Plans for~~On December 17, 2008, the Red Hawk Casino ~~project include~~opened to the public. We receive a management fee equal to between 21% and 30% of net income (as 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 an ~~approximately 278,000 square-foot facility (including approximately 88,000 square feet of gaming space) which is being built on the Rancheria~~affiliate of the Shingle Springs Tribe, ~~in El Dorado County, California, adjacent~~the repayment of $77 million furniture, furnishings and equipment financing and a minimum priority payment to ~~U.S. Highway 50, approximately 30 miles~~

~~east~~the Shingle Springs Tribe. Generally, the order of ~~Sacramento, California. The~~priority of payments from the Red Hawk ~~Casino~~Casino’s cash flows is ~~currently planned~~as follows: a certain minimum monthly guaranteed payment to ~~feature approximately 2,000 gaming devices and approximately 75 table games, a high stakes gaming room, as well as restaurants, enclosed parking~~the Shingle Springs Tribe, repayment of various debt with interest accrued thereon, management fee to Lakes, and other ~~facilities.~~obligations, with the remaining funds distributed to the Shingle Springs Tribe. The management contract includes provisions that allow the Shingle Springs Tribe to buy-out the management contract after four years from the opening date. The buy-out amount is based upon the previous 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 buy-out occurs. If the Shingle Springs Tribe elects to buy out the contract, all outstanding amounts owed to Lakes immediately become due and payable. The NIGC approved the management contract in July 2004, which was subsequently amended in April 2007.

We acquired our initial interest in the development and management contracts for the Red Hawk Casino from KAR — Shingle 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 Red Hawk 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 Red Hawk Casino project ~~during~~from the date of election through 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 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 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,~~ As of March 29, 2009, neither Mr. Kean nor Mr. Argovitz had provided ~~for us~~evidence of suitability by relevant gaming authorities or elected to ~~make certain pre-construction advances to the Shingle Springs Tribe in the form~~receive annual payments 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~~$1 million senior note financing to fund the Red Hawk Casino project. The principal balance of the transition loan as of September 28, 2008 was approximately $49.0 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 also 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 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 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 buy out amount is calculated based upon the previous 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 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 Red Hawk Casino project as of September 28, 2008, December 30,~~

~~2007 and December 31, 2006. Both the positive and negative evidence was reviewed during our evaluation of the critical milestones.~~


~~Critical milestone~~	~~September 28, 2008~~	~~December 30, 2007~~	~~December 31, 2006~~
~~Federal recognition of the tribe~~	~~Yes~~	~~Yes~~	~~Yes~~

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

~~Usable land placed in trust by Federal government~~	~~Not necessary, as land is reservation land.~~	~~Not necessary, as land is reservation land.~~	~~Not necessary, as land is reservation land.~~

~~Usable county agreement, if applicable~~	~~Yes~~	~~Yes~~	~~Yes~~

~~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~~	~~Yes~~	~~Yes~~	~~Yes — approval received in 2004.~~

~~Resolution of all litigation and legal obstacles~~	~~Yes — See below.~~	~~No — However, such obstacles have not interfered with construction of the highway interchange or the casino project to date. See below.~~	~~No — See below.~~

~~Financing for construction~~	~~Yes.~~	Yes. 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 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 equipping and furnishing the Red Hawk Casino.	~~No, however the Shingle Springs Tribe has engaged investment banks to assist with obtaining financing.~~

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

~~Our evaluation and conclusion regarding the above critical milestones and progress:~~ 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 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 Red Hawk Casino is currently planned to open with 349 Class III slot machines and approximately 1,651 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.” Under its existing compact the Shingle Springs Tribe is allowed to operate up to 350 Class III 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.

On September 30, 2008 the California State legislature ratified the amended compact between the Shingle Springs Tribe and the State of California. The amended compact has been submitted to the BIA for its review. Approval is anticipated prior to the opening of the Red Hawk Casino, which is on schedule for late fourth quarter of 2008. Since this amendment has not yet been approved by the BIA, any financial impact it may have has not yet been reflected in Lakes’ unaudited condensed consolidated financial statements.

