10-K

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ---------------------

                                   FORM 10-K

        
(Mark One)
   [X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934

           FOR THE FISCAL YEAR ENDED DECEMBER 28, 2003

                                  OR

   [ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934

           FOR THE TRANSITION PERIOD FROM           TO



                          COMMISSION FILE NO. 0-24993
                             ---------------------
                           LAKES ENTERTAINMENT, INC.
             (Exact name of registrant as specified in its charter)

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



           130 CHESHIRE LANE, SUITE 101, MINNETONKA, MINNESOTA 55305
                    (Address of principal executive offices)

                                 (952) 449-9092
              (Registrant's telephone number, including area code)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                                     NONE.

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:



             TITLE OF EACH CLASS                 NAME OF EACH EXCHANGE ON WHICH REGISTERED
             -------------------                 -----------------------------------------
                                            
        Common Stock, $0.01 par value                      NASDAQ National Market


     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 [X]     No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [ ]

     Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).  Yes [ ]     No [X]

     As of March 19, 2004, 11,098,817 shares of the Registrant's Common Stock
were outstanding. Based upon the last sale price of the Common Stock as reported
on the NASDAQ National Market on June 27, 2003 (the last business day of our
most recently completed second quarter), the aggregate market value of the
Common Stock held by non-affiliates of the Registrant as of such date was
$62,584,711. For purposes of these computations, affiliates of the Registrant
are deemed only to be the Registrant's executive officers and directors.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Part III.  Portions of the Registrant's definitive Proxy Statement in
connection with the Annual Meeting of Shareholders to be held on June 11, 2004
are incorporated by reference into Items 10 through 14, inclusive.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------


                                     PART I

ITEM 1.  BUSINESS

     The following discussion contains trend information and other
forward-looking statements that involve a number of risks and uncertainties. The
actual results of Lakes Entertainment, Inc., a Minnesota corporation, could
differ materially from the Company's historical results of operations and those
discussed in the forward-looking statements. Factors that could cause actual
results to differ materially include, but are not limited to, those identified
in "Risk Factors."

GENERAL

     Lakes Entertainment, Inc., ("Lakes" or the "Company") develops and manages
casinos and related hotel and entertainment facilities in various gaming
jurisdictions, including Indian-owned casinos. Lakes has entered into the
following contracts for the development, and management of new casino
operations, all of which are subject to various regulatory approvals and in some
cases resolution of legal proceedings before construction can begin:

     - A Lakes subsidiary has a contract to develop and manage The Foothill Oaks
       Casino, to be built on the Rancheria of the Shingle Springs Band of Miwok
       Indians in El Dorado County, California, adjacent to U.S. Highway 50,
       approximately 30 miles east of Sacramento, California (the "Shingle
       Springs Casino").

     - A Lakes subsidiary has a contract develop and manage the Four Winds
       Casino resort to be built on trust land of the Pokagon Band of Potawatomi
       Indians in New Buffalo Township, Michigan near Interstate 94. The casino
       location will be near the first exit in southwestern Michigan and
       approximately 75 miles east of Chicago (the "Pokagon Casino").

     - A Lakes subsidiary has a contract to develop and manage a casino to be
       built on the reservation of the Jamul Indian Village, approximately 20
       miles east of San Diego, California (the "Jamul Casino").

     - Lakes has also signed contracts with the Nipmuc Nation of Massachusetts
       for development and management of a potential future gaming resort in the
       eastern United States; however, this tribe has received a negative
       finding regarding federal recognition from the Bureau of Indian Affairs
       (BIA). The tribe has submitted additional information for
       reconsideration.

     In addition, Lakes, through its subsidiary World Poker Tour, LLC ("WPT"),
produces the World Poker Tour television series. The first season of the series
was broadcast on the Travel Channel ("TRV") on cable television in 2003. The
second season of the series began airing on TRV starting in March 2004. WPT's
agreement with TRV grants options to TRV for up to five additional seasons of
the series. Lakes currently owns approximately 78% of World Poker Tour, LLC,
which has announced plans for an initial public offering of the stock of a
successor corporation. WPT will use the proceeds of the offering to expand its
entertainment business.

     Lakes owns options to purchase the patent rights for various new table
games and is actively marketing these new games to the casino industry in an
attempt to license the games to casinos for use in their operations.

     Lakes formed a joint venture with another company to develop approximately
2000 acres owned by the joint venture in Eastern San Diego County. Lakes holds a
50% ownership interest in this joint venture. In January 2004, this land was
sold in lieu of development by the joint venture. Lakes received cash in the
amount of approximately $1,370,000 after payment of the existing land loan and
related closing costs and after sharing 50% of the sale proceeds with its joint
venture partner, Land Baron West, LLC ("Land Baron West"). The partnership will
recognize a gain in the approximate amount of $0.4 million related to this sale.
An agreement is also in place to sell the remaining approximately 44 acres
during 2004 for approximately $700,000. The proceeds from that sale will be
divided equally between Lakes and Land Baron West.

                                        1


     In 2002, Lakes and another company formed a partnership with a contract to
finance the construction of an Indian-owned casino 60 miles north of San
Francisco, California for the Cloverdale Rancheria of Pomo Indians. The
Cloverdale Rancheria has notified the partnership that it wishes to terminate
the relationship with the two parties. The partnership has advised the Rancheria
that the partnership believes the contract is enforceable. The Rancheria
acknowledges that the partnership has loaned the Rancheria money and that the
Rancheria will endeavor to repay the money in a timely manner.

HISTORY

     Lakes is a Minnesota corporation formed in 1998. Lakes is the successor to
the Indian gaming business of Grand Casinos, Inc. ("Grand Casinos") and became a
public company through a spin-off transaction in which shares of Lakes common
stock were distributed to the shareholders of Grand Casinos. Before the spin-
off, Grand Casinos had management contracts for Grand Casino Hinckley and Grand
Casino Mille Lacs, both Indian-owned casinos is Minnesota. Those contracts
expired before the spin-off. After the spin-off, Lakes managed two Indian-owned
casinos in Louisiana previously managed by Grand Casinos. Lakes managed the
largest casino resort in Louisiana, Grand Casino Coushatta, until the management
contract expired on January 16, 2002. For a portion of fiscal 2000 and prior,
Lakes also had a management contract for Grand Casino Avoyelles, which was
terminated through an early buyout of the contract effective March 31, 2000.

BUSINESS STRATEGY

     Lakes' vision is to create a company with predictable long-term profitable
growth that will be highly valued by its investors. The Company is implementing
three business strategies to accomplish its vision. The first of the three
strategies is to grow the Company's assets. The more assets the Company has, the
greater its potential for diversification and growth. The Company plans to
increase its asset base through the growth of its Indian Casino management
business. As the successor to Grand Casinos' Indian gaming business, Lakes
enjoys a reputation as a successful casino management company for Native
American owned casinos with available capital and experienced management.

     Lakes develops and manages Indian-owned casino properties that offer the
opportunity for long-term development of related entertainment facilities,
including hotels, theaters, recreational vehicle parks and other complementary
amenities designed to enhance the customers' total entertainment experience and
to differentiate facilities managed by Lakes from its competitors. Lakes
provides experienced corporate and casino management and develops and implements
a wide scale of marketing programs. In conjunction with this part of Lakes'
business strategy, Lakes has entered into development, management and/or
financing agreements relating to one casino project in Michigan, three casino
projects in California, and one casino project on the east coast, with
development of each subject to either regulatory or court approvals. Lakes has
also explored, and will continue to explore, numerous other possible development
projects. See "Casino Projects and Agreements" below.

     Consistent with its past experience in managing the Louisiana casinos,
Lakes is dedicated to developing superior facilities and providing guest service
that exceeds expectations. Facilities managed by Lakes will be staffed with
well-trained local casino employees and will offer a casual environment designed
to appeal to the day trip, middle income customer. Lakes strives to offer its
casino customers creative gaming selections in a pleasant, festive, smoke and
climate-controlled setting. Lakes' managed casinos also will offer reasonably
priced, high-quality food.

     Lakes faces uncertainties related to the proposed casino developments.
Access to the proposed casino site for the Shingle Springs Casino is subject to
certain regulatory approvals which have been obtained; however, there is
currently a pending legal challenge to these approvals. For the Pokagon Casino,
the Secretary of the Interior had indicated their intention to accept the land
into trust, however, during the 30-day public comment period, a group called
"Taxpayers of Michigan Against Casinos" filed a complaint to stop the U.S.
Department of Interior from placing it into trust. The Department of Justice is
defending this lawsuit on behalf of the Secretary of Interior. In San Diego, the
Jamul Tribe needs to have land accepted into trust for its casino site. At the
east coast location, the Nipmuc Nation is attempting to obtain federal
recognition, but

                                        2


there is no assurance that federal recognition will be obtained. Additionally,
the National Indian Gaming Commission ("NIGC") needs to approve Lakes'
management contracts for each location. Lakes is actively working with the
tribes to bring these issues to a successful conclusion.

     The second business strategy has been to remove a number of uncertainties
surrounding Lakes since the spin-off in 1998. In 2000 Lakes entered into
settlement agreements regarding several significant shareholder litigation
matters, for which Lakes is required to indemnify Grand Casinos, and Lakes paid
a total of $18 million to the shareholder groups during 2000 and 2001. In May
2003, $2.3 million was paid out of an indemnification trust to Stratosphere
Corporation pursuant to a bankruptcy court judgement in another matter for which
Lakes was required to indemnify Grand Casinos. In June 2003, the trust was
terminated and the remaining restricted funds of approximately $5.9 million,
including interest, were released to Lakes and reclassified as unrestricted cash
on Lakes' balance sheet. Notwithstanding termination of the trust account,
Lakes' indemnification obligations to Grand remain in effect until December 28,
2004. Subsequent indemnification obligations to Grand Casinos, if any, would be
paid directly by Lakes. See Item 7 -- "Management's Discussion and Analysis of
Financial Condition and Results of Operations".

     Lakes has also addressed uncertainties relating to a portion of the land
owned or controlled by the Company in Las Vegas. On December 28, 2001, the
Company transferred title and ownership obligations of the Polo Plaza shopping
center property to Metroflag Polo, LLC. In conjunction with this transaction,
Lakes transferred to Metroflag BP, LLC, rights to and obligations of the
adjacent Travelodge property consisting of a long-term land lease and a motel
operation. During 2002, Lakes and Metroflag restructured the terms of the Polo
Plaza and Travelodge property transactions due to deteriorating economic
conditions. The parties reduced the purchase price for the Polo Plaza property
from $23.8 million to $21.8 million.

     During March of 2003, Lakes and Metroflag agreed to additional revisions to
the terms of the Polo Plaza and Travelodge property transactions. The parties
increased the price of the Polo Plaza property from $21.8 million to $25.8
million and extended the payment date to May 15, 2003. On the payment date,
$16.8 million of the purchase price was paid to Lakes in cash, $4.0 million was
paid through the issuance to Lakes of a preferred membership interest in
Metroflag and $4.0 million was paid through the issuance to Lakes of a
subordinated membership interest in Metroflag. On or before April 30, 2004,
Metroflag Polo may elect to distribute to Lakes $3.0 million plus interest in
cash as full return of Lakes' preferred interest. If paid after April 30, 2004,
the entire $4.0 million plus interest will be payable. The subordinated interest
must be repurchased for $4.0 million at the time of repayment of an outstanding
$3.5 million contractual commitment in connection with the Travelodge property,
which is scheduled on or before December 28, 2004. In March of 2003, the parties
decreased the sale price of the Travelodge property from $7.5 million to $3.5
million. At that time, the contractual commitment to pay Lakes was also
decreased from $7.5 million to $3.5 million, as a result of the increase in the
purchase price for the Polo Plaza property discussed above. During 2003, Lakes
took a $1.0 million impairment charge on the Travelodge property. If the
Travelodge commitment is not repaid by December 28, 2004, ownership of the
Travelodge lease rights would revert back to Lakes. Lakes has also agreed to
loan to Metroflag BP up to $3.0 million related to Travelodge operating
shortfalls through December 28, 2004. As of December 28, 2003 and December 29,
2002, the outstanding loan balance was $2.1 million and $0.8 million,
respectively. This loan is scheduled to be repaid on December 28, 2004. If at
any time the Polo Plaza property is sold and the Travelodge commitment has not
been repaid, Metroflag is required to repurchase the subordinated interest for
the lesser of $4.0 million or any portion of the net cash proceeds from such
sale or refinancing that exceeds $60.0 million.

     On April 7, 2003, Lakes announced that it had signed a Letter of Intent to
sell the approximate 3.5 acre undeveloped site, known as the Shark Club Parcel,
for a purchase price of $15.0 million in cash. The transaction closed on July 1,
2003. In addition to the $15.0 million payment, Lakes received $1.0 million as
repayment of a loan previously made by Lakes to Chateaux, LLC, a joint venture
entity originally formed by Lakes and a time-share developer for the purpose of
developing the Shark Club Parcel as an upscale time-share project.

     Diversification is important to Lakes' long-term success and is the third
of the business strategies. As part of the Company's effort to diversify, in
March of 2002, Lakes formed a joint venture with an experienced

                                        3


producer of televised poker tournaments. The purpose of the joint venture is to
launch the World Poker Tour and establish poker as the next significant
televised mainstream sport. See "World Poker Tour Joint Venture" below.

CASINO PROJECTS AND AGREEMENTS

  DEVELOPMENT AND MANAGEMENT OF SHINGLE SPRINGS CASINO.

     A Lakes subsidiary has a contract to develop and manage the Shingle Springs
Casino with the Shingle Springs Band of Miwok Indians on land owned by the tribe
on approximately 40 acres of the Tribe's Rancheria located approximately 30
miles east of Sacramento, California. The approximately 238,000 square-foot
facility (including approximately 80,000 square feet of casino space) will be
located adjacent to the planned Shingle Springs Rancheria exit on U.S. Highway
50, the principal route linking Sacramento and Northern California with South
Lake Tahoe. The Shingle Springs Casino is planned to feature approximately 2,000
slot machines, additional gaming machines and approximately 100 table games, as
well as restaurants, a parking garage and other facilities.

     In 2000, California voters approved an amendment to the State Constitution
which allows for Nevada-style gaming on Indian land and ratifies the Tribal
Compact. Development of the casino resort will begin once various regulatory
approvals are received and pending litigation is resolved. Regulatory approval
of the new interchange construction for access to tribal land of the Shingle
Springs Band of Miwok Indians was received during 2002. The neighboring county
and another local group commenced litigation in Federal and State Courts against
the California regulatory agencies, attempting to block the approval of the
interchange. During January of 2004, the California Superior Court ruled in
favor of Caltrans on all of El Dorado County's claims challenging Caltrans'
environmental review of the proposed casino project except that the court asked
for clarification on one issue. The federal litigation is pending. See Item
3 -- "Legal Proceedings".

     Lakes entered into development and management contracts for the Shingle
Springs Casino in 1999 (to be amended) through a joint venture between a
subsidiary of Lakes and Kean Argovitz Resorts -- Shingle Springs, LLC
("KAR -- Shingle Springs"). On January 30, 2003, the Lakes subsidiary purchased
KAR -- Shingle Springs' interest in the joint venture, at which time the joint
venture entity became an indirect wholly owned subsidiary of Lakes. At the same
time, subsidiaries of Lakes entered into separate agreements with Kevin M. Kean
and Jerry A. Argovitz, the individual owners of KAR -- Shingle Springs. See
"Agreements With Owners of KAR Entities" below.

     The development agreement requires Lakes to make certain pre-construction
advances to the Tribe in the form of a transition loan up to a maximum amount of
$25 million. The current principal balance of the loan is $24 million. The
management agreement is subject to the approval of the National Indian Gaming
Commission and is for a term of seven years from the opening of the casino. The
agreement requires Lakes to arrange for financing, in its discretion or loan to
the Tribe in the form of a facility loan funds for the costs of construction and
initial costs of operation up to a maximum of $300 million. As compensation for
its management services, Lakes will be entitled to receive 30% of net total
revenue, as that term is defined, subject to a minimum guaranteed monthly
payment to the Tribe of $500,000, subject to limitations described in the
agreement. The agreement may be terminated by the Tribe after five years from
the commencement date if any of certain required elements of the project have
not been developed. The Tribe may also buy out the management agreement
provisions after four years from the commencement date.

     Development and Management of Pokagon Casino.  A Lakes subsidiary has a
contract to develop and manage the Pokagon Casino with the Pokagon Band of
Potawatomi Indians on approximately 675 acres of land owned by the Tribe in New
Buffalo Township, Michigan near the first interstate 94 exit in southwestern
Michigan and approximately 75 miles east of Chicago. The Pokagon Casino is
planned to feature approximately 3,000 slot machines and approximately 100 table
games, as well as restaurants, a parking garage and other facilities.

     In connection with Lakes' selection in 1999, Lakes and the Pokagon Band
executed a development and management agreement (to be amended) governing their
relationship during the development, construction

                                        4


and management of the casino. Various regulatory approvals are needed prior to
commencement of development activities. The United States Department of the
Interior issued a Finding of No Significant Impact (FONSI) in January 2001 and
filed a legal notice of its intent to place into trust 675 acres near New
Buffalo, Michigan on behalf of the Pokagon Band.

     Under Federal law, a 30-day waiting period was required for public comments
to be made before the land in trust process could be finalized. During the
30-day period, a lawsuit was filed against the federal government in the
District Court in the District of Columbia by a Michigan-based group called
"Taxpayers of Michigan Against Casinos", to stop the U.S. Department of Interior
from placing into trust the land for the casino site. The Department of Justice
is defending the suit on behalf of the Secretary of Interior. While the outcome
of the suit cannot be predicted at this time, Lakes' management believes that
this hurdle will be successfully overcome and the casino development will be
approved. Casino construction is not planned to start until land is accepted
into trust status by the Secretary of the Interior and the agreements are
approved by the Chairman of NIGC.

     The development agreement provides that Lakes is required to advance
approximately $68.5 million for the initial development phase of this project.
The development agreement for the Pokagon project also provides that to the
extent the Pokagon Band is unable to raise additional funding from third parties
at an interest rate not to exceed 13% Lakes will be required to provide
additional financing of up to approximately $54.0 million. Currently, it appears
that third-party financing will be available for this project. However, there
can be no assurance that third-party financing will be available for this
project. The current principal balance of the loan is $41.7 million. The
management agreement is subject to the approval of the National Indian Gaming
Commission and is for a term of seven years from the opening of the casino. As
compensation for its management services, Lakes will be entitled to receive 24%
of net revenues, as that term is defined, subject to reduction to 19% in the
event net revenues reach certain levels, and subject to a minimum guaranteed
monthly payment to the Tribe of $1.0 million, subject to limitations described
in the agreement. Lakes' management fee will be subordinated to senior
indebtedness of the entity that owns the Pokagon casino. The agreement may be
terminated by the Tribe after five years from the commencement date if any of
certain required elements of the project have not been developed or certain
financial commitments to the Tribe have not exceeded certain levels. The Tribe
may also buy out the management agreement provisions after two years from the
commencement date.

     Development and Management of Jamul Casino.  A subsidiary of Lakes has a
contract to develop and manage a casino resort facility with the Jamul Indian
Village on land owned by the tribe near San Diego, California. The contract is
subject to approval by NIGC and placement of the land where the casino resort is
to be located into trust with the BIA. In 2000, California voters approved an
amendment to the State Constitution which allows for Nevada-style gaming on
Indian land and ratifies the Tribal Compact. Development of the casino resort
will begin once various regulatory approvals are received.

     A subsidiary of Lakes formed a joint venture with Kean Argovitz
Resorts -- Jamul, LLC ("KAR -- Jamul") that entered into the original
development and management contracts with the Jamul Indian Village in 2000 (to
be amended). On January 30, 2003, the Lakes subsidiary purchased KAR -- Jamul's
interest in the joint venture for nominal consideration, at which time the joint
venture entity became an indirect wholly owned subsidiary of Lakes. At the same
time, subsidiaries of Lakes entered into separate agreements with Kevin M. Kean
and Jerry A. Argovitz, the individual owners of KAR -- Jamul. See "Agreements
With Owners of KAR Entities" below.

     The development agreement requires Lakes to make certain pre-construction
advances to the Tribe. The current principal balance of the loan is $12.3
million. The management agreement is subject to the approval of the National
Indian Gaming Commission and is for a term of seven years from the opening of
the casino. As compensation for its management services, Lakes will be entitled
to receive 30% of net total revenue, as that term is defined, subject to a
minimum guaranteed monthly payment to the Tribe of $600,000, subject to
limitations described in the agreement. The agreement may be terminated by the
Tribe after five years from the commencement date if any of certain required
elements of the project have not been developed. The Tribe may also buy out the
management agreement provisions after four years from the commencement date.

                                        5


     Agreements With Owners of KAR Entities.  The joint venture entities that
hold the management contracts for the San Diego and Sacramento area casino
resorts were previously jointly owned with KAR -- Jamul and KAR -- Shingle
Springs (together, the "KAR Entities"). On January 30, 2003, subsidiaries of
Lakes purchased the respective joint venture interests of the KAR Entities for
nominal cash consideration, at which time the joint venture entities became
indirect wholly owned subsidiaries of Lakes. At the time of the purchase, Lakes
or its subsidiaries had notes receivable from the KAR Entities and a long-term
receivable from Kevin M. Kean that, as of December 29, 2002, were in the amounts
of $1.8 million and $1.9 million, respectively. In connection with the purchase
transactions, Lakes and certain of its subsidiaries entered into separate
agreements with Kevin M. Kean and Jerry A. Argovitz, the two individual owners
of the KAR Entities. Under these agreements, Lakes and its subsidiaries have
forgiven the notes receivable from the KAR Entities, subject to the agreements
of Messrs. Kean and/or Argovitz to assume the obligations under the notes in
certain circumstances.

     Under the agreements with Kevin M. Kean, Mr. Kean may elect to serve as a
consultant to Lakes' subsidiaries during the term of each subsidiary's 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 20% of the management fees from the San Diego area
casino operations and 15% of the management fees from the Sacramento area casino
operations, less certain costs of these operations. If Mr. Kean is found
suitable by relevant gaming regulatory authorities and elects to serve as a
consultant, he will be obligated to repay 50% of the notes receivable from the
KAR Entities. 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 each of the San Diego and
Sacramento area casino projects during the term of the respective casino
management contracts (but not during any renewal term of such management
contracts). Regardless of whether Mr. Kean serves as a consultant, a Lakes
subsidiary has agreed to loan up to $1.25 million to Mr. Kean, $1 million of
which must be used to fund certain obligations of Mr. Kean related to a separate
joint venture formed to acquire land in the San Diego area. This land was sold
during the first quarter of 2004. Therefore, this $1 million obligation no
longer exists. Mr. Kean has agreed that 50% of the consulting fees or other
payments payable to him under the agreements with Lakes and its subsidiaries
shall be applied toward repayment of his indebtedness to Lakes. In the event of
a default under the agreements, 100% of the fees and payments will be applied
toward repayment of his indebtedness to Lakes.

     Under the agreements with Jerry A. Argovitz, if Mr. Argovitz is found
suitable by relevant gaming regulatory authorities, he will be entitled to
purchase for nominal consideration a 20% equity interest in the Lakes subsidiary
holding a management contract with the San Diego area casino and a 15% equity
interest in the Lakes subsidiary holding a management contract with the
Sacramento area casino. Upon such purchase, Mr. Argovitz will become obligated
to repay 50% of the notes receivable from the KAR Entities. If he is not found
suitable or does not elect to purchase equity interests in the Lakes
subsidiaries, Mr. Argovitz may elect to receive annual payments of $1 million
from each of the San Diego and Sacramento area casino projects from the date of
election through the term of the respective casino management contracts (but not
during any renewal term of such management contracts).

     Agreement for Possible Casino Development with Massachusetts Tribe.  On
July 9, 2001, the Company announced that it had signed development and
management agreements with the Nipmuc Nation of Massachusetts for a potential
future casino resort in the eastern United States. The Nipmuc Nation's petition
for federal recognition received a proposed positive finding from the BIA in
January 2001. However, in September 2001, that proposed positive finding was
reversed by the BIA when it issued a negative finding relating to the Nipmuc
Nation's request for federal recognition. The Nipmuc Nation has submitted
additional information for reconsideration. In addition, community groups will
have an opportunity to submit comments and documentation. If approval is
received, the Nipmuc Nation would need to put land in trust before proceeding
with any such enterprise.

     Joint Venture Agreement with MRD Gaming for Possible Further California
Casinos.  On August 10, 2000, the Company announced that it had agreed to form a
joint venture for the purpose of developing gaming facilities on Indian owned
land in California. Under the agreement, Lakes formed a joint venture limited

                                        6


liability company with MRD Gaming, a limited liability company ("MRD"). The
partnership between Lakes and MRD holds the contract to finance casino
facilities with the Cloverdale Rancheria of Pomo Indians.

     The planned site for the potential new casino development is located on
Highway 101 in Cloverdale, California, approximately 60 miles north of San
Francisco. The Cloverdale Rancheria has notified the partnership that the
Rancheria wishes to terminate the relationship between the two parties. The
partnership has advised the Rancheria that the partnership believes the contract
is enforceable. The Rancheria acknowledges that the partnership has loaned the
Rancheria money and that the Rancheria will endeavor to repay the money in a
timely manner.

WORLD POKER TOUR

     In March 2002, Lakes formed World Poker Tour, LLC, ("WPT"), a subsidiary of
Lakes, with Steven Lipscomb, a minority shareholder of the subsidiary and an
experienced producer of televised poker tournaments. Lakes owns approximately a
78% equity interest in WPT. WPT established a global series of poker tournaments
in locations in various countries, which are filmed and broadcast on television.
In March 2003, WPT signed an agreement with the Travel Channel, L.L.C. (TRV),
granting TRV the right to broadcast the first season of the World Poker Tour
series which has now been completed. Under the agreement, TRV has the exclusive
right, license, and privilege to exhibit, market, distribute, transmit, perform
and otherwise exploit each of the first thirteen two-hour programs produced by
WPT for an unlimited number of times over a three year period within the United
States.

     During July of 2003, WPT reached an agreement with TRV for a second season
with TRV being granted options for five additional seasons. WPT will receive a
series of fixed license payments for the second season. This agreement grants
TRV the exclusive right to broadcast the second season of the World Poker Tour
series within the United States. Under the new agreement, WPT is entitled to a
portion of the revenues from other sources including international distribution,
merchandising, certain sponsorships, and brand licensing and WPT is currently
exploring these opportunities. Revenue is recognized upon delivery of completed
episodes. WPT has announced plans for an initial public offering of the stock of
a successor corporation.

MARKETING

     Lakes' marketing strategy at its managed operations is to attract and
retain the repeat customer. Management believes that Lakes' emphasis on
providing superior guest service along with first-class facilities, coupled with
targeted marketing programs, contributes to attracting the repeat customer.

     Lakes' operations strategy seeks to combine retail, gaming and
entertainment marketing techniques. Lakes profiles the casino customers
utilizing available demographic data, regularly conducted customer surveys and
other sources. Based upon this data, Lakes uses a variety of initial special
promotions to attract the first-time customer and, thereafter, seeks to leverage
initial customer satisfaction through a mix of marketing programs dedicated to
developing a repeat customer. A variety of other events, facilities and
entertainment options provide the patron with a total entertainment experience.
Lakes markets these programs through a variety of direct and media marketing
techniques utilizing a significant customer database developed at each location.
Lakes emphasizes guest service as part of its operating strategy. High standards
are set for well-trained and friendly employees so that customers can enjoy
themselves in a fun-filled and entertaining atmosphere.

COMPETITION

     The gaming industry is highly competitive. Gaming activities include
traditional land-based casinos; river boat and dockside gaming; casino gaming on
Indian land; state-sponsored video lottery and video poker in restaurants, bars
and hotels; pari-mutuel betting on horse racing, dog racing, and jai-alai;
sports bookmaking; and card rooms. The casinos to be managed by Lakes compete
with all of these forms of gaming, and will compete with any new forms of gaming
that may be legalized in additional jurisdictions, as well as with other types
of entertainment. Lakes also competes with other gaming companies for
opportunities to acquire legal gaming sites in emerging gaming jurisdictions and
for the opportunity to manage casinos on Indian land. Some
                                        7


of the competitors of Lakes have more personnel and greater financial and other
resources than Lakes. Further expansion of gaming could also significantly
affect Lakes' business.

     In California and Michigan, the two key areas targeted in the near-term by
Lakes, Indian gaming is very well developed and continues to flourish.
California has by far the largest Indian gaming industry of any state,
generating an estimated $4 billion in gaming revenues in 2003, or approximately
one-third of all Indian gaming revenue in the United States. There were 52
Indian gaming facilities in 2003, with a total of more than 55,000 slot machines
and 1,300 table games.

     Indian gaming facilities in Michigan can offer all forms of class III
gaming with the exception of sports wagering. The Michigan Indian gaming
facility will compete primarily with the riverboats that operate in northern
Indiana. There were five riverboats in northern Indiana in 2003, generating over
$1.1 billion in gaming revenue with a total of 8,733 slot machines and 268 table
games.

     In the market for televised poker tournaments, World Poker Tour competes
with producers of several poker-related programs, including the "World Series of
Poker", an annual event hosted by the Horseshoe Casino in Las Vegas that airs on
ESPN. "Celebrity Poker Showdown", which airs on Bravo and showcases the
appearances of celebrities more than it does the game of poker, and "Late Night
Poker", a U.K. based program that airs on Fox. Fox also broadcasts a tournament
from Atlantic City.

REGULATION

  GAMING REGULATION

     The ownership, management, and operation of gaming facilities are subject
to extensive federal, state, provincial, tribal and/or local laws, regulations
and ordinances, which are administered by the relevant regulatory agency or
agencies in each jurisdiction (the "Regulatory Authorities"). These laws,
regulations and ordinances vary from jurisdiction to jurisdiction, but generally
concern the responsibility, financial stability and character of the owners and
managers of gaming operations as well as persons financially interested or
involved in gaming operations. Certain basic provisions that are currently
applicable to Lakes in its management, development and financing activities are
described below.

     Neither Lakes nor any subsidiary may own, manage or operate a gaming
facility unless proper licenses, permits and approvals are obtained. An
application for a license, permit or approval may be denied for any cause that
the Regulatory Authorities deem reasonable. Most Regulatory Authorities also
have the right to license, investigate, and determine the suitability of any
person who has a material relationship with Lakes or any of its subsidiaries,
including officers, directors, employees, and security holders of Lakes or its
subsidiaries. In the event a Regulatory Authority were to find a security holder
to be unsuitable, Lakes may be sanctioned, and may lose its licenses and
approvals if Lakes recognizes any rights in such unsuitable person in connection
with such securities. Lakes may be required to repurchase its securities at fair
market value from security holders that the Regulatory Authorities deem
unsuitable. Lakes' Articles of Incorporation authorize Lakes to redeem
securities held by persons whose status as a security holder, in the opinion of
the Lakes' Board, jeopardizes gaming licenses or approvals of Lakes or its
subsidiaries. Once obtained, licenses, permits, and approvals must be
periodically renewed and generally are not transferable. The Regulatory
Authorities may at any time revoke, suspend, condition, limit, or restrict a
license for any cause they deem reasonable.

     Fines for violations may be levied against the holder of a license, and in
certain jurisdictions, gaming operation revenues can be forfeited to the State
under certain circumstances. No assurance can be given that any licenses,
permits, or approvals will be obtained by Lakes or its subsidiaries, or if
obtained, will be renewed or not revoked in the future. In addition, the
rejection or termination of a license, permit, or approval of Lakes or any of
its employees or security holders in any jurisdiction may have adverse
consequences in other jurisdictions. Certain jurisdictions require gaming
operators licensed therein to seek approval from the state before conducting
gaming in other jurisdictions. Lakes and its subsidiaries may be required to
submit detailed financial and operating reports to Regulatory Authorities.

     The political and regulatory environment for gaming is dynamic and rapidly
changing. The laws, regulations, and procedures pertaining to gaming are subject
to the interpretation of the Regulatory

                                        8


Authorities and may be amended. Any changes in such laws, regulations, or their
interpretations could have a material adverse effect on Lakes.

     Certain specific provisions to which Lakes is currently subject are
described below.

  INDIAN GAMING

     The terms and conditions of management contracts for the operation of
Indian-owned casinos, and of all gaming on Indian land in the United States, are
subject to the Indian Gaming Regulatory Act ("IGRA"), which is administered by
NIGC, and also are subject to the provisions of statutes relating to contracts
with Indian tribes, which are administered by the Secretary of the Interior (the
"Secretary") and the BIA. The regulations and guidelines under which NIGC will
administer IGRA are evolving. The IGRA and those regulations and guidelines are
subject to interpretation by the Secretary and NIGC and may be subject to
judicial and legislative clarification or amendment.

     Lakes may need to provide the BIA or NIGC with background information on
each of its directors and each shareholder who holds five percent or more of
Lakes' stock ("5% Shareholders"), including a complete financial statement, a
description of such person's gaming experience, and a list of jurisdictions in
which such person holds gaming licenses. Background investigations of key
employees also may be required. Lakes' Articles of Incorporation contain
provisions requiring directors and 5% Shareholders to provide such information.

     IGRA currently requires NIGC to approve management contracts and certain
collateral agreements for Indian-owned casinos. Prior to NIGC assuming its
management contract approval responsibility, management contracts and other
agreements were approved by the BIA. The NIGC may review any of Lakes'
management contracts and collateral agreements for compliance with IGRA at any
time in the future. The NIGC will not approve a management contract if a
director or a 5% Shareholder of the management company (i) is an elected member
of the Indian tribal government that owns the facility purchasing or leasing the
games; (ii) has been or is convicted of a felony gaming offense; (iii) has
knowingly and willfully provided materially false information to the NIGC or the
tribe; (iv) has refused to respond to questions from the NIGC; or (v) is a
person whose prior history, reputation and associations pose a threat to the
public interest or to effective gaming regulation and control, or create or
enhance the chance of unsuitable activities in gaming or the business and
financial arrangements incidental thereto.

     In addition, the NIGC will not approve a management contract if the
management company or any of its agents have attempted to unduly influence any
decision or process of tribal government relating to gaming, or if the
management company has materially breached the terms of the management contract
or the tribe's gaming ordinance, or a trustee, exercising due diligence, would
not approve such management contract.

     A management contract can be approved only after NIGC determines that the
contract provides, among other things, for (i) adequate accounting procedures
and verifiable financial reports, which must be furnished to the tribe; (ii)
tribal access to the daily operations of the gaming enterprise, including the
right to verify daily gross revenues and income; (iii) minimum guaranteed
payments to the tribe, which must have priority over the retirement of
development and construction costs; (iv) a ceiling on the repayment of such
development and construction costs; and (v) a contract term not exceeding five
years and a management fee not exceeding 30% of profits; provided that the NIGC
may approve up to a seven year term and a management fee not to exceed 40% of
profits if NIGC is satisfied that the capital investment required, the risk
exposure, and the income projections for the particular gaming activity justify
the larger profit allocation and longer term.

     IGRA established three separate classes of tribal gaming -- Class I, Class
II, and Class III. Class I includes all traditional or social games played by a
tribe in connection with celebrations or ceremonies. Class II gaming includes
games such as bingo, pulltabs, punch boards, instant bingo and card games that
are not played against the house. Class III gaming includes casino-style gaming
including table games such as blackjack, craps and roulette, as well as gaming
machines such as slots, video poker, lotteries, and pari-mutuel wagering.

                                        9


     IGRA prohibits substantially all forms of Class III gaming unless the tribe
has entered into a written agreement with the state in which the casino is
located that specifically authorizes the types of commercial gaming the tribe
may offer (a "tribal-state compact"). IGRA requires states to negotiate in good
faith with tribes that seek tribal-state compacts, and grants Indian tribes the
right to seek a federal court order to compel such negotiations. Many states
have refused to enter into such negotiations. Tribes in several states have
sought federal court orders to compel such negotiations under IGRA; however, the
Supreme Court of the United States held in 1996 that the Eleventh Amendment to
the United States Constitution immunizes states from suit by Indian tribes in
federal court without the states' consent.

     Because Indian tribes are currently unable to compel states to negotiate
tribal-state compacts, Lakes may not be able to develop and manage casinos in
states that refuse to enter into, or renew, tribal-state compacts.

     In addition to IGRA, tribal-owned gaming facilities on Indian land are
subject to a number of other federal statutes. The operation of gaming on Indian
land is dependent upon whether the law of the state in which the casino is
located permits gaming by non-Indian entities, which may change over time. Any
such changes in state law may have a material adverse effect on the casinos
managed by Lakes.

     Title 25, Section 81 of the United States Code states that "no agreement
shall be made by any person with any tribe of Indians, or individual Indians not
citizens of the United States, for the payment or delivery of any money or other
thing of value  ... in consideration of services for said Indians relative to
their lands  ... unless such contract or agreement be executed and approved" by
the Secretary or his or her designee. An agreement or contract for services
relative to Indian lands that fails to conform with the requirements of Section
81 will be void and unenforceable. Any money or other thing of value paid to any
person by any Indian or tribe for or on his or their behalf, on account of such
services, in excess of any amount approved by the Secretary or his or her
authorized representative will be subject to forfeiture.

     The Indian Trader Licensing Act, Title 25, Section 261-64 of the United
States Code ("ITLA") states that "any person other than an Indian of the full
blood who shall attempt to reside in the Indian country, or on any Indian
reservation, as a trader, or to introduce goods, or to trade therein, without
such license, shall forfeit all merchandise offered for sale to the Indians or
found in his possession, and shall moreover be liable to a penalty of
$500  ... " No such licenses have been issued to Lakes to date. The
applicability of ITLA to Indian gaming management contracts is unclear. Lakes
believes that ITLA is not applicable to its management contracts, under which
Lakes provides services rather than goods to Indian tribes. Lakes further
believes that ITLA has been superseded by IGRA.

     Indian tribes are sovereign nations with their own governmental systems,
which have primary regulatory authority over gaming on land within the tribe's
jurisdiction. Because of their sovereign status, Indian tribes possess immunity
from lawsuits to which the tribes have not otherwise consented or otherwise
waived their sovereign immunity defense. Therefore, no contractual obligations
undertaken by tribes to Lakes would be enforceable by Lakes unless the tribe has
expressly waived its sovereign immunity as to such obligations. Courts strictly
construe such waivers. Lakes has obtained immunity waivers from each of the
tribes to enforce the terms of its management agreements, however, the scope of
those waivers has never been tested in court, and may be subject to dispute.
Additionally, persons engaged in gaming activities, including Lakes, are subject
to the provisions of tribal ordinances and regulations on gaming. These
ordinances are subject to review by NIGC under certain standards established by
IGRA.

  NON-GAMING REGULATIONS

     The Company and its subsidiaries are subject to certain federal, state and
local, safety and health laws, regulations and ordinances that apply to
non-gaming businesses generally, such as the Clean Air Act, Clean Water Act,
Occupational Safety and Health Act, Resource Conservation Recovery Act and the
Comprehensive Environmental Response, Compensation and Liability Act. The
Company believes that it is currently in material compliance with such
regulations. The coverage and attendant compliance costs associated with such
laws, regulations and ordinances may result in future additional cost to the
Company's operations.

                                        10


EMPLOYEES

     At March 19, 2004, Lakes had approximately 30 employees. World Poker Tour
had approximately 12 full-time employees and an additional 28 employees who work
full time while the World Poker Tour television series is in production. Lakes
believes its relations with employees are satisfactory.

     The Company has assembled a strong team of gaming industry experts,
well-versed in all aspects of casino development, construction and management,
many of whom were involved with the success of Grand Casinos, Inc. The Lakes'
team has individual specialists on staff that mirror each of the functional
areas found in a casino, including the following:

     - Gaming Operations

     - Construction & Development

     - Finance/Accounting

     - Legal/Regulatory

     - Security

     - Systems/IT

     - Food & Beverage

     - Retail

     - Marketing

     - Human Resources

     This team represents a valuable asset that Lakes can use to its advantage
now and in the future.

                                  RISK FACTORS

     In addition to factors discussed elsewhere in this Annual Report on Form
10-K, the following are important factors that could cause actual results or
events to differ materially from those contained in any forward-looking
statement made by or on behalf of the Company.

     THE DEVELOPMENT AND MANAGEMENT OF INDIAN CASINOS AND RESORTS REQUIRE THE
SATISFACTION OF VARIOUS CONDITIONS, MANY OF WHICH ARE BEYOND LAKES' CONTROL AND
THE FAILURE OF WHICH TO BE SATISFIED MAY SIGNIFICANTLY DELAY THE COMPLETION OF
LAKES' CURRENT INDIAN CASINO DEVELOPMENT PROJECTS OR PREVENT THE COMPLETION OF
SUCH PROJECTS ALTOGETHER.

     Although Lakes and certain members of its management team have experience
developing and managing casinos owned by Indian tribes and located on Indian
land, neither the Company nor any of these individuals has developed or managed
a casino in either the State of California, the State of Michigan, or on the
east coast. In addition, the gaming industry in each of the locations where
Lakes plans to develop and manage casinos has a limited operating history and
faces several legal and procedural challenges that will need to be resolved
prior to the commencement of Lakes' development activities and the opening and
operation of the respective casinos.

     The opening of each of the proposed Lakes' facilities in the State of
California, the State of Michigan, and on the east coast, will be contingent
upon, among other things, the completion of construction, hiring and training of
sufficient personnel and receipt of all regulatory licenses, permits,
allocations and authorizations. The scope of the approvals required to construct
and open these facilities will be extensive, and the failure to obtain such
approvals could prevent or delay the completion of construction or opening of
all or part of such facilities or otherwise affect the design and features of
the proposed casinos.

                                        11


     No assurances can be given that once a schedule for such construction and
development activities is established, such development activities will begin or
will be completed on time, or any other time, or that the budget for these
projects will not be exceeded.

     In addition, the regulatory approvals necessary for the construction and
operation of casinos are often challenged in litigation brought by government
entities, citizens groups and other organizations and individuals. Such
litigation can significantly delay the construction and opening of casinos.
Certain of the Company's casino projects are the subject of litigation, and
there is no assurance that the litigation can be successfully defended or that
the Company's casino projects will not be delayed significantly.

     Major construction projects entail significant risks, including shortages
of materials or skilled labor, unforeseen engineering, environmental and/or
geological problems, work stoppages, weather interference, unanticipated cost
increases and non-availability of construction equipment. Construction,
equipment or delays or difficulties in obtaining any of the requisite licenses,
permits, allocations and authorizations from regulatory authorities could
increase the total cost, delay or prevent the construction or opening of any of
these planned casino developments or otherwise affect their design. In addition,
once developed, no assurances can be given that the Company will be able to
manage these casinos on a profitable basis or to attract a sufficient number of
guests, gaming customers and other visitors to make the various operations
profitable independently.

     With each project Lakes is subject to the risk that its investment may be
lost if the project cannot obtain adequate financing to complete development and
open the casino successfully. In some cases, Lakes may be forced to provide more
financing than it originally planned in order to complete development,
increasing the risk to Lakes in the event of a default by the casino.

     BECAUSE LAKES CURRENTLY GENERATES NO REVENUE FROM CASINO MANAGEMENT
CONTRACTS WITH WHICH TO OFFSET THE INVESTMENT COSTS ASSOCIATED WITH ITS CASINO
DEVELOPMENT PROJECTS, DELAYS IN THE COMPLETION OF THESE DEVELOPMENT PROJECTS OR
THE NON-COMPLETION OF ANY SUCH PROJECT COULD MATERIALLY AND ADVERSELY AFFECT
LAKES' POTENTIAL FOR PROFITABILITY.

     Since the expiration of its management contract for Grand Casino Coushatta
(the last remaining Lakes' managed Indian-owned casino) on January 16, 2002,
Lakes has generated no revenue from its casino management activities. Given the
absence of current casino management-related operating revenue with which to
offset the potentially significant investment costs associated with its current
or future casino development projects, delays in the completion of Lakes'
current development projects, or the failure of such projects to be completed at
all, may cause Lakes' operating results to fluctuate significantly and may
adversely affect Lakes' profitability. In addition, because Lakes' future growth
in revenues and its ability to generate profits will depend to a large extent on
Lakes' ability to increase the number of its managed casinos or develop new
business opportunities, the delays in the completion or the non-completion of
Lakes' current development projects may adversely affect Lakes' ability to
realize future growth in revenues and future profits.

     PURSUANT TO THEIR TERMS, LAKES' CONTRACTS TO MANAGE CASINOS BEING DEVELOPED
BY LAKES ON INDIAN LAND CAN BE TERMINATED BY THE TRIBES UNDER CERTAIN
CIRCUMSTANCES, WHICH TERMINATION MAY HAVE A MATERIAL ADVERSE EFFECT ON THE
RESULTS OF LAKES' OPERATIONS.

     The terms of Lakes' current management contracts provide that such
contracts may be terminated under certain circumstances, including without
limitation, upon the failure to obtain NIGC approval for the project, the loss
of requisite gaming licenses, or an exercise by a tribe of its buy-out option.
Without the realization of new business opportunities or new management
contracts, management contract terminations could have a material adverse effect
on Lakes' results of operations and financial conditions.