On April 30, 2007, a construction permit was issued for the U.S. Highway 50 interchange project, which provides direct access to the Shingle Springs Rancheria on which the Red Hawk Casino project is being built, 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. On July 16, 2008, the Supreme Court of California denied VRL’s remaining petition, so the matter is now officially closed. On July 2, 2008 VRL filed a Verified Petition for Writ of Mandate and Complaint against the El Dorado Irrigation District (the “EID”) and the Shingle Springs Tribe alleging that the Memorandum of Understanding between the EID and the Shingle Springs Tribe pertaining to the provision of water services to the Shingle Springs Rancheria violated certain environmental and land use laws. On July 16, 2008 the petition was rejected by the Supreme Court of California, brining the matter to a close.

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. On September 30, 2008, an affiliate of the Shingle Springs Tribe closed on a $77 million furniture, furnishings and equipment financing for the Red Hawk Casino. The proceeds from the financing arrangement will be primarily used to purchase the various components of furniture, furnishings and equipment necessary to complete the Red Hawk Casino project. As a result of achieving the critical milestones as described ~~above, the estimated probability of opening the casino development project is currently 99%.~~above.

Jamul Tribe

The Jamul Casino project has been delayed due to various political and regulatory issues related to access from State Highway 94 to the proposed casino site. The Jamul Tribe first requested approval on a driveway road connection to State Highway 94, but was denied a permit by San Diego County (the “County”).

In September 2008, the BIA notified the Jamul Tribe that an access road on its land had been approved as an Indian Reservation Road (“IRR”), which would allow the Jamul Tribe to construct a second potential access point to the reservation without the need for a permit from County. The Jamul Tribe notified CalTrans of this additional access option but CalTrans viewed this access point no differently than the proposed driveway road connection to State Highway 94. The Jamul Tribe has filed a federal complaint requesting the Federal Court to order CalTrans to cease its efforts to impede the Jamul Tribe from using its lands for economic development purposes. After losing a motion to dismiss, CalTrans denied the allegations. The parties subsequently reached an agreement whereby the Jamul Tribe dismissed its lawsuit and CalTrans removed its contention of its ability to restrict access to the reservation, and agreed to work positively with the Jamul Tribe to expeditiously process the encroachment permit application.

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 fiscal 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~~contract 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 ~~offer~~become a solely class II electronic gaming ~~devices,~~device facility which ~~does~~will not require a compact. The agreement between Lakes and the Jamul Tribe ~~(as discussed~~(discussed below) will also be modified to reflect the new economics of the revised casino plan but ~~will~~is not ~~be subject~~currently believed to require approval by the State or the NIGC.

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 of up to $350 million, from which advances will be made to the Jamul Tribe to pay for the design and construction of the Jamul Casino. 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 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~~is planned to be modified ~~and there can be~~with resulting lower fees to Lakes. There is also 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 KAR — 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, 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 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 financing and 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).

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 ~~September~~March 29, 2009, December 28, 2008 and December 30, ~~2007 and~~

~~December 31, 2006.~~2007. Both the positive and negative evidence was reviewed during our evaluation of the critical milestones.

Critical milestone

~~September~~March 29, 2009

December 28, 2008

December 30, 2007

~~December 31, 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 is reservation land.

Not necessary, as land is reservation land.

Usable county agreement, if applicable

N/A

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

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

~~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.

NIGC approval of management contract in current and desired form

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

N/A as the Jamul ~~Tribe 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.

Resolution of all litigation and legal obstacles

~~No (see below)~~

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

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

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

Financing for construction

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

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

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 will also be modified to reflect the new economics of the revised casino plan but ~~will~~is not ~~be subject~~currently believed to require approval by the State ~~of California~~ or the NIGC. ~~See below for a discussion relating to road access to the proposed Jamul Casino site.~~

Yes. The ~~Jamul Tribe and~~current plan is for the ~~State of California have had a series of recent meetings to discuss what requirements the State has to either allow 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. 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.~~device facility. The agreement between Lakes and the Jamul Tribe will also be modified to reflect the new economics of the revised casino plan but is not currently believed to require approval by the State or the NIGC.

Our evaluation and conclusion regarding the above critical milestones and progress. ~~As discussed above, we~~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 to be taken into trust. ~~There~~We believe that 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 aland-in-trust process.

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. ~~Lakes has completed economic models for the proposed facility and concluded that it would result in a successful operation assuming that adequate financing can be obtained.~~

The Jamul Casino project has been significantly delayed due to ~~issues with access from Interstate 94~~various political and regulatory issues. Significant risk exists related to

~~the proposed Jamul Casino site. The Jamul Tribe has a driveway road leading~~ this project moving forward to the Jamul Casino site. CalTrans issued a letter to the Jamul Tribe indicating that it will not currently allow the driveway road to be used to access a casino operation from Interstate 94. The Jamul Tribe’s outside counsel reviewed the lettercompletion, and ~~is of the opinion that the letter lacks legal merit. In addition to its work with CalTrans,~~we have recorded significant impairment charges against our investment in this project. However, the Jamul Tribe has ~~submitted~~the two basic requirements to eventually build a successful project — federal recognition as an ~~application~~Indian Tribe and Indian land eligible for gaming and Lakes currently expects to ~~the BIA for recognition of an access drive across~~continue its land to create a second means of access to the site over an IRR. In September 2008, the BIA notified the Jamul Tribe that the application had been approved and the access drive was so designated. The IRR will allow the Jamul Tribe to construct a second potential access point without the need for a permit from San Diego County. The Jamul Tribe has notified Caltrans of this additional access option but Caltrans has by its lack of response indicated that it views this access point no differently than the driveway road connection to Interstate 94. Accordingly, the Jamul Tribe has filed a federal complaint requesting the Federal Court to provide injunctive relief to order Caltrans to cease its efforts to impede the Jamul Tribe from using its lands for economic development purposes. If the ensuing litigation is not resolved quickly, or if it is adversely decided, the further delays may cause us to reevaluate the project plans which could negatively impact the value of Lakes’ assets associatedinvolvement with this project.

~~We and the leaders of the Jamul Tribe continue to believe that the access issues will be resolved, 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.~~Tribe of Oklahoma, a federally recognized Indian Tribe, and The Iowa Tribe of Oklahoma, a federally-chartered corporation (collectively, the “Iowa Tribe”). The agreements became effective as of January 27, 2005. Lakes will consult on development of the Ioway Casino Resort, a new first class casino with ancillary amenities and facilities to be located on Indian land approximately 25 miles northeast of Oklahoma City along Route 66, until regulatory approvals are received for the management contract for the Ioway Casino ~~Resort; and currently~~Resort. Lakes also manages operations at the Cimarron Casino, located in Perkins Oklahoma.

Each ~~project~~of the projects has ~~its own~~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 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, 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.~~payable if not already paid. Subject to certain conditions, Lakes agreed to make advances for the Ioway 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 (the “Cimarron Consulting Agreement”) and management contract (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~~mid- 2006 after it was approved by the NIGC. Prior to that time, Lakes operated under the Cimarron Consulting Agreement and 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 Cimarron Casino features approximately 375 electronic gaming machines.

Arrangement with Consultant. Lakes ~~entered into a separate~~has an agreement with Kevin Kean ~~in 2003, which~~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, assuming he has been found suitable by the NIGC.

Our evaluation of the Ioway Casino Resort. The following table outlines the status of each of the following primary milestones necessary to complete the Ioway Casino Resort as of ~~September~~March 29, 2009, December 28, 2008 and December 30, ~~2007 and December 31, 2006.~~2007. Both the positive and negative evidence was reviewed during our evaluation of the critical milestones:

Critical milestone

~~September~~March 29, 2009

December 28, 2008

December 30, 2007

~~December 31, 2006~~

Federal recognition of the tribe

Yes

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

Yes, the Iowa Tribe has members that own a 74-acre allotment on US Route 66 midway between the access points to Warwick and Chandler, Oklahoma from I44. The Iowa Tribe has obtained the rights to purchase and/or lease ~~the majority~~substantially all of this parcel from the allottees. ~~It is likely that approximately 14~~Approval from the BIA was obtained in January 2009 for 60 acres of the 74-acre ~~allotment will not be obtained, but~~allotment. The remaining 14 acres still require BIA approval. An additional 100 acres of fee land has been optioned to provide the necessary site area for the beginning of the project before the casino resort development can ~~be constructed~~begin.