     IF LAKES IS REQUIRED TO MAKE SIGNIFICANT ADDITIONAL PAYMENTS IN
SATISFACTION OF THE INDEMNIFICATION OBLIGATIONS LAKES INHERITED FROM GRAND
CASINOS UPON LAKES' FORMATION, THOSE PAYMENTS MAY HAVE A MATERIAL ADVERSE EFFECT
ON LAKES' ASSET POSITION.

     Under the documents relating to Lakes' spin-off from Grand Casinos and
Grand Casinos' acquisition by Park Place, which has since been renamed Caesars
Entertainment, Inc. ("Caesars"), Lakes agreed to

                                        12


indemnify Grand Casinos and affiliates of Grand Casinos for (i) liabilities of
Grand Casinos retained by Lakes in the spin-off, (ii) Grand Casinos' ongoing
indemnification obligations to current and former directors and officers of
Grand Casinos and (iii) contingent liabilities related to Stratosphere
Corporation ("Stratosphere"). Lakes has previously entered into a settlement
agreement dispensing with both the Stratosphere shareholders' litigation and the
Grand Casinos, Inc. shareholders' litigation, pursuant to which Lakes paid a
total of $18.0 million to the Grand Casinos, Inc. shareholders and the
Stratosphere shareholders for full and final settlement of all federal and state
related actions. In May 2003, $2.3 million was paid out of the trust to
Stratosphere. Following such payment, the trust account was terminated and the
remaining restricted funds of approximately $5.9 million, including interest,
were released to Lakes and reclassified as unrestricted cash on Lakes' condensed
consolidated balance sheet as of June 29, 2003. Notwithstanding termination of
the trust account, Lakes' indemnification obligations to Grand remain in effect
until December 28, 2004. Subsequent indemnification obligations to Grand
Casinos, if any, would be paid directly by Lakes.

     IF LAKES' CURRENT CASINO DEVELOPMENT PROJECTS ARE NOT COMPLETED OR, UPON
COMPLETION, FAIL TO SUCCESSFULLY COMPETE IN THE HIGHLY COMPETITIVE MARKET FOR
GAMING ACTIVITIES, LAKES MAY LACK THE FUNDS TO COMPETE FOR AND DEVELOP FUTURE
GAMING OR OTHER BUSINESS OPPORTUNITIES AND THE RESULTS OF LAKES' OPERATIONS MAY
SUFFER ACCORDINGLY.

     The gaming industry is highly competitive. Gaming activities include
traditional land-based casinos; river boat and dockside gaming; casino gaming on
Indian land; state-sponsored lotteries and video poker in restaurants, bars and
hotels; pari-mutuel betting on horse racing, dog racing and jai alai; sports
bookmaking; and card rooms. The Indian-owned casinos to be managed by Lakes
compete, and will in the future compete, with all these forms of gaming, and
will compete with any new forms of gaming that may be legalized in additional
jurisdictions, as well as with other types of entertainment.

     Lakes also competes with other gaming companies for opportunities to
acquire legal gaming sites in emerging and established gaming jurisdictions and
for the opportunity to manage casinos on Indian land. Many of Lakes' competitors
have more personnel and may have greater financial and other resources than
Lakes. Such competition in the gaming industry could adversely affect Lakes'
ability to attract customers and thus, adversely affect its operating results.
In addition, further expansion of gaming into new jurisdictions could also
adversely affect Lakes' business by diverting customers from its managed casinos
to competitors in such jurisdictions.

     CHANGES IN THE LAWS, REGULATIONS, AND ORDINANCES (INCLUDING TRIBAL AND/OR
LOCAL LAWS) TO WHICH THE GAMING INDUSTRY IS SUBJECT, OR THE INABILITY OF LAKES,
ITS KEY PERSONNEL, SIGNIFICANT SHAREHOLDERS, OR JOINT VENTURE PARTNERS TO OBTAIN
OR RETAIN REQUIRED GAMING REGULATORY LICENSES, COULD PREVENT THE COMPLETION OF
LAKES' CURRENT CASINO DEVELOPMENT PROJECTS OR PREVENT LAKES FROM PURSUING FUTURE
DEVELOPMENT PROJECTS.

     The ownership, management and operation of gaming facilities are subject to
extensive federal, state, provincial, tribal and/or local laws, regulations and
ordinances, which are administered by the relevant regulatory agency or agencies
in each jurisdiction. These laws, regulations and ordinances vary from
jurisdiction to jurisdiction, but generally concern the responsibility,
financial stability and character of the owners and managers of gaming
operations as well as persons financially interested or involved in gaming
operations, and often require such parties to obtain certain licenses, permits
and approvals.

     The rapidly-changing political and regulatory environment governing the
gaming industry (including gaming operations which are conducted on Indian land)
makes it impossible for Lakes to accurately predict the effects that an adoption
of or changes in the gaming laws, regulations and ordinances will have on Lakes.
However, the failure of Lakes, or any of Lakes' key personnel, significant
shareholders or joint venture partners, to obtain or retain required gaming
regulatory licenses could prevent Lakes from expanding into new markets,
prohibit Lakes from generating revenues in certain jurisdictions, and subject
Lakes to sanctions and fines.

     The political and regulatory environment in which Lakes is and will be
operating, including with respect to gaming activities on Indian land, is
discussed in greater detail in this Form 10-K under the caption "Regulation".

                                        13


     IF THE NIGC ELECTS TO MODIFY THE TERMS OF LAKES' MANAGEMENT CONTRACTS WITH
INDIAN TRIBES OR VOID SUCH CONTRACTS ALTOGETHER, LAKES' REVENUES FROM MANAGEMENT
CONTRACTS MAY BE REDUCED OR DISCONTINUED.

     The NIGC has the power to require modifications to Indian management
contracts under certain circumstances or to void such contracts or ancillary
agreements including loan agreements if the management company fails to obtain
requisite approvals or to comply with applicable laws and regulations. NIGC has
the right to review each contract and has the authority to reduce the term of a
management contract or the management fee or otherwise require modification of
the contract, which could have an adverse effect on Lakes. Currently, the
management contracts (i) have either not been reviewed or approved by NIGC and
(ii) NIGC could call them for review at any time, in which case NIGC may not
approve the contracts at all or may require modification prior to granting
approval.

     IF INDIAN TRIBES TO WHICH LAKES HAS LOANED MONEY DEFAULT ON THEIR REPAYMENT
OBLIGATIONS OR WRONGFULLY TERMINATE THEIR MANAGEMENT CONTRACTS WITH LAKES, LAKES
WILL BE FORCED TO RELY ON REVENUES, IF ANY, FROM CASINO OPERATIONS AS RECOURSE
FOR COLLECTION OF INDEBTEDNESS OR MONEY DAMAGES AND, THEREFORE, LAKES MAY BE
UNABLE TO COLLECT THE AMOUNTS DUE.

     Lakes has made, and will make, substantial loans to tribes for the
construction, development, equipment and operations of casinos managed by Lakes.
Lakes' only recourse for collection of indebtedness from a tribe or money
damages for breach or wrongful termination of a management contract is from
revenues, if any, from casino operations.

     Lakes has subordinated, and may in the future subordinate, the repayment of
loans made to a tribe and other distributions due from a tribe (including
management fees) in favor of other obligations of the tribe to other parties
related to the casino operations. Accordingly, in the event of a default by a
tribe under such obligations, Lakes' loans and other claims against the tribe
will not be repaid until such default has been cured or the tribe's senior
casino-related creditors have been repaid in full.

     A DETERIORATION OF THE COMPANY'S RELATIONSHIP WITH AN INDIAN TRIBE COULD
CAUSE DELAYS IN THE COMPLETION OF A CASINO DEVELOPMENT PROJECT WITH THAT TRIBE
OR EVEN FORCE THE COMPANY TO ABANDON A CASINO DEVELOPMENT PROJECT ALTOGETHER.

     Good personal and professional relationships with Indian tribes and their
officials are critical to Lakes' proposed and future Indian-related gaming
operations and activities, including Lakes' ability to obtain, develop and
effectuate management and other agreements. As sovereign nations, Indian tribes
establish their own governmental systems under which tribal officials or bodies
representing a tribe may be replaced by appointment or election or become
subject to policy changes. Replacements of tribe officials or administrations,
or changes in policies to which a tribe is subject, may deteriorate the
Company's relationship with a tribe and lead to delays in the completion of a
development project with that tribe or prevent the project's completion
altogether, either of which will have an adverse effect on the results of the
Company's operations.

     IF FUNDS FROM LAKES' OPERATIONS ARE INSUFFICIENT TO SUPPORT ITS CASH
REQUIREMENTS AND LAKES IS UNABLE TO OBTAIN ADDITIONAL FINANCING IN ORDER TO
SATISFY THESE REQUIREMENTS, EITHER ON TERMS ACCEPTABLE TO LAKES OR AT ALL, LAKES
MAY BE FORCED TO DELAY, SCALE BACK OR ELIMINATE SOME OF ITS EXPANSION AND
DEVELOPMENT GOALS, OR CEASE ITS OPERATIONS ENTIRELY. THE CONSTRUCTION OF ITS
CASINO PROJECTS MAY ALSO DEPEND ON THE ABILITY OF VARIOUS INDIAN TRIBES TO RAISE
CAPITAL.

     Lakes anticipates that its reserves of cash, interest expected to be earned
on those reserves, and its anticipated revenues will be sufficient to finance
its existing operations in 2004. However, additional financing for Lakes will be
required to meet its obligations related to its casino projects as soon as
regulatory approvals are received and construction can begin. It is likely that
Lakes will seek or require additional capital at some point in 2004 through
either public or private financings. Such financings may not be available when
needed on terms acceptable to Lakes or at all. Moreover, any additional equity
financings may be dilutive to Lakes' shareholders, and any debt financing may
involve additional restrictive covenants. An inability to raise such funds when
needed might require Lakes to delay, scale back or eliminate some of its
expansion and development goals, or might require Lakes to cease its operations
entirely. Lakes' financial condition and

                                        14


resources are discussed in greater detail in Item 7. ("Management's Discussion
and Analysis of Financial Condition and Results of Operations of
Lakes -- Capital Resources, Capital Spending and Liquidity").

     In addition, the construction of the Company's Indian casino projects may
depend on the ability of the tribes to obtain financing for the projects. If
such financing cannot be obtained on acceptable terms, it may not be possible to
complete these projects. In order to assist the tribes, Lakes may be required to
guarantee the tribes' debt financing or otherwise provide support for the
tribes' obligations. Any guarantees by Lakes or similar off-balance sheet
liabilities, if any, will increase Lakes' potential exposure in the event of a
default by any of these tribes.

     For the Pokagon project, the Company has agreed to finance all phases of
the project entirely from its own funds if financing at an interest rate of 13%
or less is not available from the capital markets. If this occurs and Lakes is
required to provide all financing, this would be an additional commitment of up
to approximately $54 million. Currently, it appears that third-party financing
will be available for this project. However, there can be no assurance that
third-party financing will be available and that Lakes will not be required to
provide this additional financing.

     A LARGE PORTION OF LAKES' ASSETS ARE REPRESENTED BY NOTES RECEIVABLE FROM
INDIAN TRIBES AND OTHER PARTIES WITH VARYING DEGREES OF COLLECTION RISK, AND
WITH REPAYMENT OFTEN DEPENDENT ON THE OPERATING PERFORMANCE OF EACH GAMING
PROPERTY. IMPAIRMENT OF ONE OR MORE OF THESE LOANS COULD HAVE A SIGNIFICANT
ADVERSE IMPACT ON LAKES' FINANCIAL RESULTS.

     At December 28, 2003, Lakes had $84.7 million in notes receivable, which
represented approximately 50% of its total assets. See Note 3 to the
Consolidated Financial Statements included in Item 8. Most of the notes
receivable are advances made to Indian tribes for pre-construction financing
related to gaming properties being developed by Lakes. Other notes receivable
relate to other business ventures in which Lakes has participated. All of the
notes are subject to varying degrees of collection risk and there is no
established market for any of the notes. For the notes representing indebtedness
of Indian tribes, the repayment terms are specific to each tribe and are largely
dependent upon the operating performance of each gaming property. Repayments of
such notes receivable are required to be made only if distributable profits are
available from the operation of the related casinos. Repayments are also the
subject of certain distribution priorities specified in the management
contracts. In addition, repayment to Lakes of the notes receivable and the
manager's fees under Lakes' management contracts are subordinated to certain
other financial obligations of the respective tribes.

     It is possible that one or more of the loans to Indian tribes will not be
collectible, in whole or in part. Management periodically evaluates the
recoverability of its notes receivable based on the current and projected
operating results of the underlying facility or entity and historical collection
experience. No impairment losses on such notes receivable have been recognized
through December 28, 2003. If there are significant losses in the future
relating to impairment of value of the notes, this could have a material adverse
effect on Lakes' results of operations and financial condition. As Lakes'
existing casino projects continue development or Lakes enters into new business
arrangements, Lakes expects to make additional advances to Indian tribes and
other parties in the future, which will be subject to the risks described above.

     ENTRY INTO NEW BUSINESSES MAY RESULT IN FUTURE LOSSES.

     Lakes has announced that part of its strategy involves diversifying into
other businesses. Such businesses involve business risks separate from the risks
involved in casino development and these investments may result in future losses
to Lakes. These risks include but are not limited to negative cash flow, initial
high development costs of new products and/or services without corresponding
sales pending receipt of corporate and regulatory approvals, market introduction
and acceptance of new products and/or services, and obtaining regulatory
approvals required to conduct the new businesses. There is no assurance that
diversification activities will successfully add to Lakes' future revenues and
income.

                                        15


     WE CANNOT GUARANTEE THE FINANCIAL RESULTS OF THE EXPANSION OF THE WORLD
POKER TOUR BUSINESS.

     Lakes, through its subsidiary World Poker Tour, LLC, produces the World
Poker Tour television series. The first season of the series was broadcast on
the Travel Channel ("TRV") on cable television in 2003. The second season of the
series began airing on TRV starting in March 2004. WPT's agreement with TRV
grants options to TRV for United States broadcast rights for up to five
additional seasons of the series. Under the agreement, TRV pays a fixed license
fee per episode of the series, with the per-episode fee subject to a fixed
percentage increase for each subsequent season. WPT retains the right to
international syndication and other rights to exploit the World Poker Tour
brand, subject to TRV's right to receive a percentage of the revenues from
certain categories of these activities. During January of 2004, World Poker Tour
announced that it will seek to raise approximately $20 million through a newly
formed corporation pursuant to an underwritten initial public offering of common
stock at a price to be determined. It is expected that proceeds from the
offering will be used to expand World Poker Tour's entertainment production
business and for its working capital. There will be no selling shareholders
participating in the offering. We cannot guarantee the financial results of the
expansion of World Poker Tour's entertainment business.

     LAKES IS HEAVILY DEPENDENT ON THE ONGOING SERVICES OF ITS CHAIRMAN AND
CHIEF EXECUTIVE OFFICER, LYLE BERMAN, THE LOSS OF WHOM WOULD HAVE A DETRIMENTAL
EFFECT ON THE PURSUIT OF LAKES' BUSINESS OBJECTIVE AND, CONSEQUENTLY, ITS
PROFITABILITY AND THE PRICE OF ITS STOCK.

     Lakes' success will depend largely on the efforts and abilities of its
senior corporate management, particularly Lyle Berman, its Chairman and Chief
Executive Officer. The loss of the services of Mr. Berman or other members of
senior corporate management could have a material adverse effect on Lakes. Lakes
does not have an employment agreement with Mr. Berman.

     UNTIL LAKES HAS SATISFIED ITS INDEMNIFICATION OBLIGATIONS RELATED TO GRAND
CASINOS, LAKES IS PROHIBITED FROM DECLARING DIVIDENDS ON ITS COMMON STOCK AND,
CONSEQUENTLY, THE ONLY RETURN ON INVESTMENT FOR LAKES' SHAREHOLDERS, IF ANY,
WILL OCCUR UPON THE SALE OF LAKES' STOCK.

     Lakes is required to indemnify Grand Casinos through December 28, 2004, for
certain specified liabilities, including (i) contingent liabilities assumed by
Lakes under the Distribution Agreement, (ii) ongoing director and officer
indemnification obligations and (iii) contingent liabilities related to
Stratosphere, Lakes has agreed that, through December 28, 2004, any dividends,
make any distribution on account of Lakes' equity interests, or otherwise
purchase, redeem, defease or retire for value any equity interest in Lakes,
without the written consent of Caesars' which consent can be given or withheld
at Caesars sole and absolute discretion.

ITEM 2.  PROPERTIES

CORPORATE OFFICE FACILITY

     Pursuant to the terms of the Distribution Agreement, Grand Casinos assigned
to Lakes, and Lakes assumed a lease agreement dated February 1, 1996 covering
corporate office space of approximately 65,000 square feet in Minnetonka,
Minnesota, with a lease term of fifteen years. The lease commenced on October
14, 1996 and the annual base rent was $768,300 plus building operating costs.
During 2001, also pursuant to the terms of the Distribution Agreement, Lakes
entered into a capital lease arrangement for the corporate office space.
Accordingly, Lakes recorded a capital leased asset and liability in the amount
of approximately $5.8 million. On January 2, 2002, as per the terms of the
agreement with Grand Casinos, Lakes purchased the building for $6.4 million
which is included as part of property and equipment on the accompanying
consolidated balance sheets as of December 28, 2003 and December 29, 2002. Lakes
occupies approximately 22,000 square feet of the building and has leased the
remaining space to outside tenants.

ITEM 3.  LEGAL PROCEEDINGS

SLOT MACHINE LITIGATION

     In 1994, William H. Poulos filed a class-action lawsuit in the United
States District Court for the Middle District of Florida against various
parties, including Grand and numerous other parties alleged to be casino
                                        16


operators or slot machine manufacturers. This lawsuit was followed by several
additional lawsuits of the same nature against the same, as well as additional
defendants, all of which were subsequently consolidated into a single
class-action pending in the United States District Court for the District of
Nevada. Following a court order dismissing all pending pleadings and allowing
the plaintiffs to re-file a single complaint, a complaint has been filed
containing substantially identical claims, alleging that the defendants
fraudulently marketed and operated casino video poker machines and electronic
slot machines, and asserting common law fraud and deceit, unjust enrichment and
negligent misrepresentation and claims under the federal Racketeering-
Influenced and Corrupt Organizations Act. Various motions were filed by the
defendants seeking to have this new complaint dismissed or otherwise limited. In
December 1997, the Court, in general, ruled on all motions in favor of the
plaintiffs. The plaintiffs then filed a motion seeking class certification and
the defendants opposed it. In June 2002, the Court entered an order denying
class certification, and the plaintiffs have appealed this order to the 9th
Circuit Court of Appeals. Briefing is complete, an oral hearing took place in
January 2004, and no ruling has yet been issued.

WILLARD EUGENE SMITH LITIGATION

     On October 24, 2003, Lakes announced that it had been named as one of a
number of defendants in a counterclaim filed in state court in Harris County,
Texas by Willard Eugene Smith involving Kean Argovitz Resorts, LLC (KAR),
related persons and entities. In the counterclaim, Smith asserts that, under an
alleged oral agreement with Kevin Kean, he is entitled to a percentage of fees
to be received by the KAR entities or their principals relating to the Shingle
Springs and Jamul casinos that Lakes' subsidiaries are developing in California.
Smith also seeks recovery of damages and other relief from the KAR entities,
Lakes and certain affiliates based on their conduct with respect to the alleged
agreement.

     Lakes believes the counterclaim against it is without merit. Lakes
understands that the alleged oral agreement upon which Smith bases his claim was
rendered null and void in a prior judgment issued against Smith by the Harris
County, Texas state court in October 2000. However, in September 2003, the court
vacated the prior judgment against Smith. Lakes acquired KAR's interests in the
Shingle Springs and Jamul projects on January 30, 2003. In the buyout agreements
between Lakes and certain KAR entities and related principals, the KAR entities
represented to Lakes that the KAR entities and their affiliates had no
continuing agreements with any third party relating to the Shingle Springs and
Jamul projects and agreed to indemnify Lakes and its affiliates from damages
resulting from prior dealings of the KAR entities and related principals
concerning the projects. Lakes will vigorously defend against the allegations
made against it and will pursue its indemnification rights against the KAR
entities and their principals under the buyout agreements if necessary.

EL DORADO COUNTY, CALIFORNIA LITIGATION

     On January 3, 2003, El Dorado County filed an action in the Superior Court
of the State of California, seeking to prevent the construction of a highway
interchange that was approved by a California state agency. The action does not
seek relief directly against Lakes. However, the interchange is necessary to
permit the construction of a casino to be developed and managed by Lakes through
a joint venture. The casino will be owned by the Shingle Springs Band of Miwok
Indians. The matter was tried to the court on August 22, 2003. On January 2,
2004, Judge Lloyd G. Connelly, Judge of the Superior Court for the State of
California, issued his ruling on the matter. The Court denied the petition in
all respects except one. As to the one exception, the Court sought clarification
as to whether the transportation conformity determination used to determine the
significance of the air quality impact of the interchange operations considered
the impact on attainment of the state ambient air quality standard for ozone.
The California Department of Transportation prepared and filed the clarification
sought by the Court. Prior to the Court's determination of the adequacy of the
clarification, El Dorado County appealed Judge Connelly's ruling to the
California Court of Appeals. The current issue before the trial court is
whether, in light of the appeal, it has jurisdiction to determine the adequacy
of the clarification. Judge Connelly will hear argument on that issue on April
9, 2004.

                                        17


OTHER LITIGATION

     Lakes is 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 final outcome of these
matters is not likely to have a material adverse effect upon the Company's
consolidated financial position or results of operations. Consequently, the
Company has not recorded any liability related to these matters.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Lakes became a publicly held company effective December 31, 1998. The
Common Stock began trading on the Nasdaq National Market under the symbol LACO
on January 4, 1999.

     The high and low sales prices per share of the Company's Common Stock for
each full quarterly period within the two most recent fiscal years are indicated
below, as reported on the Nasdaq National Market:



                                                      FIRST    SECOND     THIRD    FOURTH
                                                     QUARTER   QUARTER   QUARTER   QUARTER
                                                     -------   -------   -------   -------
                                                                       
Year Ended December 29, 2002:
     High..........................................   $7.52     $8.42    $ 7.14    $ 6.50
     Low...........................................    6.00      6.16      5.45      3.96
Year Ended December 28, 2003:
     High..........................................   $6.60     $7.81    $10.41    $15.38
     Low...........................................    5.02      5.01      7.70      9.16


     On March 19, 2004, the last reported sale price for the Common Stock was
$26.00 per share. As of March 19, 2004, the Company had approximately 1,000
shareholders of record.