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

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

~~Yes, the Iowa Tribe has members that own a74-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.

Usable land placed in trust by Federal government

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

Usable county agreement, if applicable

N/A

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

Yes


~~Critical milestone~~	~~September 28, 2008~~	~~December 30, 2007~~		~~December 31, 2006~~
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 stated that it is waiting for the BIA to approve all land leases before it will issue an opinion on the management contract. There have been no comments on the consulting agreement from the NIGC and is therefore considered operative.	No, submitted to the NIGC for review on April 22, 2005. An EA was prepared and on September 12, 2007, the NIGC issued their notice of approval of a ~~FONSI~~Finding Of No Significant Impact (“FONSI”) for the EA. The 30 day public comment period for the FONSI ended on November 2, 2007 without any comment from the public. The expiration of the comment period now allows the NIGC to approve the management contract. The NIGC has stated that it is waiting for the BIA to approve all land leases before it will issue an opinion on the management contract. There have been no comments on the consulting agreement from the NIGC and is therefore considered operative.		No, submitted to the NIGC for review on April 22, 2005. An EA ~~is currently being~~was prepared and ~~is necessary~~on September 12, 2007, the NIGC issued their notice of approval of a Finding Of No Significant Impact (“FONSI”) for the ~~management contract to be approved. Completion~~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 EAcomment period now allows the NIGC to approve the management contract. The NIGC has stated that it is ~~expected by Spring 2007.~~waiting for the BIA to approve all land leases before it will issue an opinion on the management contract. There have been no comments on the consulting agreement from the NIGC and is therefore considered operative.

Resolution of all litigation and legal obstacles	None at this time.	None at this time.		None at this time.

Financing for construction	No, however, preliminary discussions with lending institutions have occurred.	No, however, preliminary discussions with lending institutions ~~has~~have occurred.		No, however, preliminary discussions with lending institutions ~~has~~have occurred.
			��
Any other significant project milestones or contingencies, the outcome of which could have a material affect on the probability of project completion as planned	No others known at this time by Lakes.	No others known at this time by Lakes.		No others known at this time by Lakes.

Our evaluation and conclusion regarding the above critical milestones and progress. Long-term assets have been recorded as it is considered probable that the Ioway Casino 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~~In January 2009, the BIA granted approval on the purchase of a60-acre allotment. The remaining transactions ~~need to be approved by~~for the ~~BIA.~~final 14 acres still require BIA approval. 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~~Subject to obtaining the necessary regulatory approvals and availability of financing for the project, the Ioway Casino Resort could open ~~in 2010, pending~~as early as the ~~necessary regulatory approvals.~~spring of 2011.

Recently issued accounting pronouncements

In ~~September 2006,~~April 2009, the FASB issued ~~SFAS No. 157,~~FASB Staff Position157-4,Determining Fair Value ~~Measurements~~When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly(“~~SFAS No. 157”~~FSP 157-4”)~~. SFAS No. 157 defines~~, which provides additional guidance for estimating fair value in accordance with SFAS 157, when the volume and ~~establishes a framework~~level of activity for ~~measuring fair value and expands disclosures about fair value measurements. Although SFAS No. 157~~the asset or liability have significantly decreased.FSP 157-4 is effective ~~now~~for interim and ~~has been adopted for financial assets and liabilities carried at fair value, it will become effective in fiscal 2009 for non-financial assets and liabilities. We do~~annual reporting periods ending after June 15, 2009. The implementation of this standard is not ~~believe the adoption of the non-financial provisions of SFAS No. 157 will~~expected to have a material impact on our future financial position, results of operations or cash flows.