     The Company has never paid any cash dividends with respect to its Common
Stock and the current policy of the Board of Directors is to retain any earnings
to provide for the growth of the Company. So long as Lakes is required to
indemnify Grand, as a subsidiary of Caesars, for certain specified liabilities,
Lakes has agreed that it will not declare or pay any dividends, make any
distribution on account of Lakes' equity interests or otherwise purchase,
redeem, defease or retire for value any equity interest in Lakes without the
written consent of Caesars which consent can be given or withheld in Caesars
sole and absolute discretion. This obligation terminates on December 28, 2004.

     Subject to the foregoing dividend restrictions, the payment of cash
dividends in the future, if any, will be at the discretion of the Board of
Directors and will depend upon such factors as earnings levels, capital
requirements, the Company's overall financial condition and any other factors
deemed relevant by the Board of Directors. See "Risk Factors -- Operating
Covenants -- Dividend Restrictions."

                                        18


ITEM 6.  SELECTED FINANCIAL DATA

     The Selected Financial Data presented below should be read in conjunction
with the Financial Statements and notes thereto included elsewhere in this Form
10-K, and in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Form 10-K.



                                                               FISCAL YEARS ENDED OR AS OF:
                                       ----------------------------------------------------------------------------
                                       DEC. 28, 2003   DEC. 29, 2002   DEC. 30, 2001   DEC. 31, 2000   JAN. 2, 2000
                                       -------------   -------------   -------------   -------------   ------------
                                                         (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
                                                                                        
LAKES HISTORICAL
RESULTS OF OPERATIONS:
  Total revenue(1)...................     $    4          $    2          $   35           $  59          $  55
  Total operating income (loss)......         (7)(2)         (17)(3)          (1)             47             45
  Net Earnings (loss)................         (4)(2)         (12)(3)          (3)(4)          14(5)          29
  Net Earnings (loss) per
     share - basic...................      (0.37)(2)       (1.08)(3)       (0.27)(4)        1.36(5)        2.72
  Net Earnings (loss) per
     share - diluted.................      (0.37)(2)       (1.08)(3)       (0.27)(4)        1.36(5)        2.67
OTHER OPERATING DATA:
  EBITDA(6)..........................         --              --              22              50             47
BALANCE SHEET:
  Cash and cash
     equivalents -- unrestricted.....     $   25          $   14          $   43           $  10          $  24
  Total assets.......................        170             176             193             212            184
  Total debt.........................         --              --               7               2              2
  Shareholders' equity...............        157             161             172             175            160


- ---------------
(1) 2003 includes $4.3 million in revenues derived from license fees related to
    the World Poker Tour series. 2002 includes $1.5 million in revenues from the
    management contract for Grand Casino Coushatta that concluded on January 16,
    2002. 2001 includes $34.6 million in revenues from the management contract
    for Grand Casino Coushatta that concluded January 16, 2002. 2000 includes
    $19.8 million in revenues from the management contract for Grand Casino
    Avoyelles that concluded during 2000, including $16.0 million relating to
    the early buyout of the agreement.

(2) Includes non-cash charges totaling $1 million related to certain land held
    under contract for sale in Las Vegas, Nevada. Also includes a non-cash
    reversal of expense related to unused Stratosphere litigation accrual in the
    amount of $3.2 million.

(3) Includes non-cash charges totaling $4 million related to the impairment of
    certain land held under contract for sale and held for development in Las
    Vegas, Nevada. Also includes a non-cash charge of $4 million relating to the
    impairment of a note receivable from Living Benefits Financial Services.

(4) Includes non-cash charges totaling $29.2 million related to the impairment
    and write-down of certain land held for development in Las Vegas, Nevada.

(5) Includes a non-cash $18.0 million provision for the Grand
    Casinos/Stratosphere litigation settlement and a $5.5 million charge for the
    write-off of unconsolidated affiliates.

(6) EBITDA is earnings before interest, taxes, depreciation and amortization,
    which can be computed by adding depreciation and amortization to operating
    income. For 2003 and 2002, this amount is a loss, therefore, EBITDA is not
    shown for 2003 or 2002. EBITDA excludes the $29.2 million charge related to
    the impairment and write-down of certain land held for development in Las
    Vegas, Nevada in 2001 and the $18.0 million provision for the Grand
    Casinos/Stratosphere litigation settlement and the $5.5 million write-off of
    unconsolidated affiliates in 2000. EBITDA is presented supplementally
    because management believes it allows for a more complete analysis of
    results of operations. This information should not be considered as an
    alternative to any measure of performance as promulgated under accounting
    principles generally accepted in the United States (such as operating income
    or income from continuing operations) nor should it be considered as an
    indicator of the overall financial performance of Lakes. The calculations of
    EBITDA may be different from the calculations used by other companies and,
    therefore, comparability may be limited. Historical depreciation and
    amortization for Lakes for the fiscal years ended December 28, 2003,
    December 29, 2002, December 30, 2001, December 31, 2000 and January 2, 2000,
    totaled $0.5 million, $0.5 million, $1.0 million, $3.0 million and $2.0
    million, respectively.

                                        19


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

     Lakes' main business is the development and management of casinos and
related hotel and entertainment facilities in emerging and established gaming
jurisdictions. Lakes has entered into the following contracts for the
development, management and/or financing of new casino operations, all of which
are subject to various regulatory approvals before construction can begin. Lakes
has contracts to develop and manage Indian-owned gaming resorts for the
following:

     - Shingle Springs Band of Miwok Indians near Sacramento, California

     - Pokagon Band of Potawatomi Indians near New Buffalo, Michigan

     - Jamul Indian Village near San Diego, California

     - Nipmuc Nation on the East Coast of the United States

     In addition, Lakes owns options to purchase the patent rights for various
new casino games and is actively marketing these new games to the casino
industry in an attempt to license the games for use in their operations.

     World Poker Tour, a majority-owned subsidiary of Lakes, has created a
circuit of previously-established poker tournaments affiliated under the "World
Poker Tour" name, and has produced the World Poker Tour television series. World
Poker Tour signed an agreement for a second season with the Travel Channel for
broadcast of the World Poker Tour series on cable television. The first season
of the series aired during 2003 on the Travel Channel. See Item 1 -- "Business".

     Additionally, Lakes continually evaluates other opportunities to diversify
the Company's activities and bring in new revenue streams.

SIGNIFICANT ACCOUNTING POLICIES

     The significant accounting policies, which Lakes believes are the most
critical to aid in fully understanding and evaluating its reported financial
results, include the following: revenue recognition and realizability of notes
receivable.

     Revenue recognition:  Revenue from the management of Indian-owned casino
gaming facilities is recognized when earned according to the terms of the
management contracts. Currently all of the Indian-owned casino projects that
Lakes is involved with are in development stages and are not yet open.
Therefore, until a project is opened and operating, Lakes will not recognize
revenue related to Indian casino management. Interest income on notes receivable
for Indian tribes related to casino development projects is deferred because
realizability of the interest is contingent upon the completion and generation
of cash flow from the operation of the casino. Interest deferred during the
development period is recognized over the remaining life of the note using the
effective interest method. Revenue from the World Poker Tour series is
recognized upon delivery of completed episodes.

     Impairment of long-term assets:  Currently, the Company's notes receivable
from Indian Tribes are generally for the pre-construction development of gaming
properties to be managed by the Company. The repayment terms are specific to
each tribe and are largely dependent upon the operating performance of each
gaming property. Repayments of the notes receivable are required to be made only
if distributable profits are available from the operation of the related
casinos. Repayments are also subject to certain distribution priorities
specified in the management contracts. In addition, repayment of the notes
receivable and the manager's fees under the management contracts are
subordinated to certain other financial obligations of the respective tribes.
Through December 28, 2003, no impairments have been recorded under these
provisions. Management periodically evaluates the recoverability of such notes
receivable based on the projected operating results of the underlying facility
and an assessment as to the likelihood of project completion. If the Company
determines an impairment has occurred, the notes receivable would be written
down to their estimated fair value.

                                        20


     The Company currently holds land held for development and land held under
contract for sale. The Company periodically evaluates whether events and
circumstances have occurred that may affect the recoverability of the net book
value of these assets. If such events or circumstances indicate that the
carrying amount of an asset may not be recoverable, the Company estimates the
future cash flows expected to result from the use of the asset. If the sum of
the expected future undiscounted cash flows does not exceed the carrying value
of the asset, the Company will recognize an impairment loss.

     The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and notes thereto for the years ended
December 28, 2003, December 29, 2002 and December 30, 2001.

RESULTS OF OPERATIONS

     Revenues are calculated in accordance with accounting principles generally
accepted in the United States of America and are presented in a manner
consistent with industry practice. Net distributable profits in 2002 and 2001
were computed by the Indian casinos using a modified cash basis of accounting in
accordance with the management contracts to calculate management fees. Under
this modified cash basis of accounting prescribed by the management contracts,
the write-off of capital equipment and leased assets for the casino operations
is accelerated, which thereby impacts the timing of net distributable profits.

FISCAL YEAR ENDED DECEMBER 28, 2003 COMPARED TO FISCAL YEAR ENDED DECEMBER 29,
2002

     Revenues.  Total revenues were $4.3 million for the year ended December 28,
2003, compared to $1.5 million in the prior year. Revenues for 2003 were derived
from license fees related to the World Poker Tour series which airs on the
Travel Channel. Revenues for the prior year were derived from fees related to
the management of Grand Casino Coushatta through January 16, 2002.

  COSTS AND EXPENSES.



                                                               2003      2002
                                                              -------   -------
                                                               (IN THOUSANDS)
                                                                  
Operating expenses..........................................  $12,868   $ 9,892
Reversal of legal accrual...................................   (3,212)       --
                                                              -------   -------
Selling, general and administrative.........................    9,656     9,892
Impairment losses...........................................    1,000     8,000
Depreciation................................................      547       481
                                                              -------   -------
Total costs and expenses....................................  $11,203   $18,373
                                                              =======   =======


     Total costs and expenses decreased $7.2 million, to $11.2 million for the
year ended December 28, 2003, from $18.4 million for the prior year. There was a
decrease of $7.0 million in impairment losses from 2003 compared to 2002. The
year ended December 29, 2002 included $8.0 million of such charges including the
write-down of the $4.0 million note receivable from Living Benefits Financial
Services, the $3.0 million write-down of the Polo Plaza and Travelodge
properties in Las Vegas and the $1.0 million write-down of the Shark Club
property. The year ended December 28, 2003 included a $1.0 million impairment
charge taken on the Polo Plaza property in Las Vegas, Nevada, which was more
than offset by a reversal of unused litigation accrual of $3.2 million under the
Company's prior agreement to indemnify Grand Casinos, Inc. in connection with
Stratosphere litigation matters. Selling, general and administrative expenses,
before reversal of the legal accrual of $3.2 million, increased from $9.9
million for 2002 to $12.9 million for 2003, principally due to costs associated
with property sales in Las Vegas, Nevada, as well as an increase in costs
associated with WPT during 2003. Included in selling, general and administrative
expenses were payroll and related taxes and benefits of $4.3 million and $3.5
million, professional fees of $2.9 million and $1.7 million and WPT cost of
revenues of $2.4 million and $0 in 2003 and 2002, respectively. Depreciation
expenses remained constant at $0.5 million for the years ended December 28, 2003
and December 29, 2002.

                                        21


     Taxes.  Benefit for income taxes was $2.4 million for the year ended
December 28, 2003, compared to $4.5 million for the prior year. The effective
tax rates for 2003 and 2002 were 38% and 27.9%, respectively. The 2002 effective
rate was lower due to the provision of additional valuation allowances for tax
benefits not expected to be realized related to an impairment of capital assets
recognized during 2002.

     Loss per Common Share and Net Loss.  For the year ended December 28, 2003
basic and diluted losses per common share were $0.37. This compares to basic and
diluted losses per common share of $1.08 for the fiscal year ended December 29,
2002. The net loss decreased from $11.5 million for the year ended December 29,
2002, to $4.0 million for the year ended December 28, 2003.

     Outlook.  It is currently contemplated that there will be no operating
revenues for 2004 from existing casino development projects. Revenue from the
second season of the World Poker Tour series will be recognized along with
associated production costs during 2004. Although none of the existing casino
development projects are expected to produce revenue in 2004, Lakes continues to
evaluate potential new revenue-generating business opportunities. Lakes
continues to closely monitor its operating expenses.

     After the anticipated initial public offering by World Poker Tour, Lakes
will continue to own a majority of World Poker Tour's equity. Therefore, World
Poker Tour's operating results will continue to be consolidated with our
results.

FISCAL YEAR ENDED DECEMBER 29, 2002 COMPARED TO FISCAL YEAR ENDED DECEMBER 30,
2001

     Revenues.  Total revenues were $1.5 million for the fiscal year ended
December 29, 2002, compared to $34.9 million for the same period in the prior
year. Revenues for the current year were derived from fees related to the
management of Grand Casino Coushatta. Revenues for the year decreased by $33.4
million from 2001, principally because 2001 revenues included management fees
for the management of Grand Casino Coushatta for the entire year. Since this
management contract expired on January 16, 2002, current year revenues include
management fees for only 17 days.

     Costs and Expenses.  Total costs and expenses decreased $17.6 million, to
$18.4 million for the year ended December 29, 2002, from $36.0 million for the
prior year. There was a decrease of $17.4 million in impairment losses from 2002
compared to 2001. The year ended December 30, 2001 included $25.4 million of
such charges including the $22.0 million write-down of the Polo Plaza and
Travelodge properties in Las Vegas and the $3.4 million write-down of the Shark
Club property in Las Vegas. The year ended December 29, 2002 included $8.0
million of such charges including the write-down of the $4.0 million note
receivable from Living Benefits Financial Services, the $3.0 million write-down
of the Polo Plaza and Travelodge properties in Las Vegas and the $1.0 million
write-down of the Shark Club property. The use of the Shark Club property is
discussed below under "Financial Condition". Selling, general and administrative
expenses increased from $9.2 million for 2001 to $9.9 million for 2002,
principally due to an increase in costs associated with planned casino
developments. Depreciation and amortization expenses decreased $0.8 million, to
$0.5 million for the year ending December 29, 2002 from $1.3 million for the
prior year, due to the conclusion of the Coushatta management contract in
January of 2002.

     Taxes.  Benefit for income taxes was $4.5 million for the year ended
December 29, 2002, compared to $2.0 million for the prior year. The effective
tax rates for 2002 and 2001 were 27.9% and 41.0%, respectively. The decrease in
the effective rate was due to the provision of additional valuation allowances
for tax benefits associated with the impairment of capital assets.

     Other.  Loss on land held for development was $3.7 million for the year
ended December 30, 2001. This amount includes losses relating to the lapsed
option on the Cable property adjacent to the Polo Plaza property in Las Vegas,
Nevada.

     In June 2001, Lakes entered into an agreement with New Horizon Kids Quest
(NHKQ), pursuant to which NHKQ would acquire Lakes' interest in NHKQ. As a
result, Lakes incurred a one-time write-down charge, included as write-down of
unconsolidated affiliates, of $0.7 million before tax, during 2001. Interest
income decreased $0.6 million to $1.4 million for the fiscal year ended December
29, 2002 from $2.0 million for the prior year, primarily due to the payoff of
notes receivable related to Grand Casino Coushatta in January
                                        22


2002, as well as, a decline in cash balances and in market interest rates.
Equity in loss of unconsolidated affiliates was $0.5 million for the years ended
December 29, 2002 and December 30, 2001.

     Earnings (Loss) per Common Share and Net Earnings (Loss).  For the fiscal
year ended December 29, 2002 basic and diluted losses per common share were
$1.08. This compares to basic and diluted losses per common share of $0.27 for
the fiscal year ended December 30, 2001. Losses increased from $2.9 million for
the fiscal year ended December 30, 2001, to $11.5 million for the fiscal year
ended December 29, 2002.

FINANCIAL CONDITION



                                                              SOURCES AND USES OF CASH
                                                                   (IN MILLIONS)
                                                              ------------------------
                                                               2003     2002     2001
                                                              ------   ------   ------
                                                                       
Net cash provided by (used in) operating activities.........  $ (7.3)  $  1.2   $ 30.7
Net cash provided (used in) investing activities............    17.7    (22.7)     2.0
Proceeds from repayment of notes receivable.................     2.5      0.1     16.7
Advances on notes receivable................................   (18.2)   (18.7)   (21.8)
Payments received (made) for land held under contract for
  sale......................................................    15.5     (1.0)      --
Payments received (made) for land held for development......    13.3     (4.0)   (22.5)


     At December 28, 2003, Lakes had $25.3 million in unrestricted cash and cash
equivalents. Lakes' operating revenues have been minimal since the expiration of
the management contract with the Coushatta Tribe in January 2002. In 2003, the
operating revenues derived from the World Poker Tour were offset almost entirely
by production costs. The Company's primary source of cash the past two years has
been from the planned sale of assets. We expect that proceeds from the sale of
assets will decrease in 2004. In January 2004, the majority of the 2022 Ranch
land which was owned by Lakes and its joint venture partner Land Baron West,
LLC, was sold. Lakes received cash in the amount of approximately $1.4 million.
Lakes' preferred membership interest in Metroflag may be prepaid for $3.0
million in April of 2004.

     Our management contracts with our tribal partners require that we provide
financial support in the form of notes receivable prior to the beginning of
construction (the "Pre-construction Financing"). We also have commitments to
provide additional financing to our tribal partners to fund the construction of
the casinos ("the Construction Financing") if it is not available from other
sources. These notes are interest bearing; however, the interest is deferred
until the casino is built and has established profitable operations. In the
event that the casinos are not built, our only recourse is to liquidate the
assets of the development. We currently believe that our existing casino
development projects included in the below table will result in the construction
and profitable operation of casinos; however, no assurance can be made that this
will occur. If this does not occur, it is likely that Lakes would incur losses
in the liquidation of the collateral.



                                                           CASINO DEVELOPMENT ADVANCES/COMMITMENTS
                                                      --------------------------------------------------
                                                                         (IN MILLIONS)
                                                      PRE-CONSTRUCTION   LAND HELD FOR      REMAINING
                                                       ADVANCES AS OF     DEVELOPMENT       COMMITMENT
                                                          12/28/03       AS OF 12/28/03   AS OF 12/28/03
                                                      ----------------   --------------   --------------
                                                                                 
Jamul Indian Village................................       $12.3              $6.6            $11.1
Shingle Springs Band of Miwok Indians...............        24.4               7.4              3.2
Pokagon Band of Potawatomi Indians..................        41.7                --             26.8
Nipmuc Nation.......................................         4.6                --              1.5


     For the Pokagon project, the Company has agreed to provide additional
financing from its own funds if financing at an interest rate not to exceed 13%
is not available from third parties. If this occurs and Lakes is required to
provide all financing, this would be an additional commitment of up to
approximately $54 million. Currently, it appears that third-party financing will
be available for this project. However, there can be no assurance that
third-party financing will be available and that Lakes will not be required to
provide this additional financing.

                                        23


     Our major use of cash the past three years has been Pre-construction
Financing provided to our tribal partners. At December 28, 2003, Lakes had
approximately $84 million in notes receivable from Indian tribes. See Note 3 to
the Consolidated Financial Statements included in Item 8.

     We believe that our cash and cash equivalents, along with expected cash
receipts, will be adequate to fund operating expenses and Pre-construction
Financing in 2004. If any of our casino projects begin construction during 2004,
it is anticipated that we will require additional capital through either public
or private financings.

     Our commitment to provide Construction Financing is only exercisable if our
tribal partners are unable to obtain such financing from third party lenders.
The amount and timing of Lakes' cash outlays for Construction Financing will
depend on the timing of the regulatory approval process and the availability of
external financing. When approvals are received, our tribal partners will need
additional financing to complete the projects. In the earliest Indian casino
developments, it was typical that the developer provided the financing. As the
Indian casino industry has matured, this has become less universal. It is
currently planned that this third-party financing will be obtained by each
individual tribe. However, there can be no assurance that third-party financing
will be available. If Lakes must provide this financing, Lakes will need to
obtain debt or equity financing which it would loan to the respective tribes as
necessary. We believe that such financing would be available. An alternative
option may be that Lakes would provide a guarantee of the tribes' debt financing
or otherwise provide support for the tribes' obligations. Any guarantees by
Lakes or similar off-balance sheet liabilities will increase Lakes' potential
exposure in the event of a default by any of these tribes.

     Lakes also agreed to loan up to $1.25 million to a former non-tribal
partner in one of its Indian casino development projects. Repayment is expected
to be received from this former partner's future consulting fees related to
certain Indian casino development projects. At December 28, 2003, $0.3 million
is outstanding under this agreement.

     As a part of the transaction establishing Lakes as a separate public
company on December 31, 1998, the Company has agreed to indemnify Grand through
December 28, 2004 against all costs, expenses and liabilities incurred in
connection with or arising out of certain pending and threatened claims and
legal proceedings against Grand and to pay all related settlements and
judgments. The Company's indemnification obligations include the obligation to
provide the defense of all claims made in proceedings against Grand and to pay
all related settlements and judgments.

     As a part of the indemnification agreement, Lakes has agreed that it will
not declare or pay any dividends, make any distribution on account of Lakes'
equity interests, or otherwise purchase, redeem, defease or retire for value any
equity interests in Lakes without the written consent of Grand.

SEASONALITY

     The Company believes that the operations of all casinos to be managed by
the Company will be affected by seasonal factors, including holidays, weather
and travel conditions.

REGULATION AND TAXES

     The Company is subject to extensive regulation by state gaming authorities.
The Company 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 it may conduct gaming activities in the future. Changes in applicable laws
or regulations could have an adverse effect on the Company.

     The gaming industry represents a significant source of tax revenues. 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 the Company's results of operations and financial results.

                                        24


RECENT ACCOUNTING PRONOUNCEMENTS

     In January 2003, the FASB issued FIN 46 (Revised December 2003) (FIN46(R)),
which deferred the effective date until the first interim or annual reporting
period ending after March 15, 2004. FIN 46(R) addresses the consolidation of
variable interest entities. The initial determination of whether an entity is a
variable interest entity shall be made as of the date at which an enterprise
becomes involved with the entity and re-evaluated as of the date of triggering
events, as defined.

     The Company has determined that it has no investments or other interests in
entities that may be deemed variable interest entities under the provisions of
FIN 46(R) as the development projects subject to the management agreements with
the Indian Tribes are not separate entities or legal structures.

OFF-BALANCE SHEET ARRANGEMENTS

     The Company has no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on its financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to
investors.