In ~~October 2008, the FASB is sued FASB Staff Position157-3,~~~~Determining Fair Value of a Financial Asset in a Market That Is Not Active~~~~(“FSP 157-3”).FSP 157-3~~ ~~clarified the application of SFAS No. 157 in an inactive market. It demonstrated how the fair value of a financial asset is determined when the market for that financial asset is inactive.FSP 157-3~~ was effective upon issuance, including prior periods for which financial statements had not been issued. The implementation of this standard did not have a material impact on our financial position, results of operations or cash flows.

In April ~~2008,~~2009, the FASB issued FASB Staff Position~~142-3,~~107-1 and APB28-1,~~Determination~~Interim Disclosures about Fair Value of ~~the Useful Life of Intangible Assets~~Financial Instruments(“~~FAS 142-3”~~FSP 107-1”)~~.FSP 142-3~~, ~~amends the factors that should be considered in developing renewal or extension~~

~~assumptions used to determine the useful life~~which, when effective, will require additional disclosures about fair value of ~~a recognized intangible asset under SFAS No. 142,~~~~Goodwill and Other Intangible Assets~~.financial instruments for interim reporting periods.FSP ~~142-3~~107-1 is effective for ~~fiscal years beginning~~interim and annual reporting periods ending after ~~December~~June 15, ~~2008.~~2009. The implementation of this standard is not expected to have a material impact on our future financial position, results of operations or cash flows.

In ~~December 2007,~~April 2009, the FASB also issued ~~SFAS No. 160,~~FASB Staff PositionsFAS 115-2 andFAS 124-2,~~Noncontrolling Interests~~Recognition and Presentation of Other-Than-Temporary Impairments(“FSPFAS 115-2 andFAS 124-2”), which amends the other-than-temporary impairment guidance in ~~Consolidated Financial Statements-an amendment~~U.S. Generally Accepted Accounting Principles for debt securities to make the guidance more operational and to improve the presentation and disclosure of ~~ARB No. 51 (“SFAS No. 160”),which establishes accounting~~other-than-temporary impairments on debt and ~~reporting standards for~~equity securities in the ~~noncontrolling interest in a subsidiary~~financial statements. FSPFAS 115-2 and ~~for the deconsolidation of a subsidiary. SFAS No. 160 is~~FAS 124-2 will be effective for ~~fiscal years beginning~~interim and annual reporting periods ending after ~~December~~June 15, ~~2008, and early adoption~~2009. The implementation of these three standards is ~~prohibited. Among the effects of SFAS No. 160 will be the future exclusion from net income (loss) of the noncontrolling interest therein and the relocation of such noncontrolling interest~~not expected to ~~the stockholders’ equity section of the balance sheet, and we are currently evaluating this and other effects, if any, that SFAS No. 160 will~~ have a material impact on our future financial position, results of operations ~~and operating~~or cash flows.

Seasonality

We believe that the operations of all casinos ~~currently or to be~~ managed by us will be affected by seasonal factors, including holidays, weather and travel conditions.

Regulation and taxes

We and ~~our casino projects~~the owners of the existing and planned casinos that we are and will be working with 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

Private Securities Litigation Reform Act

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; possible need for future financing to meet Lakes’ expansion goals; risks of entry into new businesses, and reliance on Lakes’ management. 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~~this Annual Report onForm 10-K for the year ended December ~~30, 2007, and in Item 1A of Part II of this Quarterly Report onForm 10-Q.~~28, 2008.


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

Our financial instruments include cash and cash equivalents and investments in 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 28, 2008,~~March 29, 2009, the carrying value of our cash and cash equivalents approximates fair value. We also hold ~~short-term~~ investments ~~consisting of certificates of deposit, marketable~~in debt securities ~~(principally consisting~~(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 securities which consist of ARS.ARS). The types of ARS investments that we own are backed by student loans, the majority of which are guaranteed under the FFELP. 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 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 liquidity issues experienced in the global credit and capital markets, the auctions for all of our ARS failed beginning in February 2008. The failures of these auctions do not affect the value of the collateral underlying the ARS, and we continue to earn and receive interest on our ARS at contractually set rates. However, it will not be possible to liquidate the ARS until the issuer calls the security, a successful auction occurs, the ARS are sold back to the firms managing the ARS, a buyer is found outside of the auction process or the security matures. During OctoberIn November 2008, we received account statements for September 2008, from the firms managing our ARS, which estimated the fair value of the ARS. We analyzed these statements and have concluded that a temporary decline in estimated fair value of $3.7 million related to our ARS has occurred primarily as a result of the current lack of liquidity. This consolidated decline in estimated fair value includes $2.4 million related to Lakes and $1.3 million related to WPTE. Since we consider the decline in the estimated fair value of 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 September 28, 2008.

~~On November 3, 2008, Lakes~~ accepted an offer from UBS ~~giving Lakes~~granting us nontransferable rights to sell ~~its~~our ARS held by UBS at par value to UBS at any time during the period of June 30, 2010, through July 2, 2012. ~~The par value~~We expect to sell our ARS under the Rights. However, if the Rights are not exercised before July 2, 2012 they will expire and UBS will have no further rights or obligation to buy our ARS. UBS’s obligation under the Rights are not secured by its assets and do not require UBS to obtain any financing to support its performance obligations under the Rights. UBS has disclaimed any assurance that it will have sufficient financial resources to satisfy its obligations under the Rights. During 2008, we entered into a Credit Line with UBS which is secured by our ARS held at UBS and is due and payable on demand with interest at30-day LIBOR plus one percent.

If UBS does not perform on its obligation to buy Lakes ARS during the period of ~~Lakes’~~June 30, 2010, through July 2, 2012, and if uncertainties in the capital and credit markets continue, these markets deteriorate further or we

experience any ratings downgrades on any ARS ~~(all of~~investments in our portfolio, then we may incur losses on our ARS or the associated Rights, which ~~are held by UBS) is approximately $26.8 million.~~would negatively affect our financial condition, cash flowand/or reported earnings.

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 consolidated statement of operations and comprehensive loss. As of ~~September 28, 2008,~~March 29, 2009, we had ~~$82.2~~$63.1 million of notes receivable, ~~at fair value~~ with a floating interest rate (principal amount of ~~$86.6~~$112.0 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 ~~$6.1~~$5.9 million. A reference rate increase of 100 basis points would result in an increase in interest income of ~~$0.9~~$1.1 million. A 100 basis point

decrease in the reference rate would result in a decrease of ~~$0.9~~$1.1 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 28, 2008~~March 29, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

5435

Part II.
Other Information


ITEM 1.	*LEGAL PROCEEDINGS*

~~Miscellaneous legal matters.~~

We and our subsidiaries ~~(including WPTE)~~ are involved in various other inquiries, administrative proceedings, and 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 the likelihood of an unfavorable outcome is ~~remote. Accordingly, no provision for loss has been recorded in connection therewith.~~remote, and is not likely to have a material adverse effect upon our unaudited consolidated financial statements.


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, for the year ended December ~~30, 2007 except for changes to the following risk factors, which have been updated in their entirety:~~

If we are unable to liquidate our investments to provide liquidity when and as needed, and we are unable to obtain additional financing in order to satisfy our cash requirements, we may be forced to delay, scale back or eliminate some of our expansion and development goals.

On October 3, 2008, Lakes entered into a new client agreement (the “Credit Line”) with UBS Financial Services, Inc. (“UBS”) which supersedes a prior agreement for the purpose of borrowing between Lakes and UBS. Lakes has drawn all amounts available under the Credit Line. Approximately $18.2 million was outstanding under the Credit Line through the date of this Quarterly Report on~~Form 10-Q.~~

~~As discussed in Item II, Part I of this Quarterly Report onForm 10-Q,~~ ~~Lakes closed on a $8.0 million Loan Agreement on October~~ 28, ~~2008, to fulfill its liquidity needs. Lakes has drawn $2 million from the Loan Agreement through the date of this Quarterly Report onForm 10-Q.~~ 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 tribes~~and/or~~ Lakes to obtain additional 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.