PRIVATE SECURITIES LITIGATION REFORM ACT

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

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

     These risks and uncertainties include, but are not limited to, those
relating to possible delays in completion of Lakes' casino projects, including
various regulatory approvals and numerous other conditions which must be
satisfied before completion of these projects; possible termination or adverse
modification of management contracts; continued indemnification obligations to
Grand Casinos; 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; no guarantee of
the financial results of the expansion of the World Poker Tour business; and
reliance on Lakes' management. For further information regarding the risks and
uncertainties, see the "Business -- Risk Factors" section of this Annual Report
on Form 10-K.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's financial instruments include cash and cash equivalents,
marketable securities and long-term debt. The Company's main investment
objectives are the preservation of investment capital and the maximization of
after-tax returns on its investment portfolio. Consequently, the Company invests
with only high-credit-quality issuers and limits the amount of credit exposure
to any one issuer. The Company does not use derivative instruments for
speculative or investment purposes.

     The Company's cash and cash equivalents are not subject to significant
interest rate risk due to the short maturities of these instruments. As of
December 28, 2003, the carrying value of the Company's cash and cash equivalents
approximates fair value. The Company has in the past and may in the future
obtain marketable debt securities (principally consisting of commercial paper,
corporate bonds, and government securities) having a weighted average duration
of one year or less. Consequently, such securities would not be subject to
significant interest rate risk.

                                        25


     The Company's primary exposure to market risk associated with changes in
interest rates involves the Company's notes receivable related to loans for the
development and construction of Native American owned casinos. The loans and
related note balances earn various interest rates based upon a defined reference
rate. The floating rate receivables will generate more or less interest income
if interest rates rise or fall. Interest income is deferred during development
of the casinos because realizability of the interest is contingent upon the
completion and positive cash flow from operation of the casino. As of December
28, 2003, Lakes had $84.4 million of floating rate notes receivables. Based on
the applicable current reference rates and assuming all other factors remain
constant, deferred interest income for a twelve month period would be $4.7
million. A reference rate increase of 100 basis points would result in an
increase in deferred interest income of $0.9 million. A 100 basis point decrease
in the reference rate would result in a decrease of $0.9 million in deferred
interest income over the same twelve month period.

                                        26


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

                         INDEX TO FINANCIAL STATEMENTS



                                                               PAGE
                                                               ----
                                                            
Report of Independent Public Accountants....................    28
Consolidated Balance Sheets as of December 28, 2003 and
  December 29, 2002.........................................    29
Consolidated Statements of Earnings (Loss) for the fiscal
  years ended December 28, 2003, December 29, 2002 and
  December 30, 2001.........................................    30
Consolidated Statements of Comprehensive Earnings (Loss) for
  the fiscal years ended December 28, 2003, December 29,
  2002 and December 30, 2001................................    31
Consolidated Statements of Shareholders' Equity for the
  fiscal years ended December 28, 2003, December 29, 2002
  and December 30, 2001.....................................    32
Consolidated Statements of Cash Flows for the fiscal years
  ended December 28, 2003, December 29, 2002 and December
  30, 2001..................................................    33
Notes to Consolidated Financial Statements..................    34


                                        27


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Lakes Entertainment, Inc.:

     We have audited the accompanying consolidated balance sheets of Lakes
Entertainment, Inc. (a Minnesota corporation) and Subsidiaries as of December
28, 2003 and December 29, 2002 and the related consolidated statements of
earnings (loss), comprehensive earnings (loss), shareholders' equity, and cash
flows for each of the three years in the period ended December 28, 2003. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Lakes
Entertainment, Inc. and Subsidiaries as of December 28, 2003 and December 29,
2002, and the results of their operations and their cash flows for each of the
three years in the period ended December 28, 2003, in conformity with accounting
principles generally accepted in the United States of America.

                                          DELOITTE & TOUCHE, LLP

Minneapolis, Minnesota,
March 24, 2004

                                        28


                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                    DECEMBER 28, 2003 AND DECEMBER 29, 2002



                                                              DECEMBER 28,   DECEMBER 29,
                                                                  2003           2002
                                                              ------------   ------------
                                                                    (IN THOUSANDS)
                                                                       
                                         ASSETS
Current Assets:
  Cash and cash equivalents.................................    $ 25,340       $ 14,106
  Accounts receivable, net..................................       1,038            116
  Deferred tax asset........................................       5,385          6,771
  Prepaids..................................................       2,119            535
  Other current assets......................................       1,645             12
                                                                --------       --------
     Total Current Assets...................................      35,527         21,540
                                                                --------       --------
Property and Equipment -- Net...............................       6,492          6,962
                                                                --------       --------
Other Assets:
  Land held under contract for sale.........................       4,612         28,832
  Land held for development.................................      14,536         27,791
  Notes receivable..........................................      84,682         70,955
  Cash and cash equivalents -- restricted...................          --          8,300
  Investments...............................................       8,717          1,013
  Deferred tax asset........................................       6,634          4,516
  Other long-term assets....................................       8,860          6,657
                                                                --------       --------
     Total Other Assets.....................................     128,041        148,064
                                                                --------       --------
     TOTAL ASSETS...........................................    $170,060       $176,566
                                                                ========       ========

                          LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Accounts payable..........................................    $  1,906       $    226
  Income taxes payable......................................       7,215          6,245
  Litigation and claims accrual.............................         250          5,847
  Accrued payroll and related...............................         497            252
  Other accrued expenses....................................       2,768          3,486
                                                                --------       --------
     Total Current Liabilities..............................      12,636         16,056
                                                                --------       --------
     TOTAL LIABILITIES......................................      12,636         16,056
                                                                --------       --------

                              COMMITMENTS AND CONTINGENCIES
Shareholders' Equity:
  Capital stock, $.01 par value; authorized 100,000 shares;
     10,737 and 10,638 common shares issued and outstanding
     at December 28, 2003, and December 29, 2002............         107            106
  Additional paid-in-capital................................     132,399        131,525
  Retained Earnings.........................................      24,918         28,879
                                                                --------       --------
     Total Shareholders' Equity.............................     157,424        160,510
                                                                --------       --------
     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............    $170,060       $176,566
                                                                ========       ========


  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                        29


                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

                   CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
     YEARS ENDED DECEMBER 28, 2003, DECEMBER 29, 2002 AND DECEMBER 30, 2001



                                                                 2003         2002          2001
                                                              ----------   -----------   ----------
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                                
REVENUES:
  Management fee income.....................................   $    --      $  1,502      $34,854
  License fee income........................................     4,268            --           --
                                                               -------      --------      -------
     Total Revenues.........................................     4,268         1,502       34,854
                                                               -------      --------      -------
COSTS AND EXPENSES:
  Selling, general and administrative.......................     9,656         9,892        9,239
  Impairment losses.........................................     1,000         8,000       25,410
  Depreciation and amortization.............................       547           481        1,329
                                                               -------      --------      -------
     Total Costs and Expenses...............................    11,203        18,373       35,978
                                                               -------      --------      -------
LOSS FROM OPERATIONS........................................    (6,935)      (16,871)      (1,124)
                                                               -------      --------      -------
OTHER INCOME (EXPENSE):
  Interest income...........................................       632         1,424        1,983
  Interest expense..........................................        --           (90)        (170)
  Equity in loss of unconsolidated affiliates...............      (244)         (459)        (465)
  Loss on land held for development.........................        --            --       (3,731)
  Write-down of investment in unconsolidated affiliates.....        --            --         (666)
  Other.....................................................       158            --         (684)
                                                               -------      --------      -------
     Total other income (expense), net......................       546           875       (3,733)
                                                               -------      --------      -------
Loss before income taxes....................................    (6,389)      (15,996)      (4,857)
Benefit for income taxes....................................    (2,428)       (4,455)      (1,991)
                                                               -------      --------      -------
NET LOSS....................................................   $(3,961)     $(11,541)     $(2,866)
                                                               =======      ========      =======
BASIC LOSS PER SHARE........................................   $ (0.37)     $  (1.08)     $ (0.27)
                                                               =======      ========      =======
DILUTED LOSS PER SHARE......................................   $ (0.37)     $  (1.08)     $ (0.27)
                                                               =======      ========      =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING..................    10,657        10,638       10,638
DILUTIVE EFFECT OF STOCK COMPENSATION PROGRAMS..............        --            --           --
                                                               -------      --------      -------
WEIGHTED AVERAGE COMMON AND DILUTED SHARES OUTSTANDING......    10,657        10,638       10,638
                                                               =======      ========      =======


  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                        30


                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
     YEARS ENDED DECEMBER 28, 2003, DECEMBER 29, 2002 AND DECEMBER 30, 2001



                                                               2003       2002      2001
                                                              -------   --------   -------
                                                                     (IN THOUSANDS)
                                                                          
NET LOSS....................................................  $(3,961)  $(11,541)  $(2,866)
OTHER COMPREHENSIVE EARNINGS (LOSS), NET OF TAX:
  Unrealized gains (losses) on securities:
     Unrealized holding gains (losses) during the period....       --         10        (4)
     Reclassification adjustment for losses included in net
       loss.................................................       --         50       277
                                                              -------   --------   -------
COMPREHENSIVE LOSS..........................................  $(3,961)  $(11,481)  $(2,593)
                                                              =======   ========   =======


  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                        31


                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
     YEARS ENDED DECEMBER 28, 2003, DECEMBER 29, 2002 AND DECEMBER 30, 2001



                                                                                 ACCUMULATED
                                  COMMON STOCK       ADDITIONAL                     OTHER            TOTAL
                                 ---------------      PAID-IN-       RETAINED   COMPREHENSIVE    SHAREHOLDERS'
                                 SHARES   AMOUNT       CAPITAL       EARNINGS   EARNINGS(LOSS)       EQUITY
                                 ------   ------   ---------------   --------   --------------   --------------
                                                                 (IN THOUSANDS)
                                                                               
Balance, December 31, 2000.....  10,638    $106       $131,525       $ 43,286       $(333)          $174,584
  Other comprehensive
     earnings..................      --      --             --             --         273                273
  Net loss.....................      --      --             --         (2,866)         --             (2,866)
                                 ------    ----       --------       --------       -----           --------
Balance, December 30, 2001.....  10,638     106        131,525         40,420         (60)           171,991
  Other comprehensive
     earnings..................      --      --             --             --          60                 60
  Net loss.....................      --      --             --        (11,541)         --            (11,541)
                                 ------    ----       --------       --------       -----           --------
Balance, December 29, 2002.....  10,638     106        131,525         28,879          --            160,510
  Issuance of stock on options
     exercised -- net..........      99       1            568             --          --                569
  Tax benefits from exercise of
     common stock options......      --      --            306             --          --                306
  Net loss.....................      --      --             --         (3,961)         --             (3,961)
                                 ------    ----       --------       --------       -----           --------
Balance, December 28, 2003.....  10,737    $107       $132,399       $ 24,918       $  --           $157,424
                                 ======    ====       ========       ========       =====           ========


  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                        32


                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
     YEARS ENDED DECEMBER 28, 2003, DECEMBER 29, 2002 AND DECEMBER 30, 2001



                                                                2003       2002       2001
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
                                                                           
OPERATING ACTIVITIES:
  Net loss..................................................  $ (3,961)  $(11,541)  $ (2,866)
  Adjustments to reconcile net loss to net cash provided by
     operating activities:
     Depreciation and amortization..........................       547        481      1,329
     Impairments and write-downs............................     1,000      8,131     29,807
     Equity in loss of unconsolidated affiliates............       244        460        465
     Deferred income taxes..................................      (732)    (2,230)     9,192
     Changes in operating assets and liabilities:
       Accounts receivable..................................      (922)     3,485     (3,307)
       Income taxes.........................................       970      1,658     (1,573)
       Accounts payable.....................................     1,680        121         26
       Accrued expenses.....................................    (2,949)       (63)      (873)
       Other................................................    (3,217)       657     (1,485)
                                                              --------   --------   --------
          Net Cash Provided by (Used in) Operating
            Activities......................................    (7,340)     1,159     30,715
                                                              --------   --------   --------
INVESTING ACTIVITIES:
  Short-term investments, purchases.........................        --         --    (12,708)
  Short-term investments, sales/maturities..................        --      2,130     43,618
  Payments received for land held under contract for sale...    16,765         --         --
  Payments made for land held under contract for sale.......    (1,273)    (1,006)        --
  Payments received (made) for land held for development....    13,316     (3,957)   (22,543)
  Advances on notes receivable..............................   (18,197)   (18,658)   (21,778)
  Proceeds from repayment of notes receivable...............     2,482         67     16,660
  Investment in and notes receivable from unconsolidated
     affiliates.............................................      (859)      (345)     1,144
  Decrease (increase) in restricted cash, net...............     5,906        875     (2,974)
  Decrease (increase) in other long-term assets.............      (363)      (615)       662
  Increase in property and equipment, net...................       (77)    (1,143)       (92)
                                                              --------   --------   --------
          Net Cash Provided by (Used in) Investing
            Activities......................................    17,700    (22,652)     1,989
                                                              --------   --------   --------
FINANCING ACTIVITIES:
  Proceeds from issuance of common stock....................       874         --         --
  Payments on long-term debt and capital lease
     obligations............................................        --     (7,039)      (535)
                                                              --------   --------   --------
          Net Cash Provided by (Used in) Financing
            Activities......................................       874     (7,039)      (535)
                                                              --------   --------   --------
Net increase (decrease) in cash and cash equivalents........    11,234    (28,532)    32,169
Cash and cash equivalents -- beginning of period............    14,106     42,638     10,469
                                                              --------   --------   --------
CASH AND CASH EQUIVALENTS -- END OF PERIOD..................  $ 25,340   $ 14,106   $ 42,638
                                                              ========   ========   ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the period for:
     Interest...............................................  $     --   $     98   $    170
     Income taxes...........................................         6          9      4,002
  Noncash investing and financing activities:
     Capital leased asset and obligation incurred related to
       office building......................................        --         --      5,724


  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                        33


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          DECEMBER 28, 2003, DECEMBER 29, 2002, AND DECEMBER 30, 2001

1.  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     Lakes Entertainment, Inc., a Minnesota corporation ("Lakes" or the
"Company") was established as a public corporation on December 31, 1998, via a
distribution (the "Distribution") of its common stock, par value $.01 per share
(the "Common Stock") to the shareholders of Grand Casinos, Inc. ("Grand
Casinos").

     Lakes develops and manages Indian-owned casino properties that offer the
opportunity for long-term development of related entertainment facilities,
including hotels, theaters, recreational vehicle parks and other complementary
amenities designed to enhance the customers' total entertainment experience and
to differentiate facilities managed by Lakes from its competitors. Lakes
provides experienced corporate and casino management and develops and implements
a wide scale of marketing programs. In conjunction with this part of Lakes'
business strategy, Lakes has entered into development and management agreements
relating to one casino project in Michigan, two casino projects in California,
and one casino project on the east coast, with development of each subject to
regulatory approvals. Lakes has also explored, and will continue to explore,
numerous other possible development projects.

     World Poker Tour, LLC ("WPT"), a majority-owned subsidiary of Lakes, has
created a circuit of previously-established poker tournaments affiliated under
the "World Poker Tour" name, and has produced the World Poker Tour television
series. WPT signed an agreement for a second season with TRV the Travel Channel,
LLC ("TRV") for broadcast of the World Poker Tour series on cable television.
TRV was also granted options for five additional seasons. WPT receives a series
of fixed license payments from TRV. See Subsequent Event Footnote 11.

     Lakes has recently created a new division to buy, license and/or market new
table game concepts for licensing to casinos. The Company is currently testing a
number of new games and there may be revenue from this effort beginning during
2004.

  USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. During the reporting period, the most significant
estimates relate to revenue recognition, realizability of notes receivable and
realization of other long-term assets. Actual results could differ from those
estimates.

  YEAR END

     The Company has a 52- or 53-week accounting period ending on the Sunday
closest to December 31 of each year. The Company's fiscal years for the periods
shown on the accompanying consolidated statements of earnings ended on December
28, 2003 (2003), December 29, 2002 (2002) and December 30, 2001 (2001).

  BASIS OF PRESENTATION

     The accompanying consolidated financial statements include the accounts of
Lakes and its wholly-owned and majority-owned subsidiaries. Investments in
unconsolidated affiliates representing 50% or less of voting interests are
accounted for on the equity method. All significant intercompany balances and
transactions have been eliminated in consolidation.

     Lakes' investments in unconsolidated affiliates include a 50 percent
ownership interest in PCG Santa Rosa, LLC, a joint venture formed to develop a
casino on Indian-owned land in California, a 49 percent voting interest in the
Chateaux, LLC, a joint venture formed to develop the Shark Club parcel in Las
Vegas, Nevada, into an upscale timeshare project, and a 50 percent ownership
interest in 2022 Ranch, LLC, a joint venture formed to develop and/or sell
approximately 2000 acres owned by the joint venture in Eastern San Diego County.

  REVENUE RECOGNITION

     Revenue from the management of Indian-owned casino gaming facilities is
recognized when earned according to the terms of the management contracts.

                                        34

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   DECEMBER 28, 2003, DECEMBER 29, 2002, AND DECEMBER 30, 2001 -- (CONTINUED)

     Revenue from the World Poker Tour series is recognized upon delivery of
completed episodes.

  CASH AND CASH EQUIVALENTS

     Cash and cash equivalents consist of cash on hand and in banks,
interest-bearing deposits, money market funds and other instruments with
original maturities of three months or less. Restricted cash and cash
equivalents consisted primarily of funds deposited as security to support Lakes'
indemnification obligations to Grand Casinos.

  SHORT-TERM INVESTMENTS

     The Company follows the provisions of Statement on Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" and has classified all of its investments (except restricted cash
reserves) as available for sale, whereby investments are reported at fair value,
with unrealized gains and losses reported as accumulated other comprehensive
earnings (loss), net of income taxes, in the accompanying consolidated
statements of shareholders' equity. Market value is determined by the most
recently traded price of the security at the balance sheet date. Net realized
gains or losses are determined on the specific identification cost method.

  PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost less accumulated depreciation.
Expenditures for additions, renewals, and improvements are capitalized. Costs of
repairs and maintenance are expensed when incurred. Depreciation and
amortization of property and equipment is computed using the straight-line
method over the following estimated useful lives:

                                                            
Building....................................................     40 years
Furniture and equipment.....................................   3-10 years



     Property and Equipment consist of the following (in thousands):



                                                               2003      2002
                                                              -------   -------
                                                                  
Building....................................................  $ 6,406   $ 6,406
Furniture and equipment.....................................    2,532     2,455
                                                              -------   -------
                                                                8,938     8,861
Less: Accumulated depreciation..............................   (2,446)   (1,899)
                                                              -------   -------
Property and equipment, net.................................  $ 6,492   $ 6,962
                                                              =======   =======


     The Company periodically evaluates whether events and circumstances have
occurred that may affect the recoverability of the net book value of its
long-lived assets. If such events or circumstances indicate that the carrying
amount of an asset may not be recoverable, the Company estimates the future cash
flows expected to result from the use of the asset. If the sum of the expected
future undiscounted cash flows does not exceed the carrying value of the asset,
the Company will recognize an impairment loss and write the asset down to its
fair value.

  LAND HELD FOR DEVELOPMENT

     On April 7, 2003, Lakes announced that it had signed a Letter of Intent to
sell the approximate 3.5 acre undeveloped site, known as the Shark Club Parcel,
for a purchase price of $15.0 million in cash. The transaction closed on July 1,
2003.

     Also included in land held for development is land held for possible
transfer to Indian Tribes for use in future casino resort projects, in the
amount of $14.5 million and $12.8 million as of December 28, 2003 and December
29, 2002, respectively.

  LAND HELD UNDER CONTRACT FOR SALE

     On December 28, 2001, the Company transferred title and ownership
obligations of the Polo Plaza shopping center property to Metroflag Polo, LLC.
In conjunction with this transaction, Lakes transferred to Metroflag BP, LLC,
rights to and obligations of the adjacent Travelodge property consisting of a
long-term

                                        35

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   DECEMBER 28, 2003, DECEMBER 29, 2002, AND DECEMBER 30, 2001 -- (CONTINUED)

land lease and a motel operation. During 2002, Lakes and Metroflag restructured
the terms of the Polo Plaza and Travelodge property transactions due to
deteriorating economic conditions. The parties reduced the purchase price for
the Polo Plaza property from $23.8 million to $21.8 million.

     During March of 2003, Lakes and Metroflag agreed to additional revisions to
the terms of the Polo Plaza and Travelodge property transactions. The parties
increased the price of the Polo Plaza property from $21.8 million to $25.8
million and extended the payment date to May 15, 2003. On the payment date,
$16.8 million of the purchase price was paid to Lakes in cash, $4.0 million was
paid through the issuance to Lakes of a preferred membership interest in
Metroflag and $4.0 million was paid through the issuance to Lakes of a
subordinated membership interest in Metroflag. On or before April 30, 2004,
Metroflag Polo may elect to distribute to Lakes $3.0 million plus interest in
cash as full return of Lakes' preferred interest. If paid after April 30, 2004,
the entire $4.0 million plus interest will be payable. The subordinated interest
must be repurchased for $4.0 million at the time of repayment of an outstanding
$3.5 million contractual commitment in connection with the Travelodge property,
which is scheduled on or before December 28, 2004. In March of 2003, the parties
decreased the sale price of the Travelodge property from $7.5 million to $3.5
million. At that time, the contractual commitment to pay Lakes was also
decreased from $7.5 million to $3.5 million as a result of the increase in the
purchase price of the Polo Plaza property discussed above. During 2003, Lakes
took a $1.0 million impairment charge on the Travelodge property. If the
Travelodge commitment is not repaid by December 28, 2004, ownership of the
Travelodge lease rights would revert back to Lakes. Lakes has also agreed to
loan to Metroflag BP up to $3.0 million related to Travelodge operating
shortfalls through December 28, 2004. As of December 28, 2003 and December 29,
2002, the outstanding loan balance was $2.1 million and $0.8 million,
respectively. This loan is scheduled to be repaid on December 28, 2004. If at
any time the Polo Plaza property is sold and the Travelodge commitment has not
been repaid, Metroflag is required to repurchase the subordinated interest for
the lesser of $4.0 million or any portion of the net cash proceeds from such
sale or refinancing that exceeds $60.0 million.

  DEVELOPMENT COSTS

     Included in other long-term assets on the accompanying consolidated balance
sheets are development costs relating to the Pokagon, Shingle Springs and Jamul
Indian-owned casino projects (See Footnote 3). These are costs related to
obtaining the contracts for each of these projects which will be amortized over
the management period upon opening of each of the respective projects. These
costs aggregate $5.5 million and $3.4 million as of December 28, 2003 and
December 29, 2002, respectively.

  STOCK-BASED COMPENSATION

     At December 28, 2003, the Company has two stock-based employee compensation
plans, which are described more fully in Note 7. The Company accounts for those
plans under the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations. No
stock-based employee compensation cost is reflected in net income, as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share if the Company had

                                        36

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   DECEMBER 28, 2003, DECEMBER 29, 2002, AND DECEMBER 30, 2001 -- (CONTINUED)

applied the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation
(in thousands, except per share data).



                                                               2003       2002      2001
                                                              -------   --------   -------
                                                                          
Net loss:
  As reported...............................................  $(3,961)  $(11,541)  $(2,866)
Less: Total stock-based compensation expense determined
  under the fair value method, net of related tax effects...   (1,652)    (1,702)   (1,569)
  Pro forma.................................................   (5,613)   (13,243)   (4,435)
Net loss per share:
  As reported -- Basic......................................  $ (0.37)  $  (1.08)  $ (0.27)
  Pro forma -- Basic........................................    (0.53)     (1.24)    (0.42)
  As reported -- Diluted....................................    (0.37)     (1.08)    (0.27)
  Pro forma -- Diluted......................................    (0.53)     (1.24)    (0.42)


  INCOME TAXES

     Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The Company classifies
deferred tax liabilities and assets into current and non-current amounts based
on the classification of the related assets and liabilities.

  INTEREST INCOME

     Interest income represents interest on cash, cash equivalents, short-term
investments and interest on notes receivable, except that interest on notes
receivable from Indian Tribes related to casino development projects is deferred
because realizability of the interest is contingent upon the completion and
positive cash flow from operation of the casino. Interest deferred during the
development period is recognized over the life of the note using the effective
interest method. Interest on cash, cash equivalents and short-term investments
reflects interest income realized from investments in savings and money market
accounts and other short-term liquid investments.

  EARNINGS PER SHARE

     For all periods, basic earnings per share (EPS) is calculated by dividing
earnings (loss) by the weighted average common shares outstanding. Diluted EPS
reflects the effect of all potentially dilutive common shares outstanding by
dividing net earnings (loss) by the weighted average of all common and
potentially dilutive shares outstanding. Stock options that could potentially
dilute earnings (loss) per share in the future of 2,163,301 and 2,524,129 in
2003 and 2002, respectively, were not included in the computation of diluted
earnings (loss) per share because the effects would have been anti-dilutive for
the periods presented.

  CONCENTRATIONS OF CREDIT RISK

     The financial instruments that subject the Company to concentrations of
credit risk consist principally of accounts and notes receivable. Notes
receivable are due primarily from the Pokagon Band of Potawatomi Indians, the
Shingle Springs Band of Miwok Indians, the Jamul Indian Village and the Nipmuc
Nation.

  DERIVATIVE INSTRUMENTS

     All derivatives, including those embedded in other contracts, are
recognized as either assets or liabilities and measured at fair value.

     The accounting for changes in the fair value of derivatives depends on
their intended use and designation. Management has reviewed the requirements of
SFAS No. 133 and has determined the Company does not have any freestanding or
embedded derivatives. All contracts that contain provisions meeting the
definition of a derivative also meet the requirements of, and have been
designated as, normal purchases or sales. The

                                        37

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   DECEMBER 28, 2003, DECEMBER 29, 2002, AND DECEMBER 30, 2001 -- (CONTINUED)

Company's policy is to not use freestanding derivatives and to not enter into
contracts with terms that cannot be designated as normal purchases or sales.

  RECENT ACCOUNTING PRONOUNCEMENTS

     In January 2003, the FASB issued FIN 46 (Revised December 2003) (FIN46(R)),
which deferred the effective date until the first interim or annual reporting
period ending after March 15, 2004. FIN 46(R) addresses the consolidation of
variable interest entities. The initial determination of whether an entity is a
variable interest entity shall be made as of the date at which an enterprise
becomes involved with the entity and re-evaluated as of the date of triggering
events, as defined.

     The Company has determined that it has no investments or other interests in
entities that may be deemed variable interest entities under the provisions of
FIN46(R) as the development projects subject to the management agreements with
the Indian Tribes are not separate entities or legal structures.

  RECLASSIFICATIONS

     Certain amounts in the 2002 and 2001 consolidated financial statements have
been reclassified to conform to the 2003 presentation. These reclassifications
had no effect on previously reported net earnings or shareholders' equity.

2.  MANAGEMENT CONTRACTS FOR INDIAN-OWNED CASINOS:

     The ownership, management and operation of gaming facilities are subject to
extensive federal, state, provincial, tribal and/or local laws, regulation, and
ordinances, which are administered by the relevant regulatory agency or agencies
in each jurisdiction. These laws, regulations and ordinances vary from
jurisdiction to jurisdiction, but generally concern the responsibility,
financial stability and character of the owners and managers of gaming
operations as well as persons financially interested or involved in gaming
operations. The Company is prohibited by the Indian Gaming Regulatory Act from
having an ownership interest in any casino it manages for Indian tribes.

     The management contracts govern the relationship between the Company and
the tribes with respect to the development and management of the casinos. The
development portion of the agreements commences with the signing of the
respective contracts and continues until the casinos open for business;
thereafter, the management portion of the respective management contracts
continues for a period up to seven years. Under the terms of the contracts, the
Company, as manager of the casino, receives a percentage of the distributable
profits (as defined in the contract) of the operations as a management fee after
payment of certain priority distributions, a cash contingency reserve, and
guaranteed minimum payments to the tribes.

     Lakes is actively involved as the exclusive developer and manager of four
Indian-owned gaming properties which are currently under development.

3.  NOTES RECEIVABLE:

     The notes receivable from Indian tribes result from costs incurred by the
Company for the development of gaming properties under which the Company has
signed management contracts. The repayment terms are specific to each tribe and
are largely dependent upon the operating performance of each gaming property.
Repayments of the aforementioned notes receivable are required to be made only
if distributable profits are available from the operation of the related
casinos. Repayments are also the subject of certain distribution priorities
specified in the management contracts. In addition, repayment of the notes
receivable and the manager's fees under the management contracts are
subordinated to certain other financial obligations of the respective tribes.

                                        38

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   DECEMBER 28, 2003, DECEMBER 29, 2002, AND DECEMBER 30, 2001 -- (CONTINUED)

     Notes receivable consist of the following (in thousands):



                                                      DECEMBER 28, 2003   DECEMBER 29, 2002
                                                      -----------------   -----------------
                                                                    
Properties under development:
Notes from the Pokagon Band of Potawatomi Indians
  with variable interest rates, (not to exceed 10%),
  (5.00% at December 28, 2003), receivable in 60
  monthly installments subsequent to commencement
  date..............................................       $41,729             $39,470
Notes from the Shingle Springs Band of Miwok Indians
  with variable interest rates (6.00% at December
  28, 2003), receivable in varying monthly
  installments based on contract terms subsequent to
  commencement date.................................        24,428              14,035
Notes from the Jamul Indian Village with variable
  interest rates (6.00% at December 28, 2003),
  receivable in 60 monthly installments subsequent
  to commencement date..............................        12,336               9,492
Notes from the Nipmuc Nation with variable interest
  rates (6.00% at December 28, 2003) receivable in
  varying installments based on contract terms
  subsequent to commencement........................         4,634               3,814
Other...............................................         1,555               4,144
                                                           -------             -------
  Total notes receivable............................       $84,682             $70,955
                                                           =======             =======


     Interest income on notes receivable from Indian tribes related to
properties under development is deferred because realizability of the interest
is contingent upon the completion and positive cash flow from operation of the
casino. Interest deferred during the development period is recognized over the
remaining life of the note using the effective interest method. As of December
28, 2003 and December 29, 2002, $15.2 million and $10.1 million of interest on
notes related to properties under development has been deferred.

     The terms of these notes require the casinos to be constructed and to
generate positive cash flows prior to the Company receiving repayment. As such,
an estimate of the fair value of these notes requires an assessment of the
timing of the construction of the related casinos and the profitability of the
related casinos. Due to the significant uncertainty involved in such an
assessment, the Company does not believe that it is practicable to accurately
estimate the fair value of these notes with the degree of precision necessary to
make such information meaningful.

4.  INCOME TAXES:

     The provision (benefit) for income taxes attributable to earnings/losses
for 2003, 2002 and 2001 consisted of the following (in thousands):



                                                                  YEARS ENDED
                                                        -------------------------------
                                                           2003        2002      2001
                                                        -----------   -------   -------
                                                                       
Current:
  Federal.............................................    $(3,777)    $(2,268)  $(8,665)
  State...............................................         --          --    (2,434)
                                                          -------     -------   -------
                                                          $(3,777)    $(2,268)  (11,099)
Deferred..............................................      1,349      (2,187)    9,108
                                                          -------     -------   -------
                                                          $(2,428)    $(4,455)  $(1,991)
                                                          =======     =======   =======


                                        39

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   DECEMBER 28, 2003, DECEMBER 29, 2002, AND DECEMBER 30, 2001 -- (CONTINUED)

     Reconciliations of the statutory federal income tax rate to the Company's
actual rate based on earnings/losses before income taxes for 2003, 2002 and 2001
are summarized as follows:



                                                                   YEARS ENDED
                                                              ---------------------
                                                              2003    2002    2001
                                                              -----   -----   -----
                                                                     
Statutory federal tax rate..................................  (35.0)% (35.0)% (35.0)%
State income taxes, net of federal income taxes.............   (1.8)   (4.1)    2.3
Tax exempt income...........................................     --    (0.2)   (3.4)
Valuation allowance.........................................     --    11.3      --
Other, net..................................................   (1.2)    0.1    (4.9)
                                                              -----   -----   -----
                                                              (38.0)% (27.9)% (41.0)%
                                                              =====   =====   =====


     The Company's deferred income tax liabilities and assets are as follows (in
thousands):



                                                               2003     2002
                                                              ------   ------
                                                                 
Current deferred tax asset:
  Accruals, reserves and other..............................  $5,385   $6,771
                                                              ======   ======
Non-current deferred taxes:
  Unrealized investment losses (gains)......................   3,949    3,949
  Deferred interest.........................................   6,246    4,487
  Capitalized interest......................................      --     (434)
  Other.....................................................     388      463
  Valuation allowance.......................................  (3,949)  (3,949)
                                                              ------   ------
Net non-current deferred tax asset..........................  $6,634   $4,516
                                                              ======   ======


     The Company has recorded deferred tax assets that are created by asset
impairment charges that are not deductible for tax purposes until the related
assets are actually sold or disposed of. Realization of these benefits is
dependent on the generation of capital gains which is uncertain at this time
and, therefore, a valuation allowance has been established. The Company believes
the remaining deferred tax assets are recoverable.

     Under the terms of its tax sharing agreement with Grand, any further tax
benefits relating to capital losses resulting from the Company's write-off of
its investment in Stratosphere will be shared equally by Lakes and Park Place,
which has been renamed Caesars Entertainment, Inc. ("Caesars") up to a benefit
of approximately $12.0 million to Lakes. No benefit related to this agreement
has been recorded.

5.  STOCK OPTIONS:

     Grand Casinos had a Stock Option and Compensation Plan and a Director Stock
Option Plan whereby incentive and nonqualified stock options and other awards to
acquire shares of Grand Casinos' common stock were granted to officers,
directors, and employees.

     Upon the consummation of the Distribution, the holders of outstanding Grand
Casinos stock options received one new option to purchase one share of Lakes
common stock for each four options previously held, and one new option to
purchase one share of Caesars common stock for each option previously held. The
exercise price of the new options was apportioned between Lakes and Caesars to
preserve option value as it existed on December 31, 1998 as measured by the
difference between the option exercise price and the fair market value of Grand
Casinos on that date. This value was calculated by reference to the closing
price of Lakes on January 4, 1999 and the closing price of Grand Casinos on
December 31, 1998. Additionally, Lakes has a 1998 Stock Option and Compensation
Plan and a 1998 Director Stock Option Plan which are approved to grant up to an
aggregate of 2.5 million shares and 0.2 million shares, respectively, of
incentive and non-qualified stock options to officers, directors, and employees.

                                        40

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   DECEMBER 28, 2003, DECEMBER 29, 2002, AND DECEMBER 30, 2001 -- (CONTINUED)

     Information with respect to the stock option plans is summarized as
follows:



                                                               NUMBER OF COMMON SHARES
                                            LAKES      ----------------------------------------
                                           OPTIONS                   AVAILABLE   WEIGHTED AVE.
                                         OUTSTANDING   EXERCISABLE   FOR GRANT   EXERCISE PRICE
                                         -----------   -----------   ---------   --------------
                                                                     
Balance at December 31, 2000...........   2,330,718    1,118,818     1,362,106         9.26
  Granted..............................     187,000                   (187,000)        7.75
  Canceled.............................     (31,375)                    31,375         9.24
  Exercised............................          --                         --           --
                                         ----------    ---------     ---------       ------
Balance at December 30, 2001...........   2,486,343    1,419,343     1,206,481         9.14
  Granted..............................      84,000                    (84,000)        6.53
  Canceled.............................     (46,214)                    46,214         7.77
  Exercised............................          --                         --           --
                                         ----------    ---------     ---------       ------
Balance at December 29, 2002...........   2,524,129    1,714,629     1,168,695       $ 9.08
  Granted..............................      30,000                    (30,000)       14.35
  Canceled.............................    (291,844)                   291,844         8.33
  Exercised............................     (98,984)                        --         8.83
                                         ----------    ---------     ---------       ------
Balance at December 28, 2003...........   2,163,301    1,658,701     1,430,539       $ 9.02
                                         ==========    =========     =========       ======




                  OPTIONS OUTSTANDING AT DECEMBER 28, 2003                     OPTIONS EXERCISABLE AT
     -------------------------------------------------------------------         DECEMBER 28, 2003
                                     WEIGHTED AVERAGE                      ------------------------------
        RANGE OF         NUMBER         REMAINING       WEIGHTED-AVERAGE     NUMBER      WEIGHTED-AVERAGE
     EXERCISE PRICES   OUTSTANDING   CONTRACTUAL LIFE    EXERCISE PRICE    EXERCISABLE        PRICE
     ---------------   -----------   ----------------   ----------------   -----------   ----------------
                                                                       
      $  (6.50-7.75)      247,400       7.6 years            $ 7.19            81,600         $ 7.33
        (8.00-11.34)    1,879,526       4.5 years              9.15         1,570,726           9.26
       (13.53-17.72)       36,375       8.9 years             14.56             6,375          15.55
      -------------     ---------       ---------            ------         ---------         ------
      $ (6.50-17.72)    2,163,301       5.0 years            $ 9.02         1,658,701         $ 9.19
      =============     =========       =========            ======         =========         ======


     The SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, thus the resulting pro forma compensation cost
may not be representative of that to be expected in future years. The fair value
of each award under the option plans is estimated on the date of grant using the
Black-Scholes option-pricing model. The following assumptions were used to
estimate the fair value of options:



                                                        2003        2002        2001
                                                      ---------   ---------   ---------
                                                                     
Risk-free interest rate.............................       4.27%       4.98%       5.02%
Expected life.......................................   10 years    10 years    10 years
Expected volatility.................................      42.47%      44.31%      50.84%
Expected dividend yield.............................         --          --          --
Weighted average fair value.........................      $8.63       $4.12       $5.92


     Information regarding the effect on net earnings (loss) and net earnings
(loss) per common share had the fair value expense recognition provisions of
SFAS 123 been applied is included in Note 1.

6.  EMPLOYEE RETIREMENT PLAN:

     Lakes has a section 401(k) employee savings plan for all full-time
employees. The savings plan allows participants to defer, on a pre-tax basis, a
portion of their salary and accumulate tax-deferred earnings as a retirement
fund. Eligibility is based on years of service and minimum age requirements.
Contributions are invested, at the direction of the employee, in one or more
available funds. Lakes matches employee contributions up to a maximum of 4% of
participating employees' gross wages. The Company contributed $.11 million, $.10
million and $.10 million during 2003, 2002, and 2001, respectively. Company
contributions are vested over a period of five years.

                                        41

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   DECEMBER 28, 2003, DECEMBER 29, 2002, AND DECEMBER 30, 2001 -- (CONTINUED)

7.  COMMITMENTS AND CONTINGENCIES:

  OPERATING LEASES

     The Company leases certain property and equipment, including an airplane,
under non-cancelable operating leases. Rent expense, under non-cancelable
operating leases, exclusive of real estate taxes, insurance, and maintenance
expense was $0.6 million, $0.6 million, and $1.2 million for 2003, 2002 and
2001, respectively.

     Approximate future minimum lease payments due under this lease as of
December 28, 2003, assuming the second one-year renewal is exercised, are as
follows (in thousands):

                                                            
2004........................................................    600
2005........................................................    200
                                                               ----
                                                               $800
                                                               ====



  PURCHASE OPTIONS

     The Company has the right to purchase the airplane it leases for
approximately $8 million.

  INDEMNIFICATION AGREEMENT

     As a part of the transaction establishing Lakes as a separate public
company on December 31, 1998, the Company has agreed to indemnify Grand Casinos
through December 28, 2004 against all costs, expenses and liabilities incurred
in connection with or arising out of certain pending and threatened claims and
legal proceedings against Grand Casinos and to pay all related settlements and
judgments. The Company's indemnification obligations include the obligation to
provide the defense of all claims made in proceedings against Grand Casinos and
to pay all related settlements and judgments.

     As a part of the indemnification agreement, Lakes has agreed that it will
not declare or pay any dividends, make any distribution on account of Lakes'
equity interests, or otherwise purchase, redeem, defease or retire for value any
equity interests in Lakes without written consent of Caesars.

LEGAL PROCEEDINGS

  SLOT MACHINE LITIGATION

     In 1994, William H. Poulos filed a class-action lawsuit in the United
States District Court for the Middle District of Florida against various
parties, including Grand and numerous other parties alleged to be casino
operators or slot machine manufacturers. This lawsuit was followed by several
additional lawsuits of the same nature against the same, as well as additional
defendants, all of which were subsequently consolidated into a single
class-action pending in the United States District Court for the District of
Nevada. Following a court order dismissing all pending pleadings and allowing
the plaintiffs to re-file a single complaint, a complaint has been filed
containing substantially identical claims, alleging that the defendants
fraudulently marketed and operated casino video poker machines and electronic
slot machines, and asserting common law fraud and deceit, unjust enrichment and
negligent misrepresentation and claims under the federal Racketeering-
Influenced and Corrupt Organizations Act. Various motions were filed by the
defendants seeking to have this new complaint dismissed or otherwise limited. In
December 1997, the Court, in general, ruled on all motions in favor of the
plaintiffs. The plaintiffs then filed a motion seeking class certification and
the defendants opposed it. In June 2002, the Court entered an order denying
class certification, and the plaintiffs have appealed this order to the 9th
Circuit Court of Appeals. Briefing is complete, an oral hearing took place in
January 2004, and no ruling has yet been issued.

  WILLARD EUGENE SMITH LITIGATION

     On October 24, 2003, Lakes announced that it had been named as one of a
number of defendants in a counterclaim filed in state court in Harris County,
Texas by Willard Eugene Smith involving Kean Argovitz Resorts, LLC (KAR),
related persons and entities. In the counterclaim, Smith asserts that, under an
alleged oral agreement with Kevin Kean, he is entitled to a percentage of fees
to be received by the KAR entities or their principals relating to the Shingle
Springs and Jamul casinos that Lakes' subsidiaries are developing in

                                        42

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   DECEMBER 28, 2003, DECEMBER 29, 2002, AND DECEMBER 30, 2001 -- (CONTINUED)

California. Smith also seeks recovery of damages and other relief from the KAR
entities, Lakes and certain affiliates based on their conduct with respect to
the alleged agreement.

     Lakes believes the counterclaim against it is without merit. Lakes
understands that the alleged oral agreement upon which Smith bases his claim was
rendered null and void in a prior judgment issued against Smith by the Harris
County, Texas state court in October 2000. However, in September 2003, the court
vacated the prior judgment against Smith. Lakes acquired KAR's interests in the
Shingle Springs and Jamul projects on January 30, 2003. In the buyout agreements
between Lakes and certain KAR entities and related principals, the KAR entities
represented to Lakes that the KAR entities and their affiliates had no
continuing agreements with any third party relating to the Shingle Springs and
Jamul projects and agreed to indemnify Lakes and its affiliates from damages
resulting from prior dealings of the KAR entities and related principals
concerning the projects. Lakes will vigorously defend against the allegations
made against it and will pursue its indemnification rights against the KAR
entities and their principals under the buyout agreements if necessary.

  EL DORADO COUNTY, CALIFORNIA LITIGATION

     On January 3, 2003, El Dorado County filed an action in the Superior Court
of the State of California, seeking to prevent the construction of a highway
interchange that was approved by a California state agency. The action does not
seek relief directly against Lakes. However, the interchange is necessary to
permit the construction of a casino to be developed and managed by Lakes through
a joint venture. The casino will be owned by the Shingle Springs Band of Miwok
Indians. The matter was tried to the court on August 22, 2003. On January 2,
2004, Judge Lloyd G. Connelly, Judge of the Superior Court for the State of
California, issued his ruling on the matter. The Court denied the petition in
all respects except one. As to the one exception, the Court sought clarification
as to whether the transportation conformity determination used to determine the
significance of the air quality impact of the interchange operations considered
the impact on attainment of the state ambient air quality standard for ozone.
The California Department of Transportation prepared and filed the clarification
sought by the Court.

     Prior to the Court's determination of the adequacy of the clarification, El
Dorado County appealed Judge Connelly's ruling to the California Court of
Appeals. The current issue before the trial court is whether, in light of the
appeal, it has jurisdiction to determine the adequacy of the clarification.
Judge Connelly will hear argument on that issue on April 9, 2004.

  OTHER LITIGATION

     Lakes is 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 final outcome of these
matters, including matters discussed above, is not likely to have a material
adverse effect upon the Company's consolidated financial position or results of
operations.

8.  SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

Year ended December 28, 2003 (in thousands, except per share amounts):



                                           FIRST QUARTER   SECOND QUARTER   THIRD QUARTER   FOURTH QUARTER
                                           -------------   --------------   -------------   --------------
                                                                                
Net revenues.............................     $   550         $ 2,954          $   377         $   387
Earnings (loss) from operations..........      (2,557)          1,085           (2,262)         (3,201)
Net earnings (loss)......................      (1,327)            789           (1,302)         (2,121)
Earnings (loss) per share:
  Basic..................................     $ (0.12)        $  0.07          $ (0.12)        $ (0.20)
  Diluted................................       (0.12)           0.07            (0.12)          (0.20)


                                        43

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   DECEMBER 28, 2003, DECEMBER 29, 2002, AND DECEMBER 30, 2001 -- (CONTINUED)

     Year ended December 29, 2002 (in thousands, except per share amounts):



                                   FIRST QUARTER   SECOND QUARTER   THIRD QUARTER   FOURTH QUARTER
                                   -------------   --------------   -------------   --------------
                                                                        
Net revenues.....................     $ 1,502         $    --          $    --         $    --
Loss from operations.............        (696)         (9,692)          (2,830)         (3,653)
Net Loss.........................         (63)         (7,180)          (1,654)         (2,644)
Loss per share:
  Basic..........................     $  (.01)        $  (.67)         $  (.16)        $  (.24)
  Diluted........................        (.01)           (.67)            (.16)           (.24)


9.  RELATED PARTY TRANSACTIONS

     Previously, Lakes formed two joint venture partnerships with KAR, a limited
liability company based in Houston, Texas, for the purpose of developing and
managing casino resort projects with the Shingle Springs Band of Miwok Indians
and the Jamul Indian Village, both in California. On January 30, 2003, Lakes
restructured a series of arrangements with KAR and its individual members such
that Lakes has effectively acquired 100% ownership of the joint ventures in
exchange for restructuring indebtedness of $1.8 million from the joint venture
partnerships to Lakes and an agreement to make certain conditional payments to
the individual KAR members from profits received under the respective management
contracts.