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. An inability to raise such funds when needed might require us to delay, scale back or eliminate some of our expansion and development goals.

~~We may be adversely impacted by economic factors beyond our control and may incur additional impairment charges to our investment portfolio.~~

As of September 28, 2008, we had $38.2 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 are primarily AAA or Aaa rated through the date of this Quarterly Report on~~Form 10-Q.~~ We do not own any other type of ARS. The estimated fair value of our ARS holdings at September 28, 2008, was $34.5 million, which reflects a $3.7 million adjustment to the principal value of $38.2 million. We recorded an unrealized pre-tax loss of $3.7 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.

On November 3, 2008, Lakes accepted an offer from UBS giving Lakes nontransferable rights to sell its ARS, held by UBS at par value to UBS at any time during the period of June 30, 2010, through July 2, 2012. The par value of Lakes’ ARS (all of which are held by UBS) is approximately $26.8 million.

If uncertainties in the capital and credit markets continue, these markets deteriorate further, we experience any ratings downgrades on any ARS investments in our portfolio, or if UBS does not perform on its obligation to buy Lakes ARS during the period of June 30, 2010, through July 2, 2012, we may incur additional impairments to our ARS investment portfolio, which could negatively affect our financial condition, cash flow~~and/or~~ ~~reported earnings.~~2008.


ITEM 6.	*EXHIBITS*

Exhibit

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


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

5636

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

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 7, 2008~~May 8, 2009

5737


			Page of
			Form 10-Q

PART I. FINANCIAL INFORMATION
	ITEM 1.	FINANCIAL STATEMENTS
		~~Condensed~~ Consolidated Balance Sheets as of ~~September 28, 2008~~March 29, 2009 (unaudited) and December ~~30, 2007~~28, 2008		3
		Unaudited ~~Condensed~~ Consolidated Statements of ~~Operations~~Earnings (Loss) and Comprehensive ~~Loss~~Earnings (Loss) for the three months ended March 29, 2009 and ~~nine months ended September 28,~~March 30, 2008 ~~and September 30, 2007~~		4
		Unaudited ~~Condensed~~ Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 28,~~March 29, 2009 and March 30, 2008 ~~and September 30, 2007~~		5
		Notes to Unaudited ~~Condensed~~ Consolidated Financial Statements		6
	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		2417
	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		5334
	ITEM 4.	CONTROLS AND PROCEDURES		5435

PART II. OTHER INFORMATION
	ITEM 1.	LEGAL PROCEEDINGS		5536
	ITEM 1A.	RISK FACTORS		5536
	ITEM 6.	EXHIBITS		5636
EX-31.1
EX-31.2
EX-32.1


	Level 1		Level 3		Total
	(In thousands)

Municipal Bonds(*)	$	801	$	—	$	801
Auction rate securities (“ARS”)(*)		—		34,525		34,525
Corporate preferred securities(*)		3,691		—		3,691
Certificates of deposit(*)		480		—		480
Notes receivable from Indian Tribes (**)		—		82,190		82,190

Total assets at estimated fair value (***)	$	4,972	$	116,715	$	121,687


	Options outstanding at September 28, 2008
			Weighted-						Options exercisable at September 28, 2008
			average				Aggregate						Aggregate
	Number		remaining		Weighted-average		intrinsic		Number		Weighted-		intrinsic
Range of exercise prices	outstanding		contractual life		exercise price		value		exercisable		average price		value