     While these conditional payments could total up to $2 million per year for
each project, Lakes believes these payments will be substantially less than KAR
would have received under their original interest prospectively. The individual
KAR members have options to repurchase their interest or obtain a comparable
financial interest, in the event they are found suitable by relevant gaming
regulatory authorities.

     A subsidiary of Lakes and Land Baron West, LLC ("LBW") are partners in a
joint venture formed to develop or sell land purchased by the joint venture near
San Diego, California. In January 2004, the majority of this land was sold in
lieu of development by the joint venture. Lakes received cash in the amount of
approximately $1.4 million after payment of the existing land loan and related
closing costs and after sharing 50% of the sale proceeds with its joint venture
partner, LBW. The partnership will recognize a gain in the approximate amount of
$0.4 million related to the sale. An agreement is also in place to sell the
remaining approximately 44 acres during 2004 for approximately $0.7 million. The
proceeds from that sale will be divided equally between Lakes and LBW. LBW owed
the joint venture $0.7 million, and $0.2 million, as of December 28, 2003 and
December 29, 2002, respectively. These amounts are included in accounts
receivable on the accompanying condensed consolidated balance sheets.

10.  SEGMENT INFORMATION

     Lakes' principal business is the development and management of gaming
related properties. Additionally, the Company is the majority owner of the World
Poker Tour, LLC. (See Footnote 1). Substantially, all of our operations are
conducted in the United States. Lakes' reportable segments are as follows (in
millions):



                                                          INDUSTRY SEGMENTS
                                       -------------------------------------------------------
                                       REAL ESTATE   WORLD POKER   CORPORATE &       TOTAL
                                       DEVELOPMENT      TOUR       ELIMINATIONS   CONSOLIDATED
                                       -----------   -----------   ------------   ------------
                                                                      
2003
  Revenue............................    $   --         $ 4.3         $   --         $  4.3
  Operating loss.....................      (1.1)         (0.3)          (5.5)          (6.9)
  Total assets.......................     126.1           2.5           41.5          170.1
  Depreciation expense...............        --           0.1            0.4            0.5
2002
  Revenue............................    $  1.5         $  --         $   --         $  1.5
  Operating Loss.....................      (4.3)         (2.1)         (10.5)         (16.9)
  Total assets.......................     136.0           0.2           40.4          176.6
  Depreciation expense...............        --           0.1            0.4            0.5


                                        44

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   DECEMBER 28, 2003, DECEMBER 29, 2002, AND DECEMBER 30, 2001 -- (CONTINUED)

11.  SUBSEQUENT EVENTS

     During January of 2004, World Poker Tour announced that it will seek to
raise approximately $20 million through a newly formed corporation pursuant to
an underwritten initial public offering of common stock at a price to be
determined. It is expected that proceeds from the offering will be used to
expand World Poker Tour's entertainment production business and for its working
capital. There will be no selling shareholders participating in the offering.
Lakes does not expect to recognize a gain on this transaction and the proceeds
will be reflected as a minority interest.

                                        45


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     None.

ITEM 9A.  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
under Rules 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as of the end of the period covered by
this report. Based on this evaluation, our chief executive officer and chief
financial officer concluded that our disclosure controls and procedures are
effective.

     There have been no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the evaluation referenced above.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information in response to this item is incorporated herein by reference to
our definitive proxy statement to be filed pursuant to Regulation 14A within 120
days after the end of the fiscal year covered by this 10-K.

ITEM 11.  EXECUTIVE COMPENSATION

     Information in response to this item is incorporated herein by reference to
our definitive proxy statement to be filed pursuant to Regulation 14A within 120
days after the end of the fiscal year covered by this 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

     Information in response to this item is incorporated herein by reference to
our definitive proxy statement to be filed pursuant to Regulation 14A within 120
days after the end of the fiscal year covered by this 10-K.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information in response to this item is incorporated herein by reference to
our definitive proxy statement to be filed pursuant to Regulation 14A within 120
days after the end of the fiscal year covered by this 10-K.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

     Information in response to this item is incorporated herein by reference to
our definitive proxy statement to be filed pursuant to Regulation 14A within 120
days after the end of the fiscal year covered by this 10-K.

                                        46


                                    PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a)(1) Consolidated Financial Statements:



                                                               PAGE
                                                               ----
                                                            
Report of Independent Public Accountants....................    28
Consolidated Balance Sheets as of December 28, 2003 and
  December 29, 2002.........................................    29
Consolidated Statements of Earnings (Loss) for the fiscal
  years ended December 28, 2003, December 29, 2002 and
  December 30, 2001.........................................    30
Consolidated Statements of Comprehensive Earnings (Loss) for
  the fiscal years ended December 28, 2003, December 29,
  2002 and December 30, 2001................................    31
Consolidated Statements of Shareholders' Equity for the
  fiscal years ended December 28, 2003, December 29, 2002
  and December 30, 2001.....................................    32
Consolidated Statements of Cash Flows for the fiscal years
  ended December 28, 2003, December 29, 2002 and December
  30, 2001..................................................    33
Notes to Consolidated Financial Statements..................    34


     (a)(2) None.

     (a)(3)



EXHIBITS                           DESCRIPTION
- --------                           -----------
        
  2.1      Agreement and Plan of Merger by and among Hilton, Park Place
           Entertainment Corporation, Gaming Acquisition Corporation,
           Lakes Gaming, Inc. and Grand Casinos, Inc. dated as of June
           30, 1998. (Incorporated herein by reference to Exhibit 2.2
           to Lakes' Form 10 Registration Statement as filed with the
           Securities and Exchange Commission (the "Commission") on
           October 23, 1998.) (the "Lakes Form 10")
  3.1      Articles of Incorporation of Lakes Gaming, Inc.
           (Incorporated herein by reference to Exhibit 3.1 to the
           Lakes Form 10.)
  3.2      By-laws of Lakes Gaming, Inc. (Incorporated herein by
           reference to Exhibit 3.2 to the Lakes Form 10.)
 10.1      Distribution Agreement by and between Grand Casinos, Inc.
           and Lakes Gaming, Inc., dated as of December 31, 1998.
           (Incorporated herein by reference to Exhibit 10.1 to Lakes'
           Form 8-K dated January 8, 1999.)
 10.2      Employee Benefits and Other Employment Matters Allocation
           Agreement by and between Grand Casinos, Inc. and Lakes
           Gaming, Inc., dated as of December 31, 1998. (Incorporated
           herein by reference to Exhibit 10.2 to Lakes' Form 8-K dated
           January 8, 1999.)
 10.3      Intellectual Property License Agreement by and between Grand
           Casinos, Inc. and Lakes Gaming, Inc., dated as of December
           31, 1998. (Incorporated herein by reference to Exhibit 10.5
           to Lakes' Form 8-K dated January 8, 1999.)
 10.4      Tax Allocation and Indemnity Agreement by and between Grand
           Casinos, Inc. and Lakes Gaming, Inc., dated as of December
           31, 1998. (Incorporated herein by reference to Exhibit 10.3
           to Lakes' Form 8-K dated January 8, 1999.)
 10.5      Tax Escrow Agreement by and among Grand Casinos, Inc., Lakes
           Gaming, Inc., and First Union National Bank as Escrow Agent,
           dated as of December 31, 1998. (Incorporated herein by
           reference to Exhibit 10.4 to Lakes' Form 8-K dated January
           8, 1999.)
 10.6      Trust Agreement dated as of December 31, 1998 entered into
           by and among Lakes Gaming, Inc., Grand Casinos, Inc. and
           First Union National Bank, as Trustee. (Incorporated herein
           by reference to Exhibit 10.7 to Lakes' Form 10-K dated March
           26, 1999).
 10.7      Pledge and Security Agreement dated as of December 31, 1998
           entered into by and among Lakes Gaming, Inc., as Debtor and
           First Union National Bank (the "Trustee") pursuant to the
           Trust Agreement executed in favor of Grand Casinos, Inc.
           (the "Secured Party"). (Incorporated herein by reference to
           Exhibit 10.8 to Lakes' Form 10-K dated March 26, 1999.)
 10.8      Lakes Gaming, Inc. 1998 Stock Option and Compensation Plan.
           (Incorporated herein by reference to Annex G to the Joint
           Proxy Statement/Prospectus of Hilton Hotels Corporation and
           Grand dated and filed with the Commission on October 14,
           1998 (the "Joint Proxy Statement") which is attached to the
           Lakes Form 10 as Annex A.)*


                                        47




EXHIBITS                           DESCRIPTION
- --------                           -----------
        
 10.9      Lakes Gaming, Inc. 1998 Director Stock Option Plan.
           (Incorporated herein by reference to Annex H to the Joint
           Proxy Statement/Prospectus of Hilton Hotels Corporation and
           Grand dated and filed with the Commission on October 14,
           1998 (the "Joint Proxy Statement") which is attached to the
           Lakes Form 10 as Annex A.)*
 10.10     Indemnification Agreement, dated as of December 31, 1997, by
           and between Grand Casinos, Inc. and Lyle Berman.
           (Incorporated herein by reference to Exhibit 10.79 to
           Grand's Report on Form 10-K for the fiscal year ended
           December 28, 1997.)
 10.11     Non-competition Agreement made and entered into as of
           December 31, 1998, by and between Lyle Berman and Park Place
           Entertainment Corporation (f/k/a Gaming Co., Inc.) a
           Delaware corporation. (Incorporated herein by reference to
           Exhibit 10.21 to Lakes' Report on Form 10-Q for the quarter
           ended April 4, 1999.)
 10.12     Development Agreement dated as of the 8th day of July, 1999
           by and between the Pokagon Band of Potawatomi Indians and
           Lakes Gaming, Inc., a Minnesota corporation. (Incorporated
           herein by reference to Exhibit 10.61 to Lakes' Report on
           Form 10-K for the fiscal year ended December 31, 2000.)
 10.13     Management Agreement dated as of July 8, 1999, by and
           between the Pokagon Band of Potawatomi Indians and Lakes
           Gaming, Inc., a Minnesota corporation. (Incorporated herein
           by reference to Exhibit 10.62 to Lakes' Report on Form 10-K
           for the fiscal year ended December 31, 2000.)
 10.14     Promissory Note (the "Lakes Note") dated as of July 8, 1999
           by and among the Pokagon Band of Potawatomi Indians and
           Lakes Gaming, Inc., a Minnesota corporation. (Incorporated
           herein by reference to Exhibit 10.63 to Lakes' Report on
           Form 10-K for the fiscal year ended December 31, 2000.)
 10.15     Non-Gaming Land Acquisition Line of Credit Agreement dated
           as of the 8th day of July, 1999, by and between the Pokagon
           Band of Potawatomi Indians and Lakes Gaming, Inc., a
           Minnesota corporation. (Incorporated herein by reference to
           Exhibit 10.64 to Lakes' Report on Form 10-K for the fiscal
           year ended December 31, 2000.)
 10.16     Promissory Note (the "Transition Loan Note") dated as of
           July 8, 1999 by and among the Pokagon Band of Potawatomi
           Indians and Lakes Gaming, Inc., a Minnesota corporation.
           (Incorporated herein by reference to Exhibit 10.65 to Lakes'
           Report on Form 10-K for the fiscal year ended December 31,
           2000.)
 10.17     Account Control Agreement dated as of July 8, 1999 by and
           among the Pokagon Band of Potawatomi Indians and Lakes
           Gaming, Inc., a Minnesota corporation. (Incorporated herein
           by reference to Exhibit 10.66 to Lakes' Report on Form 10-K
           for the fiscal year ended December 31, 2000.)
 10.18     Pledge and Security Agreement dated as of July 8, 1999 by
           and among the Pokagon Band of Potawatomi Indians and Lakes
           Gaming, Inc., a Minnesota corporation. (Incorporated herein
           by reference to Exhibit 10.67 to Lakes' Report on Form 10-K
           for the fiscal year ended December 31, 2000.)
 10.19     Memorandum of Agreement Regarding Gaming Development and
           Management Agreements dated as of the 15th day of February,
           2000 by and between the Jamul Indian Village and Lakes
           KAR -- California, LLC, a Delaware limited liability
           company. (Incorporated herein by reference to Exhibit 10.68
           to Lakes' Report on Form 10-K for the fiscal year ended
           December 31, 2000.)
 10.20     Operating Agreement of Lakes Kean Argovitz
           Resorts -- California, LLC dated as of the 25th day of May,
           1999 by and between Lakes Jamul, Inc. and Kean Argovitz
           Resorts -- Jamul, LLC. (Incorporated herein by reference to
           Exhibit 10.69 to Lakes' Report on Form 10-K for the fiscal
           year ended December 31, 2000.)
 10.21     Promissory Note dated as of the 15th day of February, 2000
           by and among the Jamul Indian Village and Lakes
           KAR -- California, LLC, a Delaware limited liability
           company. (Incorporated herein by reference to Exhibit 10.70
           to Lakes' Report on Form 10-K for the fiscal year ended
           December 31, 2000.)


                                        48




EXHIBITS                           DESCRIPTION
- --------                           -----------
        
 10.22     Security Agreement dated as of the 25th day of May, 1999 by
           and between Lakes Jamul, Inc., a Minnesota corporation and
           Lakes Kean Argovitz Resorts -- California, LLC, a Delaware
           limited liability company. (Incorporated herein by reference
           to Exhibit 10.71 to Lakes' Report on Form 10-K for the
           fiscal year ended December 31, 2000.)
 10.23     Management Agreement between the Shingle Springs Band of
           Miwok Indians and Kean Argovitz Resorts -- Shingle Springs,
           LLC, dated as of the 11th day of June, 1999. (Incorporated
           herein by reference to Exhibit 10.72 to Lakes' Report on
           Form 10-K for the fiscal year ended December 31, 2000.)
 10.24     Development Agreement between the Shingle Springs Band of
           Miwok Indians and Kean Argovitz Resorts -- Shingle Springs,
           LLC, dated as of the 11th day of June, 1999. (Incorporated
           herein by reference to Exhibit 10.73 to Lakes' Report on
           Form 10-K for the fiscal year ended December 31, 2000.)
 10.25     Management Agreement dated as of the 29th day of July, 1999
           by and among Lakes Shingle Springs, Inc., a Minnesota
           corporation and Lakes KAR -- Shingle Springs, LLC, a
           Delaware limited liability company. (Incorporated herein by
           reference to Exhibit 10.74 to Lakes' Report on Form 10-K for
           the fiscal year ended December 31, 2000.)
 10.26     Operating Agreement of Lakes KAR -- Shingle Springs, LLC
           dated as of the 29th day of July, 1999 by Lakes Shingle
           Springs, Inc. and Kean Argovitz Resorts -- Shingle Springs,
           LLC. (Incorporated herein by reference to Exhibit 10.75 to
           Lakes' Report on Form 10-K for the fiscal year ended
           December 31, 2000.)
 10.27     Assignment and Assumption Agreement between Kean Argovitz
           Resorts -- Shingle Springs, LLC, a Nevada limited liability
           company, and Lakes KAR -- Shingle Springs, LLC, a Delaware
           limited liability company, dated as of the 11th day of June,
           1999. (Incorporated herein by reference to Exhibit 10.76 to
           Lakes' Report on Form 10-K for the fiscal year ended
           December 31, 2000.)
 10.28     Assignment and Assumption Agreement and Consent to
           Assignment and Assumption, by and between Lakes Gaming,
           Inc., a Minnesota corporation, and Kean Argovitz
           Resorts -- Shingle Springs, LLC, a Nevada limited liability
           company, dated as of the 11th day of June, 1999.
           (Incorporated herein by reference to Exhibit 10.77 to Lakes'
           Report on Form 10-K for the fiscal year ended December 31,
           2000.)
 10.29     Security Agreement dated as of the 29th day of July, 1999,
           by and between Lakes Shingle Springs, Inc., a Minnesota
           corporation, and Lakes KAR -- Shingle Springs, LLC, a
           Delaware limited liability company. (Incorporated herein by
           reference to Exhibit 10.78 to Lakes' Report on Form 10-K for
           the fiscal year ended December 31, 2000.)
 10.30     Promissory Note dated as of the 29th day of July, 1999, by
           and among Kean Argovitz Resorts -- Shingle Springs, LLC, a
           Nevada limited liability company, and Lakes Shingle Springs,
           Inc., a Minnesota corporation. (Incorporated herein by
           reference to Exhibit 10.79 to Lakes' Report on Form 10-K for
           the fiscal year ended December 31, 2000.)
 10.31     Pledge Agreement dated as of the 29th day of July, 1999, by
           and between Kean Argovitz Resorts -- Shingle Springs, LLC, a
           Nevada limited liability company and Lakes Shingle Springs,
           Inc., a Minnesota corporation. (Incorporated herein by
           reference to Exhibit 10.80 to Lakes' Report on Form 10-K for
           the fiscal year ended December 31, 2000.)
 10.32     Joint Contribution Agreement by and between Grand Casinos
           Nevada I, Inc., Metroplex, LLC, Lakes Gaming, Inc., and
           Metroplex-Lakes, LLC dated as of April 25, 2000.
           (Incorporated herein by reference to Exhibit 10.1 to Lakes'
           Report on Form 10-Q for the quarter ended July 2, 2000.)
 10.33     Member Control Agreement of Metroplex-Lakes, LLC, by and
           between Grand Casinos Nevada I, Inc., Metroplex, LLC, and
           Metroplex-Lakes, LLC dated as of April 25, 2000.
           (Incorporated herein by reference to Exhibit 10.2 to Lakes'
           Report on Form 10-Q for the quarter ended July 2, 2000.)
 10.34     Real Estate Option Agreement by and between Grand Casinos
           Nevada I, Inc., Metroplex-Lakes, LLC, and Metroplex, LLC
           dated as of April 25, 2000. (Incorporated herein by
           reference to Exhibit 10.3 to Lakes' Report on Form 10-Q for
           the quarter ended July 2, 2000.)


                                        49




EXHIBITS                           DESCRIPTION
- --------                           -----------
        
 10.35     Amended and Restated Option Agreement by and between Martin
           J. Cable and Olga B. Cable, as Trustees of the Cable Family
           Trust and Grand Casinos Nevada I, Inc. dated as of June 1,
           2000. (Incorporated herein by reference to Exhibit 10.4 to
           Lakes' Report on Form 10-Q for the quarter ended July 2,
           2000.)
 10.36     Acquisition and Participation Agreement, dated as of August
           7, 2000, by and between MRD Gaming, LLC, a Nevada limited
           liability company, and Lakes Gaming and Resorts, LLC, a
           Minnesota limited liability company. (Incorporated herein by
           reference to Exhibit 10.1 to Lakes' Report on Form 10-Q for
           the quarter ended October 1, 2000.)
 10.37     First Amendment to Acquisition and Participation Agreement,
           dated as of October 12, 2000, by and between MRD Gaming,
           LLC, a Nevada limited liability company, and Lakes Gaming
           and Resorts, LLC, a Minnesota limited liability company.
           (Incorporated herein by reference to Exhibit 10.2 to Lakes'
           Report on Form 10-Q for the quarter ended October 1, 2000.)
 10.38     Member Control Agreement of Pacific Coast Gaming -- Corning,
           LLC. (Incorporated herein by reference to Exhibit 10.3 to
           Lakes' Report on Form 10-Q for the quarter ended October 1,
           2000.)
 10.39     Member Control Agreement of Pacific Coast Gaming -- Santa
           Rosa, LLC. (Incorporated herein by reference to Exhibit 10.4
           to Lakes' Report on Form 10-Q for the quarter ended October
           1, 2000.)
 10.40     Promissory Note, dated as of October 12, 2000, by and
           between Pacific Coast Gaming -- Corning, LLC, a Minnesota
           limited liability company, and Lakes Corning, LLC, a
           Minnesota limited liability company. (Incorporated herein by
           reference to Exhibit 10.5 to Lakes' Report on Form 10-Q for
           the quarter ended October 1, 2000.)
 10.41     Promissory Note, dated as of October 12, 2000, by and
           between Pacific Coast Gaming -- Santa Rosa, LLC, a Minnesota
           limited liability company, and Lakes Cloverdale, LLC, a
           Minnesota limited liability company. (Incorporated herein by
           reference to Exhibit 10.6 to Lakes' Report on Form 10-Q for
           the quarter ended October 1, 2000.)
 10.42     Assignment and Assumption Agreement, dated as of October 16,
           2000, by and among Great Lakes of Michigan, LLC, a Minnesota
           limited liability company, Lakes Gaming, Inc., a Minnesota
           corporation, and Pokagon Band of Potawatomi Indians.
           (Incorporated herein by reference to Exhibit 10.7 to Lakes'
           Report on Form 10-Q for the quarter ended October 1, 2000.)
 10.43     First Amended and Restated Development Agreement, dated as
           of October 16, 2000, by and between the Pokagon Band of
           Potawatomi Indians and Great Lakes Gaming of Michigan, LLC,
           a Minnesota limited liability company (f/k/a Great Lakes of
           Michigan, LLC). (Incorporated herein by reference to Exhibit
           10.8 to Lakes' Report on Form 10-Q for the quarter ended
           October 1, 2000.)
 10.44     First Amended and Restated Management Agreement, dated as of
           October 16, 2000, by and between the Pokagon Band of
           Potawatomi Indians and Great Lakes Gaming of Michigan, LLC,
           a Minnesota limited liability company (f/k/a Great Lakes of
           Michigan, LLC). (Incorporated herein by reference to Exhibit
           10.9 to Lakes' Report on Form 10-Q for the quarter ended
           October 1, 2000.)
 10.45     First Amended and Restated Lakes Note, dated as of October
           16, 2000, by and between the Pokagon Band of Potawatomi
           Indians and Great Lakes of Michigan, LLC, a Minnesota
           limited liability company. (Incorporated herein by reference
           to Exhibit 10.10 to Lakes' Report on Form 10-Q for the
           quarter ended October 1, 2000.)
 10.46     First Amended and Restated Non-Gaming Land Acquisition Line
           of Credit, dated as of October 16, 2000, by and between the
           Pokagon Band of Potawatomi Indians and Great Lakes of
           Michigan, LLC, a Minnesota limited liability company.
           (Incorporated herein by reference to Exhibit 10.11 to Lakes'
           Report on Form 10-Q for the quarter ended October 1, 2000.)
 10.47     Amended and Restated Transition Loan Note, dated as of
           October 16, 2000, by and between the Pokagon Band of
           Potawatomi Indians and Great Lakes of Michigan, LLC, a
           Minnesota limited liability company. (Incorporated herein by
           reference to Exhibit 10.12 to Lakes' Report on Form 10-Q for
           the quarter ended October 1, 2000.)


                                        50




EXHIBITS                           DESCRIPTION
- --------                           -----------
        
 10.48     Amendment to Account Control Agreement, dated as of October
           16, 2000, by and among Great Lakes of Michigan, LLC, a
           Minnesota limited liability company, Lakes Gaming, Inc., a
           Minnesota corporation, the Pokagon Band of Potawatomi
           Indians, and Firstar Bank, N.A. f/k/a Firstar Bank of
           Minnesota, N.A. (Incorporated herein by reference to Exhibit
           10.13 to Lakes' Report on Form 10-Q for the quarter ended
           October 1, 2000.)
 10.49     Unlimited Guaranty, dated as of October 16, 2000, from Lakes
           Gaming, Inc., a Minnesota corporation, and Great Lakes of
           Michigan, LLC, a Minnesota limited liability company, to the
           Pokagon Band of Potawatomi Indians. (Incorporated herein by
           reference to Exhibit 10.14 to Lakes' Report on Form 10-Q for
           the quarter ended October 1, 2000.)
 10.50     Amendment to Pledge and Security Agreement, dated as of
           October 16, 2000, by and among the Great Lakes of Michigan,
           LLC, a Minnesota limited liability company, Lakes Gaming,
           Inc., a Minnesota corporation, and the Pokagon Band of
           Potawatomi Indians. (Incorporated herein by reference to
           Exhibit 10.15 to Lakes' Report on Form 10-Q for the quarter
           ended October 1, 2000.)
 10.51     Gaming Development Agreement for Class III Gaming Facility
           by and between The Nipmuc Nation and Lakes Nipmuc, LLC,
           dated as of July 5, 2001. (Incorporated herein by reference
           to Exhibit 10.1 to Lakes' Report on Form 10-Q for the
           quarter ended July 1, 2001.)
 10.52     Management Agreement for Class III Gaming Enterprise by and
           between The Nipmuc Nation and Lakes Nipmuc, LLC, dated as of
           July 5, 2001. (Incorporated herein by reference to Exhibit
           10.2 to lakes' Report on Form 10-Q for the quarter ended
           July 1, 2001.)
 10.53     Interim Promissory Note, dated as of July 5, 2001, by and
           between The Nipmuc Nation and Lakes Nipmuc, LLC.
           (Incorporated herein by reference to Exhibit 10.3 to Lakes'
           Report on Form 10-Q for the quarter ended July 1, 2001.)
 10.54     Security Agreement by and between The Nipmuc Nation and
           Lakes Nipmuc, LLC, dated July 5, 2001. (Incorporated herein
           by reference to Exhibit 10.4 to Lakes' Report on Form 10-Q
           for the quarter ended July 1, 2001.)
 10.55     Guaranty Agreement by Lakes Gaming, Inc. and agreed to by
           The Nipmuc Nation, dated as of July 5, 2001. (Incorporated
           herein by reference to Exhibit 10.5 to Lakes' Report on Form
           10-Q for the quarter ended July 1, 2001.)
 10.56     Purchase Agreement, dated as of December 28, 2001, by and
           among Grand Casinos Nevada I, Inc., a Minnesota corporation,
           and Metroflag Polo, LLC, a Nevada limited liability company.
           (Incorporated herein by reference to Exhibit 10.56 to Lakes'
           Report on Form 10-K for the fiscal year ended December 30,
           2001.)
 10.57     Promissory Note dated as of the 28th day of December 2001,
           by and among Metroflag Polo, LLC, a Nevada limited liability
           company, and Grand Casinos Nevada I, Inc., a Minnesota
           corporation. (Incorporated herein by reference to Exhibit
           10.57 to Lakes' Report on Form 10-K for the fiscal year
           ended December 30, 2001.)
 10.58     Deed of Trust, Assignment of Leases and Rents and Security
           Agreement, dated December 28, 2001, by and among Metroflag
           Polo, LLC, Lawyers Title of Nevada, Inc. as trusted, and
           Grand Casinos Nevada I, Inc. as beneficiary. (Incorporated
           herein by reference to Exhibit 10.58 to Lakes' Report on
           Form 10-K for the fiscal year ended December 30, 2001.)
 10.59     Purchase Agreement, dated as of December 28, 2001, by and
           among Grand Casinos Nevada I, Inc., a Minnesota corporation,
           and Metroflag BP, LLC, a Nevada limited liability company.
           (Incorporated herein by reference to Exhibit 10.59 to Lakes'
           Report on Form 10-K for the fiscal year ended December 30,
           2001.)
 10.60     Promissory Note dated as of the 28th day of December 2001,
           by and among Metroflag BP, LLC, a Nevada limited liability
           company and Grand Casinos Nevada I, Inc., a Minnesota
           corporation. (Incorporated herein by reference to Exhibit
           10.60 to Lakes' Report on Form 10-K for the fiscal year
           ended December 30, 2001.)
 10.61     Promissory Note dated as of the 28th day of December 2001,
           by and among Metroflag BP, LLC, a Nevada limited liability
           company, and Grand Casinos Nevada I, Inc., a Minnesota
           corporation. (Incorporated herein by reference to Exhibit
           10.61 to Lakes' Report on Form 10-K for the fiscal year
           ended December 30, 2001.)


                                        51




EXHIBITS                           DESCRIPTION
- --------                           -----------
        
 10.62     Leasehold Deed of Trust, Assignment of Leases and Rents and
           Security Agreement, dated December 28, 2001, by and among
           Metroflag BP, LLC, Lawyers Title of Nevada, Inc. as trustee,
           and Grand Casinos Nevada I, Inc. and Grand Casinos, Inc. as
           beneficiaries. (Incorporated herein by reference to Exhibit
           10.62 to Lakes' Report on Form 10-K for the fiscal year
           ended December 30, 2001.)
 10.63     Leasehold Deed of Trust, Assignment of Leases and Rents and
           Security Agreement, dated December 28, 2001 by and among
           Metroflag BP, LLC, Lawyers Title of Nevada, Inc. as trustee,
           and Grand Casinos Nevada I, Inc. as beneficiary.
           (Incorporated herein by reference to Exhibit 10.63 to Lakes'
           Report on Form 10-K for the fiscal year ended December 30,
           2001.)
 10.64     Buyout and Release Agreement (Shingle Springs Project) dated
           as of January 30, 2003, by and among Kean Argovitz
           Resorts -- Shingle Springs, L.L.C., Lakes KAR -- Shingle
           Springs, L.L.C., Lakes Entertainment, Inc., a Minnesota
           corporation, and Lakes Shingle Springs, Inc. (Incorporated
           herein by reference to Exhibit 10.64 to Lakes' Report on
           Form 10-K for the fiscal year ended December 29, 2002.)
 10.65     Consent and Agreement to Buyout and Release
           (Argovitz -- Shingle Springs Project) dated as of January
           30, 2003, by and among Jerry A. Argovitz, Lakes
           KAR -- Shingle Springs, L.L.C., Lakes Entertainment, Inc.
           and Lakes Shingle Springs, Inc. (Incorporated herein by
           reference to Exhibit 10.65 to Lakes' Report on Form 10-K for
           the fiscal year ended December 29, 2002.)
 10.66     Consent and Agreement to Buyout and Release (Kean -- Shingle
           Springs Project) dated as of January 30, 2003, by and among
           Kevin M. Kean, Lakes KAR -- Shingle Springs, L.L.C., Lakes
           Entertainment, Inc. and Lakes Shingle Springs, Inc.
           (Incorporated herein by reference to Exhibit 10.66 to Lakes'
           Report on Form 10-K for the fiscal year ended December 29,
           2002.)
 10.67     Shingle Springs Consulting Agreement dated as of January 30,
           2003, by and between Kevin M. Kean and Lakes KAR -- Shingle
           Springs, L.L.C. (Incorporated herein by reference to Exhibit
           10.67 to Lakes' Report on Form 10-K for the fiscal year
           ended December 29, 2002.)
 10.68     Buyout and Release Agreement (Jamul Project) dated as of
           January 30, 2003, by and among Kean Argovitz
           Resorts -- Jamul, L.L.C., Lakes Kean Argovitz
           Resorts -- California, L.L.C., Lakes Entertainment, Inc., a
           Minnesota corporation, and Lakes Jamul, Inc. (Incorporated
           herein by reference to Exhibit 10.68 to Lakes' Report on
           Form 10-K for the fiscal year ended December 29, 2002.)
 10.69     Consent and Agreement to Buyout and Release
           (Argovitz -- Jamul Project) dated as of January 30, 2003, by
           and among Jerry A. Argovitz, Lakes Kean Argovitz
           Resorts -- California, L.L.C., Lakes Entertainment, Inc., a
           Minnesota corporation, and Lakes Jamul, Inc. (Incorporated
           herein by reference to Exhibit 10.69 to Lakes' Report on
           Form 10-K for the fiscal year ended December 29, 2002.)
 10.70     Consent and Agreement to Buyout and Release (Kean -- Jamul
           Project) dated as of January 30, 2003, by and among Kevin M.
           Kean, Lakes Kean Argovitz Resorts -- California, L.L.C.,
           Lakes Entertainment, Inc., a Minnesota corporation, and
           Lakes Jamul, Inc. (Incorporated herein by reference to
           Exhibit 10.70 to Lakes' Report on Form 10-K for the fiscal
           year ended December 29, 2002.)
 10.71     Jamul Consulting Agreement dated as of January 30, 2003, by
           and between Kevin M. Kean and Lakes Kean Argovitz
           Resorts -- California, L.L.C. (Incorporated herein by
           reference to Exhibit 10.71 to Lakes' Report on Form 10-K for
           the fiscal year ended December 29, 2002.)
 10.72     Loan and Security Agreement dated as of January 30, 2003, by
           and among Lakes California Land Development, Inc., Lakes
           Entertainment, Inc., Lakes Shingle Springs, Inc., Lakes
           Jamul, Inc., Lakes KAR Shingle Springs, L.L.C., Lakes Kean
           Argovitz Resorts -- California, L.L.C. and Kevin M. Kean.
           (Incorporated herein by reference to Exhibit 10.72 to Lakes'
           Report on Form 10-K for the fiscal year ended December 29,
           2002.)
 10.73     Acquisition Master Agreement dated January 22, 2003, by and
           between The Travel Channel, L.L.C. and World Poker Tour,
           L.L.C. (portions of this exhibit have been omitted pursuant
           to a request for confidential treatment and have been filed
           separately with the Commission pursuant to Rule 24b-2 of the
           Securities Exchange Act of 1934) (Incorporated herein by
           reference to Exhibit 10.63 to Lakes' report on Form 10-Q for
           the fiscal quarter ended March 30, 2003.)


                                        52




EXHIBITS                           DESCRIPTION
- --------                           -----------
        
 10.74     Amendment to Member Control Agreement of Pacific Coast
           Gaming -- Santa Rosa, LLC (Incorporated herein by reference
           to Exhibit 10.63 to Lakes' Report on Form 10-Q for the
           fiscal quarter ended March 30, 2003).
 10.75     Third Amendment to Acquisition and Participation Agreement
           dated as of February 28, 2003, by and among MRD Gaming, LLC,
           Lakes Cloverdale, LLC and Lakes Corning, LLC (Incorporated
           herein by reference to Exhibit 10.63 to Lakes' Report on
           Form 10-Q for the fiscal quarter ended March 30, 2003).
 10.76     Assignment dated as of February 28, 2003 by and between
           Lakes Corning, LLC and Lakes Cloverdale, LLC (Incorporated
           herein by reference to Exhibit 10.63 to Lakes' Report on
           Form 10-Q for the fiscal quarter ended March 30, 2003.
 10.77     Assignment dated as of February 28, 2003 by and among
           Pacific Coast Gaming -- Corning, LLC, MRD Gaming, LLC and
           Lakes Corning, LLC (Incorporated herein by reference to
           Exhibit 10.63 to Lakes' Report on Form 10-Q for the fiscal
           quarter ended March 30, 2003).
 10.78     Purchase Agreement dated as of June 26, 2003 by and between
           Grand Casinos Nevada I, Inc. and Diamond Resorts, LLC
           (Incorporated herein by reference to Exhibit 10.63 to Lakes'
           Report on Form 10-Q for the fiscal quarter ended June 29,
           2003.
 10.79     Amendment dated July 25, 2003 to Acquisition Master
           Agreement dated January 22, 2003 by and between The Travel
           Channel, LLC and World Poker Tour, LLC (portions of this
           exhibit have been omitted pursuant to a request for
           confidential treatment and have been filed separately with
           the Commission pursuant to Rule 24b-2 of the Securities
           Exchange Act of 1934) (Incorporated herein by reference to
           Exhibit 10.63 to Lakes' Report on Form 10-Q for the fiscal
           quarter ended September 28, 2003).
 21        Subsidiaries of the Company.
 23        Consent of Independent Public Accountants Dated March 26,
           2004.
 31.1      Certification of Chief Executive Officer under Section 302
           of the Sarbanes-Oxley Act
 31.2      Certification of Chief Financial Officer under Section 302
           of the Sarbanes-Oxley Act
 32.1      Certification of Chief Executive Officer and Chief Financial
           Officer under Section 906 of the Sarbanes-Oxley Act


- ---------------

* Management Compensatory Plan or Arrangement

     (b) Reports on Form 8-K.

          (i) A Form 8-K, Item 7, Financial Statements, Pro Forma Financial
     Information and Exhibits, and Item 9. Regulation FD Disclosure was filed on
     October 8, 2003.

          (ii) A Form 8-K, Item 7, Financial Statements, Pro Forma Financial
     Information and Exhibits, Item 9. Regulation FD Disclosure and Item 12.
     Results of Operations and Financial Condition was filed on October 24,
     2003.

          (iii) A Form 8-K, Item 7, Financial Statements, Pro Forma Financial
     Information and Exhibits, and Item 9. Regulation FD Disclosure was filed on
     November 20, 2003.

          (iv) A Form 8-K, Item 7, Financial Statements, Pro Forma Financial
     Information and Exhibits, and Item 9. Regulation FD Disclosure was filed on
     December 10, 2003.

          (v) A Form 8-K, Item 7, Financial Statements, Pro Forma Financial
     Information and Exhibits, and Item 9. Regulation FD Disclosure was filed on
     December 18, 2003.

          (vi) A Form 8-K, Item 7. Financial Statements, Pro Forma Financial
     Information and Exhibits and Item 9. Regulation FD Disclosure was filed on
     December 22, 2003.

                                        53


                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                          LAKES ENTERTAINMENT, INC.
                                          Registrant

                                          By:        /s/ LYLE BERMAN
                                            ------------------------------------
                                          Name: Lyle Berman
                                          Title:  Chairman of the Board and
                                              Chief Executive Officer
                                          Dated as of March 29, 2004

     Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities indicated as of March 29, 2003.



                 NAME                                          TITLE
                 ----                                          -----
                                   

           /s/ LYLE BERMAN               Chairman of the Board and Chief Executive Officer
- --------------------------------------             (Principal Executive Officer)
             Lyle Berman

         /s/ TIMOTHY J. COPE                    Chief Financial Officer and Director
- --------------------------------------      (Principal Financial and Accounting Officer)
           Timothy J. Cope

         /s/ MORRIS GOLDFARB                                  Director
- --------------------------------------
           Morris Goldfarb

          /s/ RONALD KRAMER                                   Director
- --------------------------------------
            Ronald Kramer

            /s/ RAY MOBERG                                    Director
- --------------------------------------
              Ray Moberg

           /s/ NEIL I. SELL                                   Director
- --------------------------------------
             Neil I. Sell


                                        54

EX-21

                                                                      EXHIBIT 21


                            LAKES ENTERTAINMENT, INC.
                              LIST OF SUBSIDIARIES




          1.      Grand Casinos Nevada I, Inc.
          2.      Mille Lacs Gaming, LLC
          3.      Grand Casinos of Louisiana, LLC -- Tunica-Biloxi
          4.      Grand Casinos of Louisiana, LLC -- Coushatta
          5.      Grand Casinos Pechanga, Inc.
          6.      Grand Casinos Washington, Inc.
          7.      Grand Media & Electronics Distributing, Inc.
          8.      Magnum Investments of Lake Charles, Inc.
          9.      Grand Casinos & Resorts of Canada, Inc.
         10.      Grand Casinos Ontario, Inc.
         11.      Great Lakes Gaming of Michigan, LLC
         12.      Mille Lacs Gaming, LLP
         13.      TRAK 21, LLC
         14.      Lakes Jamul, Inc.
         15.      Lakes Kean Argovitz Resorts -- California, LLC
         16.      Lakes Shingle Springs, Inc.
         17.      Lakes KAR -- Shingle Springs, LLC
         18.      Lakes Gaming & Resorts, LLC
         19.      RFC Acquisition Co.
         20.      Lakes Game Development, LLC
         21.      Lakes Nipmuc, LLC
         22.      Metroplex -- Lakes, LLC
         23.      Lakes California Land Development, Inc.
         24.      2022 Ranch, LLC
         25.      Lakes Cloverdale, LLC
         26.      Pacific Coast Gaming -- Santa Rosa, LLC
         27.      Borders Land Company, LLC
         28.      Lakes Poker Tour, LLC
         29.      World Poker Tour, LLC

EX-23

                                                                      EXHIBIT 23

INDEPENDENT AUDITORS' CONSENT


We consent to the incorporation by reference in Registration Statement File Nos.
333-77247, 333-77249, 333-77591 of Lakes Entertainment, Inc. on Form S-8 of our
report dated March 24, 2004, appearing in the Annual Report on Form 10-K of
Lakes Entertainment, Inc. for the year ended December 28, 2003.



Minneapolis, Minnesota
March 26, 2004

EX-31.1

                                                                    EXHIBIT 31.1

                                 CERTIFICATIONS

I, Lyle Berman, certify that:

1. I have reviewed this annual report on Form 10-K of Lakes Entertainment, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
   statement of a material fact or omit to state a material fact necessary to
   make the statement made, in light of the circumstances under which such
   statements were made, not misleading with respect to the period covered by
   this annual report;

3. Based on my knowledge, the financial statements, and other financial
   information included in this annual report, fairly present in all material
   respects the financial condition, results of operations and cash flows of the
   registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
   establishing and maintaining disclosure controls and procedures (as defined
   in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a) designed such disclosure controls and procedures or caused such
        disclosure controls and procedures to be designed under our supervision,
        to ensure that material information relating to the registrant,
        including its consolidated subsidiaries, is made known to us by others
        within those entities, particularly during the period in which this
        annual report is being prepared;

     b) evaluated the effectiveness of the registrant's disclosure controls and
        procedures and presented in this annual report our conclusions about the
        effectiveness of the disclosure controls and procedures as of the end of
        the period covered by this report based on such evaluation; and

     c) disclosed in this report any change in the registrant's internal control
        of financial reporting that occurred during the registrant's fourth
        quarter that has materially affected, or is reasonably likely to affect,
        the registrant's internal controls over financial reporting; and

5. The registrant's other certifying officers and I have disclosed, based on our
   most recent evaluation of internal controls over financial reporting, to the
   registrant's auditors and the audit committee of registrant's board of
   directors (or persons performing the equivalent functions):

     a) all significant deficiencies and material weaknesses in the design or
        operation of internal control over financial reporting which are
        reasonably likely to adversely affect the registrant's ability to
        record, process, summarize and report financial information; and

     b) any fraud, whether or not material, that involves management or other
        employees who have a significant role in the registrant's internal
        control over financial reporting.

                                                    /s/ LYLE BERMAN
                                          --------------------------------------
                                          Lyle Berman
                                          Chief Executive Officer

                                        55

EX-31.2

                                                                    EXHIBIT 31.2

                                 CERTIFICATIONS

I, Timothy J. Cope, certify that:

1. I have reviewed this annual report on Form 10-K of Lakes Entertainment, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
   statement of a material fact or omit to state a material fact necessary to
   make the statement made, in light of the circumstances under which such
   statements were made, not misleading with respect to the period covered by
   this annual report;

3. Based on my knowledge, the financial statements, and other financial
   information included in this annual report, fairly present in all material
   respects the financial condition, results of operations and cash flows of the
   registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
   establishing and maintaining disclosure controls and procedures (as defined
   in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a) designed such disclosure controls and procedures, or caused such
        disclosure controls and procedures to be designed under our supervision,
        to ensure that material information relating to the registrant,
        including its consolidated subsidiaries, is made known to us by others
        within those entities, particularly during the period in which this
        annual report is being prepared;

     b) evaluated the effectiveness of the registrant's disclosure controls and
        procedures and presented in this annual report our conclusions about the
        effectiveness of the disclosure controls and procedures as of the end of
        the period covered by this report based on such evaluation; and

     c) disclosed in this report any change in the registrant's internal control
        of financial reporting that occurred during the registrant's fourth
        quarter that has materially affected, or is reasonably likely to affect,
        the registrant's internal controls over financial reporting, and

5. The registrant's other certifying officers and I have disclosed, based on our
   most recent evaluation of internal controls over financial reporting,. to the
   registrant's auditors and the audit committee of registrant's board of
   directors (or persons performing the equivalent functions):

     a) all significant deficiencies and material weaknesses in the design or
        operation of internal control over financial reporting which are
        reasonably likely to adversely affect the registrant's ability to
        record, process, summarize and report financial information; and

     b) any fraud, whether or not material, that involves management or other
        employees who have a significant role in the registrant's internal
        control over financial reporting.

                                                  /s/ TIMOTHY J. COPE
                                          --------------------------------------
                                          Timothy J. Cope
                                          Chief Financial Officer

                                        56

EX-32.1

                                                                    EXHIBIT 32.1

                           CERTIFICATION PURSUANT TO
                              18 U.S.C. SEC.1350,
                             AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of Lakes Entertainment, Inc. (the
"Company") on Form 10-K for the period ended December 28, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Lyle
Berman, Chief Executive Officer of the Company, and Timothy J. Cope, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. sec.1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

     1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

                                                    /s/ LYLE BERMAN
                                          --------------------------------------
                                          Lyle Berman
                                          Chief Executive Officer
                                          March 29, 2004

                                                  /s/ TIMOTHY J. COPE
                                          --------------------------------------
                                          Timothy J. Cope
                                          Chief Financial Officer
                                          March 29, 2004