$ (3.25 — 3.63)		276,200		2.7 years	$	3.46	$	813,542		276,200	$	3.46	$	813,542
(3.64 — 5.45)		990,200		2.5 years		4.33		2,063,438		810,200		4.25		1,752,358
(5.46 — 7.26)		154,000		7.7 years		6.92		2,750		60,000		7.18		—
(7.27 — 9.08)		1,377,500		5.1 years		8.12		—		1,352,500		8.13		—
(9.09 — 10.90)		52,500		7.7 years		10.26		—		20,350		10.23		—
(10.91 — 12.71)		70,750		2.4 years		11.52		—		63,775		11.44		—
(12.72 — 14.53)		95,000		6.4 years		14.00		—		68,250		14.01		—
(14.54 — 16.34)		5,000		6.3 years		16.11		—		3,000		16.11		—
(16.35 — 18.16)		65,000		5.5 years		17.91		—		47,500		17.95		—

		3,086,150		4.2 years	$	6.94	$	2,879,730		2,701,775	$	6.89	$	2,565,900


	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		3.41	$	0.0049	$	97,434		111,340	$	0.0049	$	97,434
$ 1.26 — 4.80		906,165		8.80		3.21		—		171,400		4.48		—
$ 5.18 — 9.92		1,289,266		6.21		7.58		—		1,117,966		7.83		—
$11.95 — 14.51		117,000		6.86		12.23		—		85,000		12.35		—
$15.05 — 19.50		6,000		6.81		15.79		—		6,000		15.79		—

		2,429,771		7.08	$	5.85	$	97,434		1,491,706	$	7.15	$	97,434


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

Total assets as of September 28, 2008	$	163.5	$	27.0		$	—	$	54.6		$	245.1
Total assets as of December 30, 2007	$	158.2	$	41.7		$	—	$	56.2		$	256.1
For the three months ended September 28, 2008
Revenue	$	8.4	$	2.0		$	0.8	$	—		$	11.2
Earnings (loss) from operations		7.0		(4.6	)		—		(7.5	)		(5.1	)
Depreciation and amortization		—		0.1			—		0.1			0.2
Impairment losses		—		1.9			—		—			1.9
Amortization of intangible assets related to Indian casino projects		1.7		—			—		—			1.7
For the three months ended September 30, 2007
Revenue	$	2.6	$	3.1		$	1.3	$	—		$	7.0
Earnings (loss) from operations		0.1		(2.6	)		—		(3.8	)		(6.3	)
Depreciation and amortization		—		0.1			—		0.1			0.2
For the nine months ended September 28, 2008
Revenue	$	18.8	$	9.1		$	3.8	$	—		$	31.7
Earnings (loss) from operations		12.6		(11.9	)		—		(20.2	)		(19.5	)
Depreciation and amortization		—		0.4			—		0.2			0.6
Impairment losses		—		1.9			—		—			1.9
Amortization of intangible assets related to Indian casino projects		5.0		—			—		—			5.0
For the nine months ended September 30, 2007
Revenue	$	3.4	$	13.2		$	3.4	$	0.1		$	20.1
Impairment losses		0.3		—			—		—			0.3
Earnings (loss) from operations		10.1		(9.1	)		—		(13.0	)		(12.0	)
Depreciation and amortization		—		0.3			—		0.3			0.6
Loss on abandonment of online gaming assets		—		2.3			—		—			2.3


	As presented		Pro-forma

As of September 28, 2008
Current assets	$	31.8	$	19.0
Long-term assets related to Indian casino projects		157.7		157.7
Other long-term assets		55.6		41.3

Total assets	$	245.1	$	218.0

Current liabilities	$	36.8	$	33.6
Long-term liabilities		5.6		5.6

Total liabilities		42.4		39.2
Shareholders’ equity		202.7		178.8

Total liabilities and shareholders’ equity	$	245.1	$	218.0


	Three months ended
	September 28, 2008						September 30, 2007
	As presented			Pro-forma			As presented			Pro-forma

Revenue	$	11.2		$	8.4		$	7.0		$	2.6
Loss from continuing operations		(5.1	)		(0.5	)		(6.3	)		(3.7	)
Loss from discontinued operations		—			(4.6	)		—			(2.6	)
Loss per share from continuing operations — basic		(0.23	)		(0.12	)		(0.21	)		(0.16	)
Loss per share from discontinued operations — basic		—			(0.11	)		—			(0.05	)


Exhibit			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